F1 - M2 - Income Statement and Balance Sheet

Question 1

Income Statement

Answer 1

REGL, “Profitability” for investment purposes, creditworthiness, predicting information about future cash flows

Question 2

Costs and Unexpired Costs

Answer 2

• Cost – “Amount” – Expense immediately “period” or capitalize “asset”, How much we paid for something
• Unexpired costs – asset, expire / benefit in future periods, charged / matched against revenues

Question 3

Gross Concept

Answer 3

Revenues and Expenses are normal / operating, separate line items

Question 4

Net Concept

Answer 4

not normal operating, reported “NET”, gains and loses, NRV

Question 5

“Extraordinary” items

Answer 5

FASB eliminated “extraordinary” items – Unusual or infrequent, NONOPERATING ITEM, reported separately part of income from continuing operations.

Question 6

Income from Continuing Operations

Answer 6

Sum of Operating RE and Nonoperating GL

Question 7

Multiple-Step Income Statement

Answer 7

Operating RE “SEPARATE” from nonoperating RE and other GL

Question 8

Single Step Income Statement

Answer 8

Total Expenses minus Total Revenues, lumped together, not like separate, could be misleading (GL are lumped together so you take see the “Operating” net), not classified

Question 9

Balance Sheet

Answer 9

Financial Risk / Capital structure, how do you get the assets?

• “classified” balance sheet, current vs non-current (greater than one year)
• CA – CL = Working Capital (“risk”), the higher the ratio, lower “short” term risk