Chapter 4 The Income Statement and Statement of Cash Flows2

Chapter 4 The Income Statement and Statement of Cash Flows2

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Question 4-7 The process of intraperiod tax allocation matches tax expense or tax benefit with each major component of income, specifically continuing operations and any item reported below continuing operations. The process is necessary to achieve the desired result of separating the total income effects of continuing operations from the two separately reported items - discontinued operations and extraordinary items, and also to show the after-tax effect of each of those two components. Answers to Questions (continued) Question 4-8 The net-of-tax income effects of a discontinued operation must be disclosed separately in the income statement, below income from continuing operations. The income effects include income (loss) from operations and gain (loss) on disposal. The gain or loss on disposal must be disclosed either on the face of the statement or in a
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Unformatted text preview: disclosure note. If the component is held for sale but not sold by the end of the reporting period, the income effects will include income (loss) from operations and an impairment loss if the fair value less costs to sell is less than the book value of the components assets. The income (loss) from operations of the component is reported separately in discontinued operations on prior income statements presented for comparative purposes. Question 4-9 Extraordinary items are material gains and losses that are both unusual in nature and infrequent in occurrence, taking into account the environment in which the entity operates. Question 4-10 Extraordinary gains and losses are presented, net of tax, in the income statement below discontinued operations, if any....
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