Balance Sheet, Income Statement, and Comprehensive Income Flashcards
T/F: items of income/loss that are unusual or infrequent (or both) should be reported separately as art of income from continuing operations
True; the nature of the item and the financial statement effects should be disclosed on the face of the income statement or in the footnotes
What is the multiple-step income statement?
it reports operating revenues and expenses separately from nonoperating revenues and expenses and other gains/losses
the benefit of this is enhanced user information because the line items presented often provide the user with readily available data with which to calculate various analytical ratios
What is the single-step income statement?
it shows total expenses (including income tax expense) are subtracted from total revenues; thus, the income statement has a single step
the benefit of this is its simple design and the fact that the presentation of types of revenues/expenses do not appear to the user to be classified as more important than others
T/F: discontinued operations are reported separately from continuing operations in the income statement, net of tax
True; a discontinued operation may include a component of an entity, a group of components of an entity, or a business or nonprofit activity. Items reported within discontinued operations can consist of an impairment loss, a gain/loss from actual operations, and a gain/loss on disposal. All of these amounts are included in discontinued operations in the period in which they occur
the results of operations of a component will be reported in discontinued operations if it has been disposed of or is classified as held for sale
Fact on depreciation and amortization
once mgmt decides to dispose of the component, assets within the component are no longer depreciated or amortized
Fact on measurement and valuation
a component classified as held for sale is measured at the lower of its carrying amount or fair value less costs to sell; costs to sell are the incremental direct costs to transact the sale
T/F: foreign currency transaction gains/losses occur when a company buys from or sells to a foreign company with whom it has no ownership interest and agrees to pay or accept payment in a foreign currency
True; however, transactions between subsidiary and parent of a permanent financing nature are not considered foreign currency transactions
The exchange rate may be expressed as:
direct method - the domestic price of one unit of another currency (ex. one euro costs $1.47)
indirect method - the foreign price of one unit of the domestic currency (ex. 0.68 euro costs $1.00)
Fact on changes in exchange rate
a foreign exchange transaction gain/loss will result if the exchange rate changes between the time a purchase or sale in foreign currency is contracted for and the time actual payment is made
a foreign exchange transaction gain/loss that is recognized in current net income must be computed at each balance sheet date on all recorded transactions denominated in foreign currencies that have not been settled. The difference between the exchange rate used in recording the transaction in dollars and the exchange rate at the balance sheet date (current exchange rate) is an unrealized gain/loss on the foreign currency transaction
What is comprehensive income?
it is the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources
it includes all changes in equity during a period except those resulting from investments by owners and distributions to owners
Fact on net income and other comprehensive income
net income includes income from continuing operations and discontinued operations
other comprehensive income items are revenues, expenses, gains, and losses that are included in comprehensive income but excluded from net income under GAAP. An entity must classify the specific items by their nature such as: pension adjustments, unrealized gains/losses (available-for-sale debt securities and hedges), foreign currency items, instrument-specific credit risk
Fact on comprehensive income
at the end of each accounting period, all components of comprehensive income are closed to the balance sheet. Net income is closed to retained earnings and other comprehensive income is closed to accumulated other comprehensive income
How may comprehensive income be presented under GAAP?
a single statement of comprehensive income (single-statement approach) or an income statement followed by a separate statement of comprehensive income that begins with net income (two-statement approach)
How may components of other comprehensive income be reported?
either net of tax or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items
the amount of income tax expense or benefit allocated to each component of other comprehensive income is disclosed either on the face of the statement in which those components are displayed or in the notes to the financial statements
