Reading #25: Income Statement

Question 1

income statement equation

Answer 1

NI = rev - expense

Question 2

define operating profit

Answer 2

aka op income. gross profit - exepenses

Question 3

how is operating profit classified for nonfinancial firms?

Answer 3

profit before financing costs, income taxes and non op items

Question 4

when is rev and expenses recognized in accrual accounting?

Answer 4

when earned and expenses when incurred

Question 5

% of completion method - IFRS, GAAP or both?

Answer 5

both

Question 6

completed contract method - IFRS, GAAP or both?

Answer 6

GAAP

Question 7

change in account principal v estimate; which requires retrospective application?

Answer 7

change in accting principal

Question 8

define stock dividend

Answer 8

distributino of add’l shares to each shareholder

Question 9

common size income statement measures as percentage of what?

Answer 9

revenue

Question 10

define effective tax rate

Answer 10

income tax expense is precentage of pretax income versus a % of revenue

Question 11

ratio for pretax margin

Answer 11

pretax accting profit/revenue

Question 12

define retained earnings

Answer 12

NI added to SE through an account

Question 13

define available-for-sale securities

Answer 13

investment securities not expected to be held to maturity or sold in near term

Question 14

where are available for sale securities listed (income, balance, cash)

Answer 14

balance sheet at fairvalue

Question 15

where are unrealized gain loss for available for sale securities

Answer 15

reported in SE as component of other comprehensive income

Question 16

where is unusual or infrequent items on income statement

Answer 16

before tax and above income from continuing operations

Question 17

where are extraordinary items

Answer 17

they must be unusual AND infrequent below continuing opps net of tax under GAAP (not allowed in IFRS)

Question 18

account estimate or account standard causes retrospective restatements?

Answer 18

change in accounting standard

Question 19

how do you treat a permanently impaired asset

Answer 19

diff btwn carrying value and PV of expected cash flows shld be written down immediately and reported as OP LOSS

Question 20

define expenses grouping by nature vs. function

Answer 20

nature=group by type (i.e. depreciation from manufact) function=combining all costs, i.e. alll COGS, grouping by same function from diff areas.

Question 21

what are nonoperating expenses for a nonfinancial firm

Answer 21

investment income and financing expenses. i.e. dividends and interest rec’d

Question 22

what are types of discontinued ops?

Answer 22

physically and operationally distinct division that is currently for sale

Question 23

where is income reported for discontinued ops?

Answer 23

reported net of tax below income from continuing ops