Income Statement Flashcards
How are income statement components reported in relation to tax?
Income - gross
Discontinued operations - net
Extraordinary - net
Accounting principle change - net
Major components of income and retained earnings statement
IDEA Income from continuing operations Discontinued operations Extraordinary items Accounting principle change
When are gains or losses on discontinued operations recognized?
In the period that they occur.
Component entity US GAAP
Operating segment, reportable segment, reporting unit, subsidiary, asset group.
A component is Held for Sale when all of the following criteria are met…
1) plan to sell 2) available for immediate sale 3) actively looking for a buyer 4) sale is probable within one year 5) sale is actively marketed 6) unlikely the plan to sell will change
Gross Concept
Revenues and Expenses are reported in their gross amounts
Net Concept
Gains and Losses are reported in their net amounts (meaning less net book value)
Multiple Step Income Statement
- Net Sales 2. Cost of Sales 3. Gross Margin 4. Selling Expenses 5. General & Admin 6. Depreciation 7. Income from Operations 8. Other Revenues & Gains 9. Other Expenses & Losses 10. Income Before Unusual Items & tax 11. Unusual Items 12. Income Before Income Tax 13. Income Taxes 14. Net Income
Losses from Discontinued Operations Include:
- Impairment Loss
- Gain/Loss from Operations
- Gain/Loss on Disposal.
Losses from Discontinued Operations are recognized when?
In the period in which they occurred. (Impairments Losses)
Assets within a business component that is held for sale are no longer…
Amortized or depreciated.
Exit and Disposal costs include:
- Involuntary Employee termination benefits
- Costs to terminate a contract (not a cap lease!)
- Other Costs (consolidation & relocation of employees)
Criteria for Liability Recognition for exit & disposal costs
- Obligating Event 2. Present Obligation to make payment/transfer assets 3. Little/No discretion to avoid payment/transfer
Extraordinary items must be:
- Material
- Unusual
- Infrequent
- Not normally considered in evaluating operations
The following are not Extraordinary Items:
- Gain/Loss from sale of property 2. Large write downs of receivables, inventories, intangibles, LT securities. 3. Gain/Loss from currency translation 4. Losses from major strike. 5. LTD extinguishments
