Chapter 4 - Income Statement & Related Info

Question 1

Discontinued Operation

Answer 1

Must report per share amounts either on the face of the I/S or in the notes to the financial statements

Question 2

Intraperiod Tax Allocation

Answer 2

companies report discontinued ops net of tax; intraperiod tax allocation helps financial statement users better understand impact of income taxes on various components of net income

Question 3

Modified All-Inclusive Concept (I/S - 4 Categories)

Answer 3

1) Unusual gains and losses; 2) Discontinued Operations; 3) Extraordinary Items; 4) Noncontrolling Interest

Question 4

Other Comprehensive Income

Answer 4

(OCI) Accumulated other comprehensive income (OCI) is a line item in the shareholders’ equity section of the balance sheet that includes income that is not reported in the income statement. Other comprehensive income includes unrealized gains and losses on certain types of investments, as well as gains or losses on pension funds and foreign currency transactions.

Question 5

Predictive Value of Income Statement

Answer 5

By separating results from continuing

operations from nonrecurring activities and events, investors gain deeper insight into firm performance

Question 6

Income Statement Limitations (3)

Answer 6

1) if it can’t be measures reliably it is omitted; 2) income numbers affected by accting method employed; 3) income meas involves judgement

Question 7

Earnings management

Answer 7

planned timing of revenues, gains, expenses, and losses to smooth out bumps in earnings

Question 8

Transaction Approach

Answer 8

Revenue, expense, gains, loss that have occured during a period

Question 9

Revenue and Gain Difference

Answer 9

Revenues recorded from core business activities, gains are from abnormal activities