Chapter 4 331

Chapter 4 331 - Lecture Notes for Chapter 4 (ACCT 331)...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Lecture Notes for Chapter 4 (ACCT 331) Income Statement and Cash Flows The Income Statement υ Used to summarize the profit-generating activities that occurred during a particular period. υ (Income and earnings mean the same thing in accounting). υ Many perceive this to be the most useful in predicting future profitability. υ Earnings announcements are often followed by large stock price changes. υ Income statement should provide information useful for assessing: – the effectiveness of management’s stewardship activities. – previous predictions of income and its components. – the return on investment – the cost of maintaining its operating capability. Net Income Versus Comprehensive Income υ Comprehensive Income = Net Income + Other Comprehensive Income υ Other comprehensive income includes certain gains and losses that the FASB feels should not be flowing through the income statement. Why? υ Items falling under “other comprehensive income” include: υ Unrealized holding gains and losses on certain investments. υ Gains and losses from foreign currency translations. υ Net unrecognized losses on pensions. Reconciling Comprehensive Income with Net Income ($ in millions) Net income $135 Other comprehensive income: Net unrealized holding gains (losses) on investments (net of tax) $22 Net unrecognized losses on pensions (net of tax) (3) Deferred gains (losses) from derivatives (net of tax) 5 Gains (losses) from foreign currency translation (net of tax) 16 40 Comprehensive income $175 Companies can report either: • A separate statement of comprehensive income, or • A combined income statement and comprehensive income statement, or 1 • Report comprehensive income as part of the statement of stockholders’ equity. Computation of Net Income: Net Income = Revenues – Expenses + Gains – Losses R/E End = R/E Beg + Net Income – Dividend Example 1: Company XYZ has the following data for year 2006: 1/1/2006 12/31/2006 Total assets $100,000 $108,000 2 V. Gill I nc. Combined St at ement of Compr ehensive I ncome For t he Year Ended December 31, 2007 Sales r evenue 800,000 $ Cost of goods sold 600,000 Gr oss pr of it 200,000 Oper at ing expenses 90,000 Net income 110,000 Unr ealized holding gain, net of t ax 30,000 Compr ehensive income 140,000 $ Total liabilities $36,000 $38,000 Owner withdrawals: $30,000; Owners contributions: $10,000; No dividend is distributed during the period. Compute the amount of net income (or loss) for year 2006. Format of Income Statement: 1) Single-step income statement: a single-step income statement format groups all revenues and gains together and all expenses and losses together. 2) A multiple-step income statement format includes a number of intermediate subtotals before arriving at income from continuing operations....
View Full Document

This note was uploaded on 04/12/2009 for the course ACCT 331 taught by Professor V during the Spring '09 term at George Mason.

Page1 / 16

Chapter 4 331 - Lecture Notes for Chapter 4 (ACCT 331)...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online