5.4 Multi Step Statements of Income

Question 1

single step statement of income

Answer 1

one step: subtract ALL revenues- ALL expenses

**not includeing income tax expense

sales revenues
income
gains

-

operating expenses (freight out,interest exp, loss)
cogs

Question 2

multi step soi- four main steps

Answer 2

1) gross profit= saels -cogs
2) income from operations= gross profit- operating expenses
3) income befroe tax= income from operations + non operating revenues - non operating expenses
4) net income= income before income tax- income tax expense

Question 3

what is loss on disposal

Answer 3

operating expense

Question 4

what is freight out

Answer 4

operating expesnes

Question 5

classifying expenses by nature

Answer 5

expenses reported accodign to calss (salareis, advertiisng, depreciatieon etc)

Question 6

classifying expenses based on activity

Answer 6

business function ( cogs, admin expense, selling expenses)

Question 7

which way of classifyign expenses is better

Answer 7

whichver is most relevant

Question 8

why better to classify expenses by function?

Answer 8

better understand extendt of managements judgement

Question 9

why use single step soi

Answer 9

1) company does not realize income until rev>expenses so better to separate these two things

2) soi is easy to read

Question 10

what is gross profit

Answer 10

sales-cogs

this is the merchandising profit!!!!

Question 11

is gross profit a measure of overall profit of a company?

Answer 11

no! just a measure of merchandising profit!!! because operating expenses have not been deducted

Question 12

what is income from operations

Answer 12

inflow of cash that comes from the companys normal operating activities

Question 13

how to calculate income from operations

Answer 13

gross profit-operating expenses

Question 14

what is non operating activites

Answer 14

various forms of income, expenses, some gains and losses that are not relevant to the main operations of a companyw

Question 15

why do we separate income from operating actitiies and income from non-operating activtiites

Answer 15

from operations: is sustainable and reliable

non-operating activties: is not sustainable and non recurring

Question 16

when forecasting next years income, do analysts put more weight on income from operations or non operations

Answer 16

from operations!! ebcause higher predictive value

Question 17

examples of other income and gains (non operating revenues)

Answer 17

interest income (from notes receivebale and marketable securities)

investment income (investments in share cpital)

rent income (subleasing a portion of the store)

gain (foreign exchange)

gain (sale of investments)

Question 18

other expenses and losses

Answer 18

interest expesne (notes and loans payable)

loss (foregin exchange)

loss (sale of investments)

Question 19

what is statemetn of comprehensive income

Answer 19

In Chapter 2 , the concept of fair value was introduced. Recall that accounting standards require companies to carry certain types of assets and liabilities at their fair value at the end of each reporting period. Revaluing these items to fair value at year end results in unrealized gains and losses. They are unrealized because they result from the revaluation and not from sale transactions with third parties. Gains and losses arising from the sale of non-inventory items are “realized.”The presentation of unrealized gains and losses can be confusing at times because some unrealized gains and losses are included in net income while others are not.Examples of items that are not included in net income are certain gains and losses on foreign currency translation and unrealized gains and losses on certain types of investments.The unrealized gains and losses that are not included in net income are reported as other comprehensive income.Net income plus other comprehensive income are subsequently combined as a more inclusive earnings measure called comprehensive income.Items that are excluded from net income but included in comprehensive income are either reported in a combined statement of net income and comprehensive income, or in a separate comprehensive statement of income. The statement of comprehensive income presents items that are not included in the determination of net income, referred to as other comprehensive income. You will learn more about how to prepare a statement of comprehensive income in Chapter 11.Illustration 5.17 shows how comprehensive income would be presented in a separate statement of comprehensive income if PW Technologies had an unrealized gain on trading investmentsof $2,700 with $400 of related tax expenses.

Question 20

Combines statement of net income and comprehensive income

Answer 20

net income
other comprehensive income

        unrealized gain on tradinginvestme

comprehensive incoem (Sum it all)