Income Statement (aka statment of operations or earnings) AND Cash Flows

Question 1

Different types of income statements

Answer 1

Single-step and Multi-step

Question 2

Single-step income statement

Answer 2

1. Revenues and gains
   (sales, interests, dividents, gain on sale of investments)
2. Expenses and Losses:
   (Cost of goods sold, selling exp, general and admin exp, research development, interest exp, income tax)

Question 3

Multi-Step income

Answer 3

1. Sales Revenue - Cost of Goods = Gross Profit
2. Operating Expenses (selling general and admin, research and dev)
3. Operating income
   a. other income (interest and dividend revenue, Gain on sale of investments, interest expense)
4. Income before taxes
5. Tax expense

NET INCOME

Question 4

Comprehensive income

Answer 4

Sales Revenue
-operating expenses
=operating income

-Operating Loss
\+other income
=Income from continuting operations before tax
x Tax
=Income from continuing operations

Discontinued:
-Loss
+tax benefit on loss
=Loss on discontinued operations

==NET INCOME

Other comprehensive income:
+unrealized gains on investment securities, net of tax
…
=Comprehensive income

EPS:
Income from continuing operations
Discontin Operations

=NET INCOME

Question 5

Where does comprehensive income usually show up?

Examples.

Answer 5

Balance Sheet. Foreign currency transactions and pension liabilities.

Question 6

What is a major limitation of the income statement expenses?

Answer 6

Depends on the accounting method the company uses to report them

Question 7

Can some accounts be on the income statement and the balance sheet? What relation does the cash flow statement have to these accts?

Answer 7

No, they are separate. The cash flows is a relevant income statement and balance sheet accounts.

Question 8

Diff between rev, exp and then gains, Losses

Answer 8

Rev and exp are from from ordany selling.

Gains and Losses is non-business-related transactions, usually with sales

Question 9

Contra revenue accounts

Answer 9

Sales discounts- 2/10, net 30.

Sales Returns/Allowances– returning products

Question 10

Calc gross profit

Answer 10

Net Sales-COGS

Question 11

Do service companys have COGS?

Answer 11

nope

Question 12

Gross profit - Operating expenses

Answer 12

Income from operations

Question 13

What are continuing operations

Answer 13

Normal activities

Question 14

Requirements for extraordinary items… with example

Answer 14

infrequent and unusual. Ex: results from litigation

Question 15

Changes in Acct Principle requires what type of adjustment?

Answer 15

Retrospective

Question 16

What is earning power

Answer 16

Normal level of income the company earn in current year and expencts to earn in future. Investors look at this because it doesn’t look at discontinued operations and extraordinary items

Question 17

Diff betwween changes in acct principle and changes in acct estimates

Answer 17

with estimates, there are no retrospective adjustments to financial statements

Question 18

EPS formula

Answer 18

(Net income - preferred dividends)/ weighted avg of common stock outs [(beg outs shares + end outs shares)/2]

Question 19

What is retained earnings?

Answer 19

Total net earnings from day 1 of operations