SB-BMGT310-sess05_ch_4_all

SB-BMGT310-sess05_ch_4_all - Income Statement and Related...

Info iconThis preview shows page 1. Sign up to view the full content.

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

Unformatted text preview: Income Statement and Related Income Statement and Related Information Information Chapters 2 and 4 Chapter 4-1 Prepared by Coby Harmon, University of California, Santa Barbara, modified by Stephen Brown Learning Objectives Learning Objectives 1. 2. 3. 4. 5. 6. Understand the uses and limitations of an income statement. Prepare a single andf multiple step income statement. Explain how to report irregular items. Explain and present changes in accounting principles. Explain and present changes in estimates. Explain and present corrections of errors. Chapter 4-2 Learning Objectives Learning Objectives 7. 8. 9. 10. Exp la in intra p e rio d ta x a llo c a tio n . Id e ntify wh e re to re p o rt e a rn in g s p e r s h a re in fo rm a tio n. P re p a re a re ta in e d e a rn in g s s ta te m e n t. Exp la in h o w to re p o rt o th e r c o m p re h e n s ive inc o m e . Chapter 4-3 First Level: Basic Objectives First Level: Basic Objectives Finaanc ia l re ppoortin gg s hhoould p ro vid ee in fo rm aatio n th aat: Fin nc ia l re rtin s uld p ro vid in fo rm tio n th t: (a) is useful to present and potential investors and creditors and other users in (a) is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. making rational investment, credit, and similar decisions. (b) helps present and potential investors and creditors and other users in assessing (b) helps present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts. the amounts, timing, and uncertainty of prospective cash receipts. (c) portrays the economic resources of an enterprise, the claims to those resources, (c) portrays the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events, and circumstances that change its and the effects of transactions, events, and circumstances that change its resources and claims to those resources. resources and claims to those resources. Chapter 4-4 LO 3 Understand the objectives of financial reporting. First Level: Basic Objectives First Level: Basic Objectives Concept statement 1 Chapter 4-5 LO 3 Understand the objectives of financial reporting. ASSUMPTIONS 1. Economic entity 2. Going concern 3. Monetary unit 4. Periodicity PRINCIPLES 1. Historical cost 2. Revenue recognition 3. Matching 4. Full disclosure CONSTRAINTS 1. Cost-benefit 2. Materiality 3. Industry practice 4. Conservatism ELEMENTS Third level QUALITATIVE CHARACTERISTICS Relevance Reliability Comparability Consistency Assets, Liabilities, and Equity Investments by owners Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses Second level Illustration 2-7 2-7 C o nc e p tua l Fra m e wo rk fo r Fina nc ia l R e p o rting OBJECTIVES 1. Useful in investment and credit decisions 2. Useful in assessing future cash flows 3. About enterprise resources, claims to resources, and changes in them First level LO 2 Describe the FASB's efforts to construct a conceptual framework. Chapter 4-6 Income Statement and Related Information Income Statement and Related Information Income Statement Usefulness Limitations Quality of Earnings Format of the Income Statement Elements Single-step Multiple-step Condensed income statements Reporting Irregular Items Discontinued operations Extraordinary items Unusual gains and losses Changes in accounting principles Changes in estimates Corrections of errors Special Reporting Issues Intraperiod tax allocation Earnings per share Retained earnings statement Comprehensive income Chapter 4-7 Income