Income Statement Flashcards
What is the income statement useful for?
Determining profitability, value for investment purposes, and credit worthiness
What is mneumonic for the presentation order of the major components of an income statement?
IDE
What is the presentation order of the major components of an income statement?
Income (or Loss) from Continuing Operations, Income (or Loss) from Discontinued Operations, and Extraordinary Items
How is income (or Loss) from Continuing Operations reported?
Gross of tax
How is income (or Loss) from Discontinued Operations reported?
Net of tax
How is Extraordinary Items reported?
Net of tax
What is reported on the Statement of Retained Earnings?
Cumulative Effect of Change in Accounting Principle
How is the Cumulative Effect of Change in Accounting Principle reported?
Net of tax
How is the single step income statement presented?
Total expenses are subtracted from total revenues
The (normallhy) loss from discontinued operations can consist of?
An impairment loss, a gain/loss from actual operations, and a gain/loss on disposal
Under IFRS, a component of an entity may be?
Major line of business or geographical area of operations, or a subsidiary acquired exclusively with a view to resale
Both of the following conditions must be met in order to report in discontinued operations the results of operations of a component that has been disposed of or is held for sale?
Eliminated from ongoing operations and no significant continuing involvement
What are the different types of items included in results of discontinued operations?
Results of operations of the component, gain or loss on disposal of the component, and impairment loss of the component
Are assets within a discontinued operation depreciated or amortized?
No
How to report a disposal to discontinued operations?
Calculate impairment loss(Fair value less cost - carrying value), Loss from operations(Loss amount x number of months), and total loss from discontinued operations(impairment loss + loss from operations x (1-tax rate))
How to report sale of disposal?
Loss from operations(Amount of loss x number of months), Loss on sale(sale amount - fair value minus costs), and total loss from discontinued operations(Loss from operations + loss on sale x (1-tax rate)
What does US GAAP require of liabilities dealing with exit or disposal activities?
Recognition of a liability for the costs associated with an exit or disposal activity
An entity’s commitment to an exit or disposal plan by itself enough to result in liability recognition?
No
How is liability measured in exit or disposal activities?
Fair value
What must be disclosed in the notes of the financial statements dealing with exit or disposal activities?
Description of the exit or disposal activity and each major cost
What are examples of non-extraordinary items?
Gain or loss from sale or abandonment of property, plant, or equipment used in the business, large write-downs or write-offs, gain or loss from foreign currency transactions or translation, losses from major strike by employees, and long-term debt extinguishments that are part of a common management strategy
Accounting changes are broadly classified as?
Estimate, principle, or entity
Are changes in accounting estimate prospective, retrospective, or restate?
Prospective
Are changes in accounting principle prospective, retrospective, or restate?
Retrospective
Are changes in accounting entity prospective, retrospective, or restate?
Restate
What are events resulting in estimate changes?
Changes in the lives of fixed assets, ajustments of year end accruals, write-downs of obsolete inventory, material nonrecurring IRS adjustments, settlement of litigation, and changes in accounting principle that are inseparable from a change in estimate
What are the direct effects of a change in accounting principle?
Adjustments that would be necessary to restate the financial statements of prior periods
How are changes in accounting principle recognized?
Adjusting beginning retained earnings in the earliest period
What are the 2 exceptions to the general rule for changes in accounting principles?
LIFO change and change in depreciation method
Does IFRS include the concept of a change in accounting entity?
No
What should be done for an error correction?
Restate
