Income Statements Flashcards
Revenues
Amts reported from sale of goods and services in normal course of business
Net income
Revenues - expenses
Expenses
Amts incurred to generate revenue: COGS, operating expenses, interest, taxes
Percentage of completion revenue recognition
LT projects under contract with reliable estimates of variables
= sales price • (total cost to date)/(total cost)
Completed contract revenue recognition
LT contracts with no contract or unreliable estimates
Revenue and expenses are not recognized until project is complete
Installment sales revenue recognition
Cannot estimate likelihood of collection
Cost is known
Revenue and profit are based on percentage of cash collected
= cost • sales for period/total sales
Cost recovery method of revenue recognition
Cost is unknown and firm cannot estimate the likelihood of collection
Recognize profit after all costs are recovered
Percentage of completion v. Completed contract method
Cash flows: same Net income: POC > CC Income volatility: CC > POC Total assets: POC > CC Equity: POC > CC
Matching principle
Match costs against associated revenues
Recognize in same period
Ex: inventory, depreciation/amortization, warranty expense, doubtful debt expense
Period costs
Expensed in period incurred
Not directly tied to revenue generation (ie admin costs)
Unusual or infrequent items
Reported pretax before net income from continuing operations
- disposal of business segment or assets
- sale of investment in subsidiary
- environmental remediation
- impairments, write offs, restructuring
Discontinued operations
Reported net of taxes from continuing operations
Assets, operations, and financing activities must be operationally distinct from firm
Extraordinary items
Items both unusual and infrequent
Reported net of taxes after net income from continuing operations
Prohibited under IFRS
Change in accting principle
IFRS & GAAP: prior years’ data shown in financial statements must be adjusted
Change in accounting estimate
Does not require restatement of prior period earnings
Disclose in footnotes
Changes do not affect CFs
Non-operating items for non-financial service companies
Interest
Dividends
Gains/losses on disposal
Basic EPS
= (net income - pref div) / wtd ave shares of common stock
Stock dividend
Increase in shares outstanding by X%
Apply retroactively to beginning of year
Stock split
Increases shares outstanding by split
Split is applied retroactively to beginning of the year
Weighted average # shares outstanding
Multiply each share issuance by number of months, sum together, divide by 12
Dilutive convertible preferred stock
Div/new shares < basic EPS
Dilutive convertible debt
Interest(1-t)/new shares < basic EPS
Dilutive warrants/options
Avg price > exercise price
Diluted EPS
= adjusted income available for common shares / WTD ave common and potential common shares outstanding
Adjusted income for common shares diluted
= net income
- preferred dividends
+ convertible preferred dividends
+ conv debt interest•(1-t)
Diluted EPS denominator (adj # shares)
= WTD ave # common shares
+ shares from conv pref stock
+ shares from conv debt
+ shares issuable from stock options
Stock option: treasury stock method
- Calculate cash raised on exercise
- Repurchase shares at average price
- New shares = exercised - repurchased
Comprehensive income
= net income + other comprehensive income
Other comprehensive income
- foreign currency translation
- minimum pension liability
- unrealized gains/losses on derivatives contracts used for hedges
- unrealized gains/losses on avail for sale securities
- change in equity from transactions from non-ownership sources