Statement Income Statement Usefulness of the Income Statement Eva lua te p a s t p e rfo rm a nc e . P re d ic ting future p e rfo rm a nc e . He lp a s s e s s th e ris k o r unc e rta inty o f a c h ie ving future c a s h flo ws . Limitations of the Income Statement C o m p a nie s o m it ite m s th a t c a nno t b e m e a s ure d re lia b ly . Inc o m e is a ffe c te d b y th e a c c o unting m e th o d s e m p lo y e d . Inc o m e m e a s ure m e nt invo lve s jud g m e nt. Chapter 4-8 LO 1 Understand the uses and limitations of an income statement. Income Statement Income Statement Quality of Earnings C o m p a n ie s h a ve inc e n tive s to manage income to m e e t o r b e a t Wa ll S tre e t e xp e c ta tio n s , s o th a t the market price of stock increases and the value of stock options increase. Quality of earnings is re d uc e d if e a rnin g s m a na g e m e nt re s ults in info rm a tio n th a t is le s s us e ful fo r p re d ic tin g future e a rn ing s a nd c a s h flo ws . Chapter 4-9 LO 1 Understand the uses and limitations of an income statement. Elements of the Income Statement Elements of the Income Statement Revenues In flo ws o r o th e r e n h a nc e m e nts o f a s s e ts o r s e ttle m e nts o f its lia b ilitie s th a t c o n s titute th e e ntity 's o n g o ing m a jo r o r c e ntra l o p e ra tio n s . Examples inc u rre n c e s o f lia b ilitie s th a t c o n s titute th e e ntity 's o ng o ing m a jo r o r c e ntra l o p e ra tio ns . Examples Expenses O u tflo ws o r o th e r us in g up o f a s s e ts o r Chapter 4-10 LO 1 Understand the uses and limitations of an income statement. Elements of the Income Statement Elements of the Income Statement Gains In c re a s e s in e q uity (ne t a s s e ts ) fro m p e rip h e ra l o r in c id e nta l tra n s a c tio ns . p e rip h e ra l o r in c id e nta l tra n s a c tio ns . Losses De c re a s e s in e q uity (n e t a s s e ts ) fro m G a ins a nd lo s s e s c a n re s u lt fro m s a le o f inve s tm e nts o r p la nt a s s e ts , s e ttle m e nt o f lia b ilitie s , write o ffs o f a s s e ts . Chapter 4-11 LO 1 Understand the uses and limitations of an income statement. Single-Step Income Statement Single-Step Income Statement T h e s ing le s te p s ta te m e nt c o n s is ts o f ju s t two g ro up in g s : R e ve n ue s Exp e ns e s Ne t Inc o m e No distinction between Operating and Nonoperating categories. Chapter 4-12 I ncome St at ement (in t h o us and s ) Revenues: S ale s I nt e r e s t r e ve nue T o t al r e ve nue Expenses: Co s t o f g o o d s s o ld A d ve r t is ing e x pe ns e De pr e c ia t io n e x pe ns e I nt e r e s t e x pe ns e I nc o m e t a x e x pe ns e T o t al e x pe ns e s Net income Earnings per share $ 8 5 ,0 0 0 2 ,0 0 0 17 3 0 2 ,0 0 0 9 ,0 0 0 14 ,0 0 0 10 4 3 ,0 0 0 1,0 0 0 2 2 4 ,0 0 0 2 4 7 ,0 0 0 $ 5 ,0 0 0 5 $ 0 .7 5 Single Single Step Step LO 2 Prepare a single-step income statement. Single-Step Income Statement Single-Step Income Statement Exxon 10Q for Q3 2011 Chapter 4-13 LO 2 Prepare a single-step income statement. Multiple-Step Income Statement Multiple-Step Income Statement Background S e p a ra te s o p e ra tin g tra ns a c tio n s fro m no no p e ra tin g tra ns a c tio n s . Ma tc h e s c o s ts a nd e xp e n s e s with re la te d re ve nu e s . Hig h lig h ts c e rta in inte rm e d ia te c o m p o ne n ts o f inc o m e th a t a na lys ts us e . Chapter 4-14 LO 3 Prepare a multiple-step income statement. Multiple-Step Income Statement Multiple-Step Income Statement T h e p re ss e nta tio n T h e p re e n ta tio n d ivid e ss info rm a tio n d ivid e in fo rm a tio n into m a jo r s e c tio n ss . into m a jo r s e c tio n . 