Exam 2 Flashcards
Which of the following would an accountant report on both the statement of stockholders equity and the balance sheet
Accumulated other comprehensive income
With regard to comprehensive income how does net income differ in a one statement approach compared to a two statement approach?
Net income is reported as a subtotal in a one statement approach but as a total on a two statement approach
For the first quarter of 2018, Kabak industries paid a dividend of $500,000 to stockholders. The accountants at Kabak should record this distribution on the
Retained earnings statement
Items that would be presented in the income statement only in the account affected and not in a separate section include
Changes in estimates
Which of the following is a common line item on the income statement when reporting earnings per-share
Income from discontinued operations, net of tax
Discontinued operations are reported in the income statement because of a concept called the
Modified all-inclusive concept
Which item would likely be reported on the income statement as other expenses and losses?
Interest paid on bonds
The IS for Byrd Enterprises shows “income from operations” in the amt. of $472000. Dividend revenue is $282000 and interest expense on bonds and notes is $117000. Thus, the “income before income tax” is?
$637000
Which of the following is a benefit of a multi step income statement compared to the single step income statement
Multi step income statement shows gross margin and recognizes different types of costs and expenses
Which of the following transactions would be least likely to have an effect on the income for 2017?
Correction of an error in the financial statements of a prior period Discovered subsequent to their issuance
Which of the following is the primary reason the income statement is important to investors and creditors
Because of its ability to help predict the amount, timing, and uncertainty of Future cash flows
3 ways to display other comprehensive income
Combined statement of RE
One statement approach
Two statement approach
Gross profit
Sales - COGS
In the statement of comprehensive income, the components of other comprehensive income are added to or subtracted from…?
Net income (loss)
What are 3 things that creditors/investors use the IS for?
Evaluate the past performance of the company
provide a basis for predicting future performance
help assess the risk or uncertainty of achieving future cash flows
Name 3 limitations of the IS:
Companies omit items from the income statement that they cannot measure reliably
income numbers are affected by the accounting methods employed
Income measurement involves judgment
Elements of the income statement
Revenues
Expenses
Gains
Losses
Main categories for single step IS
Revenues
Expenses
Net income
Main categories for multi step IS
Sales COGS op. Exp. admin exp Income from op. Other revenues and gains Other exp. and losses Net income for the year
Advantages of multi-step
Disclosure of net sales because Cabrera reports regular revenues as a separate item
- reporting GP provides a useful # for evaluating performance and predicting future earnings
- disclosing income from op. Highlights the diff. Btwn regular and non-recurring or incidental activities
Income statement sections
Operating section Nonoperating section Income tax Discontinued operations Non-controlling interest EPS
Common unusual or infrequent gains and losses
Losses on write-down of receivables; inventories; property/plant/equip.; good will or other intangible assets
Restructuring charges
Gain-loss from sale or abandonment of prop/plant/equip
Effects of a strike, including those against competition and major suppliers
Gains/losses related to casualties(fire/flood)
Gains/losses on extinguishment of debt obligations
Gains/losses on sale of investment securities
A report of discontinued operations on income net of tax…is the tax added to it within the income statement of period
…is applied on income statement to discontinued operations and income from continued operation
Intraperiod tax allocation
Discontinue operations occur when what 2 things happen?
1) A company eliminates the results of operations of a component of the business
2) The illumination of a component that represents a strategic shift, having a major effect on the company’s operations and financial results
Formula for EPS
Net income - preferred dividends/
Weighted average common shares outstanding
The portion of equity (net assets) interest in a subsidiary not attributable to the parent company
Noncontrolling interest
Change in method of inventory pricing; FIFO to LIFO…
recorded as adjustment to beginning beginning retained earnings of earliest year presented
must make a retrospective adjustment(change all previous years)
Changes in accounting principle
(Useful lives, salvage value, uncollectibles)
In period of change if they Affect only that period Or in the period of change in future. If the change affects both
Change in estimates
Make proper entries in the account and report corrections in financial statements
Corrections of prior period errors
How does allowance for DA affect the IS?
Reported in IS in the operating section
Companies included items that bypass the income statement in a measure called…
Comprehensive income
How is other comprehensive income displayed?
1) A single continuous statement
2) two separate but consecutive statements of net income and other comprehensive income
Non-owner changes in equity that bypass the income statement
Other comprehensive income
Elements of comprehensive income
All revenues and gains, expenses and losses reported in net income, and all gains and losses that bypass net income but affect stockholders equity
Cash and other assets that the company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer
Current assets
Examples of short-term investments
Held-to-maturity
Trading
Available-for-sale
4 types of long-term investments
1) investments in securities such as bonds, common stock, or long-term notes
2) investments set aside in special funds, such as a sinking fund, pension fund, or plant expansion fund. This includes the cash surrender value of life insurance
3) investments in tangible fixed assets not currently used in operations, such as land held for speculation
4) investments in nonconsolidated subsidiaries or affiliated companies
Obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities
Current liabilities
Obligations that a company does not reasonably expect to liquidate within the normal operating cycle
Longterm liabilities
