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CHAPTER 13 THE COMPLETE INCOME STATEMENT BRIEF EXERCISES BE13–1 To accurately compare a company’s performance from one year to the next, non-recurring items such as restructuring charges and gains on sale of assets should be excluded from results. An analyst reviewing a company’s performance would want to see those items that should occur in every year of a company’s operations, not the one-time, special expenses and gains. In Imation’s case, an analyst would compare 2001 and 2002, focusing on recurring revenues and expenses only; those items in the two years that could not be expected to happen in future years would be excluded from the analysis. A comparison, then, of Imation’s operating results would then give the anlayst an idea toward the company’s future results. BE13–2 ASSETS = LIABILITIES + OWNERS’ EQUITY Closure of Tampa Breweries : Write down of plant assets–113.7 = –113.7 Employee severence costs –19.4 = –19.4 Disposal costs = +26.9 –26.9 Sale of St. Louis Cardinals : Sale of team (+cash, – assets) +95.3, –95.3 Gain on sale of team +54.7 = +54.7 BE13–3 a. $955 million was disclosed on the income statement. It would be disclosed on the income statement below the income from operations line. b. This event affected the basic accounting equation by reducing assets by $955 million (reducing the capitalized amount of the intangbile asset goodwill) while at the same time reducing liabilities (taxes payable) by $17 million and reducing owners’ equity by $938 million. c. An analyst would consider the impairment charge of $955 (net $938) million to be a nonrecurring item and would add it back to 2002 earnings for comparitive purposes. Adjusted 2002 earnings of $1.04 billion ($100 million + $938 million) could then be compared to 2001’s $1.09 billion and 2003’s $1.03 billion to determine the company’s earnings trend. 1
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EXERCISES E13–1 a. Statement b. Classification c. Explanation 1. IS Other This is an example of a bookkeeping entry without an underlying economic event. Some are voluntary, some are involuntary. 2. N N/A 3. N N/A 4. IS Usual and frequent Wages are normal, recurring part of operations. 5. IS Usual and frequent Bad debts are a normal, recurring part of operations. 6. IS Unusual or infrequent Sales of equipment are secondary to normal operations. 7. IS Unusual and infrequent Expropriation against a company occurs rarely in the U.S. 8. S E N/A 9. S E N/A 10. IS Unusual or infrequent Dividend Revenue is secondary to normal buying and selling activities of most businesses. 11. IS Usual and frequent Cost of goods sold is part of normal daily operations. 12. IS Usual and frequent Rent expense is part of normal operations. E13–2
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This note was uploaded on 03/25/2009 for the course FIN FIN504 taught by Professor Byungjinkwak during the Spring '09 term at Korea Advanced Institute of Science and Technology.

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