1. Operating Section 1. Operating Section 2. Nonoperating Section 2. Nonoperating Section I ncome St at ement (in t h o us and s ) Sales $ 8 5 ,0 0 0 2 Co s t o f g o o d s s o ld Gr o s s pr o f it Operat ing expenses: 9 ,0 0 0 14 6 ,0 0 0 13 ,0 0 0 10 4 3 ,0 0 0 5 3 ,0 0 0 8 3 ,0 0 0 ,0 0 0 17 (2 1,0 0 0 ) (4 ,0 0 0 ) 7 9 ,0 0 0 2 4 ,0 0 0 $ 5 ,0 0 0 5 $ 0 .7 5 A d ve r t is ing e x pe ns e De pr e c iat io n e x pe ns e T o t a l o pe r at ing e x pe ns e I ncome f rom operat ions Ot her revenue (expense): I nt e r e s t r e ve nue I nt e r e s t e x pe ns e T o t a l o t h e r I nc o m e b e f o r e t a x e s I nc o m e t ax e x pe ns e N et income Ear nings per shar e 3. Income tax 3. Income tax Chapter 4-15 LO 3 Prepare a multiple-step income statement. Multi-Step Income Statement Multi-Step Income Statement Apple 10Q Chapter 4-16 LO 2 Prepare a single-step income statement. Why Highlight Irregular Items Why Highlight Irregular Items Y1 Operating Income Irregular Items Net Income 100 25 125 Y2 110 -18 92 Y3 120 -15 105 Y4 130 5 135 Y5 140 -15 125 What is the pattern of earnings? (What would you expect for Y6?) Shareholders do not like volatility Chapter 4-17 Reporting Irregular Items Reporting Irregular Items C o m p a n ie s a re re q uire d to re p o rt irre g ula r ite m s in th e fina n c ia l s ta te m e nts s o us e rs c a n d e teIllu s tra tio n 4 5 Nu m b e r rm ine th e o f Irre g la a ny. lo ng ru n e a rnin g p o we r o f th e c o mup r Ite m s R e p o rte d in a R e c e nt Y e a r b y 6 0 0 La rg e C o m p a nie s Chapter 4-18 LO 4 Explain how to report irregular items. Reporting Irregular Items Reporting Irregular Items Irregular items fall into six categories Dis c o n tinue d o p e ra tio n s . Extra o rd in a ry ite m s . Un us ua l g a ins a nd lo s s e s . C h a ng e s in a c c o un tin g p rinc ip le . C h a ng e s in e s tim a te s . C o rre c tio ns o f e rro rs . Chapter 4-19 LO 4 Explain how to report irregular items. Reporting Irregular Items Reporting Irregular Items Discontinued Operations o c c u rs wh e n , (a) company eliminates the results of operations and cash flows of a component of the enterprise. (b) there is no significant continuing involvement in that component. Amount reported "net of tax." Chapter 4-20 LO 4 Explain how to report irregular items. Reporting Discontinued Operations Reporting Discontinued Operations Exercise: McCarthy Corporation had after tax income from continuing operations of $55,000,000 in 2007. During 2007, it disposed of its restaurant division at a pretax loss of $270,000. Prior to disposal, the division operated at a pretax loss of $450,000 in 2007. Assume a tax rate of 30%. Prepare a partial income statement for McCarthy. Inc o m e fro m c o ntinuing o p e ra tio ns $ 5 5 ,0 0 0 ,0 0 0 Dis c o ntinue d o p e ra tio ns : Lo s s fro m o p e ra tio ns , ne t o f $ 1 3 5 ,0 0 0 ta x 3 1 5 ,0 0 0 Lo s s o n d is p o s a l, ne t o f $ 8 1 ,0 0 0 ta x 1 8 9 ,0 0 0 T o ta l lo s s o n d is c o ntinue d o p e ra tio ns 5 0 4 ,0 0 0 Ne t inc o m e $ 5 4 ,4 9 6 ,0 0 0 Chapter 4-21 LO 4 Explain how to report irregular items. Reporting Discontinued Operations Reporting Discontinued Operations Dis c o ntinue d O p e ra tio ns a re re p o rte d a fte r "Inc o m e fro m c o ntinuing o p e ra tio ns ." I ncome St at ement (in t h o us a nd s ) Sales Co s t o f g o o d s s o ld Ot her revenue (expense): I nt e r e s t r e ve nue I nt e r e s t e x pe ns e T o t a l o t h e r I nc o m e b e f o r e t ax e s I nc o m e t ax e x pe ns e I ncome f rom cont inuing operat ions Discont inued operat ions: Loss f rom operat ions, net