Chapter 3 - Income Statement and Comprehensive Income Flashcards
how many years does the IS report?
3
Single-step often still presents
income before income taxes
Section 1 of MS IS
Operating
Section 2 of MS IS
Non-Operating
Section 3 of MS IS
Income Tax Provision
Section 4 of MS IS
Discontinued operations
Section 5 of MS IS
NI and EPS
Nature approach to classifying expenses
classifies by the source of the expense
Functional approach to classifying expenses
by the use of the expense
tools to “manage” earnings
income smoothing, classification shifting, “borrow” from tomorrow
restructuring costs are classified as…
operating expense
restructuring costs are recognized in the period of
exit or disposal
Buffalo Manufacturing Company is restructuring and closing the platinum mining
division. The mine will be closed and its assets sold off over the course of the
next three years. When should the costs related to the closing of the mine be
recognized?
in the year the costs are actually incurred
examples of unusual/infrequent items
casualty loss, impairment of assets, unusual sale
where to report unusual items
a separate item in an income from continuing operations
report discontinued operations when
- a COMPONENT of an entity has been sold, disposed, or held for sale
- disposal represents a strategic shift that will have a major effect on the company
when the discontinued component is sold before the end of the reporting period, the income effects will be
- income or loss from operations
- gain or loss on the disposal
when the discontinued component has not been sold before the end of the reporting period, the income effects will be
- income or loss from operations
- impairment loss
Basic EPS =
(Net income - preferred dividends)/ weighted average # of common shares
comprehensive income =
Net income + OCI
OCI flows to
accumulated OCI on balance sheet
NI flows to
RE on icon statement
OCI is a special type of…
gains and losses not included in the income statement
OCI valuation adjustment sources
pensions unrealized holding gains/losses on certain debt investments, unrelated holdings on certain derivatives, foreign currency derivatives
Common characteristics of OCI
low probability of cash realization in the short run, transitory with high volatility, not part of normal operations
record OCI on a ____ basis in the balance sheet and as ______
cumulative, additional component of SE
Statement of SE components
paid-in capital, RE, accumulated OCI
changes in estimates should be accounted for on a ____ basis
prospective (do not change prior results)
voluntary change in accounting principle should be accounted for in a ______ adjustment
retrospective (rewrite history)
record material error in…
the period the error is discovered
