chapter_04 - Chapter 4 Income Statement TO THE NET 1. a....

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Unformatted text preview: Chapter 4 Income Statement TO THE NET 1. a. $19,400,000 Equity earnings (losses) are the investors proportionate share of the investees earnings (losses). b. $20,100,000 If a firm consolidate subsidiaries not wholly owned, the total revenues and expenses of the subsidiaries are included with those of the parent. However, to determine the income that would accrue to the parent, it is necessary to deduct the portion of income that would belong to the minority shares. 2. a. Net Sales $3,122,433,000 (2001) $2,761,983,000 (2000) $1,639,839,000 (1999) b. Loss from Operations $412,257,000 (2001) $863,880,000 (2000) $605,755,000 (1999) c. Interest Expense $139,232,000 (2001) $130,921,000 (2000) $ 84,566,000 (1999) d. Material increase in sales, but this has not resulted in operating profits. In addition to the operating losses there has been material interest expense. 68 QUESTIONS 4- 1. Extraordinary items are events or transactions that are distinguished by their unusual nature and infrequency of occurrence. They might include casualty losses or losses from expropriation or prohibition. They must be shown separately, net of tax, in order that trend analysis can be made of income before extraordinary items. 4- 2. d, f 4- 3. Examples include sales of securities, write-down of inventories, disposal of a product line not qualifying as a segment, gain or loss from a lawsuit, etc. They are shown separately because of their materiality and the desire to achieve full disclosure. They are not given net-of-tax treatment because they are included in income before the income tax is deducted. Also, net-of-tax treatment would infer that these items are extraordinary. 4- 4. Under the equity method, equity in earnings of nonconsolidated subsidiaries is a problem in profitability analysis because the income recognized is not a cash inflow. The cash inflow is only the amount of the investor share of dividends declared and paid. Further, equity earnings do not come directly from the operations of the business in question, but rather from a subsidiary. 4- 5. It would appear that this is the disposal of a product line that is specifically separate from the dairy products line. The disposal of the vitamin line should be identified as discontinued operations and be presented after income from continuing operations on the income statement. 4- 6. Unusual or infrequent items relate to operations. Examples are write-downs of receivables and write-downs of inventory. 4- 7. In 2003, the cumulative effect of the new change would be presented on the income statement as a reduction, net of tax, after any extraordinary items and just before net income. 69 4- 8. The declaration of a cash dividend reduces retained earnings and increases current liabilities. The payment of a cash dividend reduces current liabilities and cash....
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This note was uploaded on 07/12/2011 for the course FINANCE 7015 taught by Professor Elmo during the Spring '11 term at North Central Technical College.

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chapter_04 - Chapter 4 Income Statement TO THE NET 1. a....

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