Chapter 15 - Chapter 15 Corporate Income Statement and...

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Chapter 15 “Corporate Income Statement and Statement of Stockholders’ Equity”
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LO 1 – Corporate Income Statement and Quality of Earnings Comprehensive income: is the change in a company’s equity from sources other than owners during a period
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LO 1 It includes: Net income Changes in unrealized gains and losses (ex. Unrealized gains/losses on available-for-sale securities) Other items affecting equity FASB has taken the position that income for a period should be all-inclusive , comprehensive income.
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LO 1 The Corporate Income Statement: shows how a company’s net income is derived Includes all: Revenues Expenses Gains and losses (except from prior period adjustments, PPA)
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Sections of the Corporate Income Statement - p. 631 Income from continuing operations A company may have both continuing and discontinued operations Affected by choices of accounting methods and estimates Income tax expense Discontinued operations Extraordinary gains and losses Effects of accounting changes Earnings per share
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Corporate Income Statement
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LO 1 Quality of Earnings refers to the substance of earnings and their sustainability into future accounting periods
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LO 1 Quality of Earnings Affected by Accounting methods and estimates Gains and losses Write-downs and restructurings Nature of non-operating items reported on the income statement
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Accounting Estimates Percentage of uncollectible accounts receivable Sales returns Useful life of an asset Residual or salvage value of an asset Total units of production Total recoverable units of natural resource Amortization period Expected warranty claims Expected environmental cleanup costs
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Generally Accepted Accounting Methods Uncollectible receivable methods Percentage of net sales or aging to estimate uncollectible accounts receivable Inventory methods LIFO, FIFO, or average cost to value inventory Depreciation methods Accelerated, production, or straight-line depreciation Revenue recognition methods Generally accepted accounting methods are designed to match revenues and expenses
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LO 1 The choice of accounting methods and estimates: affects a firm’s operating income (both current and future operating income).
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LO 1 Management and other financial statement users must be aware of the impact of accounting estimates on reported operating income Due to the considerable latitude in the choice of estimates The relative importance of each estimate depends on the industry in which the firm operates
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LO 1 Conventions that help overcome these problems: Full disclosure Requires that management explain the significant accounting policies used in preparing the financial statements in a note to the financial statements Consistency Requires that the same accounting procedures be followed from year to year
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LO 1 Gains and Losses result from the sale or disposal of operating
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This note was uploaded on 02/07/2011 for the course BUS 209 taught by Professor Z.gougoumanova during the Spring '11 term at American University in Bulgaria.

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Chapter 15 - Chapter 15 Corporate Income Statement and...

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