F1 M2 Income Statement and Balance Sheet Flashcards
Under US GAAP, a material transaction that is “infrequent in occurrence” and/or “unusual in nature” should be presented separately as a component of “income from continuing operations” when the transaction results in a ____.
Gain or loss
Under US GAAP, a gain that is both unusual and infrequent should be reported as ____.
Income from continuing operations
Where do “purchase discounts” go on the income statement?
They are a reduction in cost of goods sold (COGS)
A company’s activities for Y2 included the following:
Gross sales $3,600,000
COGS $1,200,000
Selling and Admin Exps $500,000
Adjustment of prior-year understatement of amortization exp $59,000
Sales returns $34,000
Gain on sale of available-for-sale securities $8,000
Gain on disposal of a discontinued business segment $4,000
Unrealized gain on available-for-sale debt securities $2,000
The company has a 30% effective income tax rate. What is the company’s net income for Y2?
Gross sales
Less sales returns
Less COGS
Less selling and Admin exps
Plus gain on sale
Equals income from continuing operations $1,874,000
Less Income tax expense ($562,200)
Income before discontinued operations $1,311,800
Less gain on discontinued segment (after tax) $2,800
Equals Net Income of $1,314,600
The income statement is useful for 3 things:
Determining profitability, value for investment purposes, and creditworthiness
On the income statement, gains and losses are reported at their ____ value. This value is calculated by taking ______ less _____.
Net value
Process (selling price) less net book value
The selling price and net book value would appear where on the income statement?
In the notes only
Gains and losses are considered:
Operating or nonoperating
Nonoperating
What are examples of gains and losses?
They are the sale of non-inventory items (not part of your core business), write-downs and write-offs, abandonment
Income from continue operations is calculated by taking the sum of _____ and _____.
Sum of operating revenues and expenses and nonoperating gains and losses
A multiple step income statement segregates _____ from _____.
Operating revenues and expenses from nonoperating revenues and expenses and other gains and losses.
What is the first line on the multiple-step income statement?
Net sales
What are the subtotals in the multiple-step income statement?
First, Gross Margin
Second, Income (loss) from operations - Normal operating
Third, Income before unusual items and income tax
Fourth, income before income tax
Lastly, Net income (or “income from continuing operations”)
Where does interest expense go on the income statement?
Other expenses below operating income
In a single-step income statement what do you do with your revenues? What do you do with your expenses and losses?
Total them
Total expenses including income tax expense are subtracted from total revenues
What is the company's gross profit? Net sales $500,000 Common stock $100,000 Insurance expense $75,000 Wages $50,000 Cost of goods sold $100,000 Cash $40,000 Accounts Payable $25,000 Interest Payable $20,000
Net sales - cost of goods sold = gross profit
$400,000
What is the formula for calculating gross profit?
Net sales less cost of goods sold
A classified balance sheet distinguishes _____.
Current and non-current assets and liabilities
Current assets less current liabilities equals ____.
Working capital, helps to determine risk.
The minimum operating cycle for purposes of reporting a “prepaid” current asset is _____.
One year
The premium on a three-year insurance policy expiring on Dec 31, Year 3 was paid in total on Jan 2, Year 1. If the company has a six-month operating cycle, then on Dec 31, Year 1, the prepaid insurance reported as a current asset would be for: A. 18 months B. 12 months C. 6 months D. 24 months
B. 12 months
The key here is “current asset”
A current liability is due ____.
In one year
Discount on bonds payable is a _____ meaning that it lowers the liability.
Contra-liability
At Oct 31, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely for a Nov 15 payment into a bond sinking fund. A second account, used for branch operations is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in Dingo’s Oct 31 classified balance sheet?
#1 is a noncurrent asset because it is used to pay a long-term sinking fund debt #2 is a current liability #3 is a current asset
Accounts receivable is current or non-current?
Current
Which of the following should be included in general and administrative expenses? Interest Advertising Both Neither
Neither
Interest is it’s own item and advertising is a selling expenses
A separate disclosure is only necessary when the event is _____.
Uncommon
“Freight in” is a part of _____. and “Freight out” is a part of _____.
Freight in is a part of COGS
Freight out is a part of selling expense