of t ax Loss on disposal, net of t ax ,0 0 0 17 (2 1,0 0 0 ) (4 ,0 0 0 ) 7 9 ,0 0 0 2 4 ,0 0 0 5 5 ,0 0 0 315 189 504 $ 4 ,4 9 6 5 $ 8 5 ,0 0 0 2 9 ,0 0 0 14 P re vio us ly la b e le d a s "Ne t Inc o m e ". Mo ve d to Chapter 4-22 Tot al loss on discont inued operat ions N et income LO 4 Explain how to report irregular items. Reporting Discontinued Operations Reporting Discontinued Operations Proctor and Gamble - 2009 Proctor and Gamble 2009 10-K (Search on Discontinued) Chapter 4-23 LO 2 Prepare a single-step income statement. Reporting Irregular Items Reporting Irregular Items Extraordinary items a re n o nre c urring m a te ria l ite m s th a t d iffe r s ig n ific a ntly fro m a c o m p a ny 's typ ic a l b us ine s s a c tivitie s . Extra o rd in a ry Ite m m us t b e b o th o f a n Unusual Nature and Occur Infrequently Company must consider the environment in wh ic h it o p e ra te s . Am o un t re p o rte d "n e t o f ta x." Chapter 4-24 LO 4 Explain how to report irregular items. Reporting Extraordinary Items Reporting Extraordinary Items Are these items Extraordinary? (a) A large portion of a tobacco manufacturer's crops are destroyed by a hail storm. Severe damage from hail storms in the locality where the manufacturer grows tobacco is rare. (b) A citrus grower's Florida crop is damaged by frost. (c) A company sells a block of common stock of a publicly traded company. The block of shares, which represents less than 10% of the publiclyheld company, is the only security investment the company has ever owned. YES NO YES Chapter 4-25 LO 4 Explain how to report irregular items. Reporting Extraordinary Items Reporting Extraordinary Items Are these items Extraordinary? (d) A large diversified company sells a block of shares from its portfolio of securities which it has acquired for investment purposes. This is the first sale from its portfolio of securities. (e) An earthquake destroys one of the oil refineries owned by a large multinational oil company. Earthquakes are rare in this geographical location. (f) A company experiences a material loss in the repurchase of a large bond issue that has been outstanding for 3 years. The company regularly repurchases bonds of this nature. NO YES NO Chapter 4-26 LO 4 Explain how to report irregular items. Reporting Extraordinary Items Reporting Extraordinary Items Exercise: McCarthy Corporation had after tax income from continuing operations of $55,000,000 in 2007. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporation's tax rate is 30%. Prepare a partial income statement for McCarthy Corporation beginning with income from continuing operations. Income from continuing operations Extraordinary loss, net of $231,000 tax Net income ($ 7 7 0 ,0 0 0 x 3 0 % = $ 2 3 1 ,0 0 0 ta x) Chapter 4-27 $55,000,000 539,000 $54,461,000 LO 4 Explain how to report irregular items. Reporting Extraordinary Items Reporting Extraordinary Items Extra o rd ina ry Ite m s a re re p o rte d a fte r "Inc o m e fro m c o ntinuing o p e ra tio ns ." I ncome St at ement (in t h o us a nd s ) Sales Co s t o f g o o d s s o ld $ 8 5 ,0 0 0 2 9 ,0 0 0 14 Ot her revenue (expense): I nt e r e s t r e ve nue I nt e r e s t e x pe ns e T o t a l o t h e r I nc o m e b e f o r e t a x e s I nc o m e t ax e x pe ns e I ncome f rom cont inuing operat ions Ext raordinary loss, net of t ax N et income ,0 0 0 17 (2 1,0 0 0 ) (4 ,0 0 0 ) 7 9 ,0 0 0 2 4 ,0 0 0 5 5 ,0 0 0 539 $ 5 4 ,4 6 1 P re vio us ly la b e le d a s "Ne t Inc o m e ". Mo ve d to Chapter 4-28 LO 4 Explain how to report irregular items. Reporting Irregular Items Reporting Irregular Items R e p o rting wh e n b o th Dis c o ntinue d O p e ra tio ns a nd Extra o rd ina ry Ite m s a re p re s e nt. I ncome St at ement (in t h o us a nd s ) Sales Co s t o f g o o d s s o ld I nt e r e s t e x pe ns e T o t a l o t h e r I nc o m e b e f o r e t a x e s I nc o m e t a x e x pe ns e I ncome f rom cont inuing operat ions Discont inued operat ions: Loss f rom operat ions, net of t ax Loss on disposal, net of t ax Tot al loss on discont inued operat ions I ncome bef ore ext raordinary it em Ext raordinary loss, net of t ax N et income $ 8 5 ,0 0 0 2 9 ,0 0 0 14 (2 1,0 0 0 ) (4 ,0 0 0 ) 7 9 ,0 0 0 2 4 ,0 0 0 5 5 ,0 0 0 315 189 504 5 4 ,4 9 6 539 $ 3 ,9 5 7 5 Dis c o ntinue d O p e ra tio ns Extra o rd ina ry Ite m Chapter 4-29 LO 4 Explain how to report irregular items. Reporting Irregular Items Reporting Irregular Items Review Irre g ula r tra n s a c tio ns s uc h a s d is c o n tin ue d o p e ra tio ns a nd e xtra o rd ina ry ite m s s h o u ld b e re p o rte d s e p a ra te ly in a . b o th a s in g le s te p a n d m u ltip le s te p inc o m e s ta te m e nt. b . a s ing le s te p inc o m e s ta te m e n t o n ly . c . a m ultip le s te p in c o m e s ta te m e n t o n ly . d . n e ith e r a s in g le s te p no r a m ultip le s te p inc o m e s ta te m e n t. Chapter 4-30 LO 4 Explain how to report irregular items. Reporting Irregular Items Reporting Irregular Items Unusual Gains and Losses Ma te ria l ite m s th a t a re unusual o r infrequent, b ut n o t b o th , s h o u ld b e re p o rte d in a s e p a ra te s e c tio n jus t a b o ve "Inc o m e fro m c o n tin uing o p e ra tio ns b e fo re inc o m e ta xe s ." Exa m p le s c a n in c lu d e : Write d o wns o f inve nto rie s Fo re ig n e xc h a n g e tra ns a c tio n g a in s a n d lo s s e s T h e Bo a rd p ro h ib its ne to fta x tre a tm e nt fo r th e s e ite m s . Chapter 4-31 LO 4 Explain how to report irregular items. Reporting Irregular Items Reporting Irregular Items Pepsi 2007 restructuring Chapter 4-32 LO 2 Prepare a single-step income statement. Reporting Special Items Reporting Special Items Emphasis on non-GAAP numbers P re s s re le a s e o fte n h ig h lig h ts n o n G AAP nu m b e rs e .g . adobe 2008 Q4 results Chapter 4-33 LO 4 Explain how to report irregular items. Next Time (Class 6) Next Time (Class 6) 1. Fu rth e r irre g u la r ite m s : C h a ng e s in a c c o u nting p rinc ip le s C h a ng e s in e s tim a te s C o rre c tio n o f e rro rs Intra p e rio d ta x a llo c a tio n C o m p re h e ns ive Inc o m e Ea rn in g s p e r s h a re 2. 3. 4. R e a d a h e a d we 'll g o fa s t Chapter 4-34 Reporting Irregular Items Reporting Irregular Items Changes in Accounting Principles R e tro s p e c tive a d ju s tm e nt C u m u la tive e ffe c t a d ju s tm e n t to b e g innin g re ta ine d e a rn ing s Ap p ro a c h p re s e rve s c o m p a ra b ility Exa m p le s inc lu d e : change from FIFO to average cost change from the percentageofcompletion to the completed contract method Chapter 4-35 LO 4 Explain how to report irregular items. Reporting Irregular Items Reporting Irregular Items Changes in Estimate Ac c o u nte d fo r in th e p e rio d o f c h a n g e a nd future p e rio d s Not h a nd le d re tro s p e c tive ly No t c o ns id e re d e rro rs o r e xtra o rd ina ry ite m s Exa m p le s inc lu d e : Useful lives and salvage values of depreciable assets Allowance for uncollectible receivables Inventory obsolescence Chapter 4-36 LO 4 Explain how to report irregular items. Change in Estimate Example Change in Estimate Example Arc a d ia HS , p u rc h a s e d e q uip m e nt fo r $ 5 1 0 ,0 0 0 wh ic h wa s e s tim a te d to h a ve a us e fu l life o f 1 0 ye a rs with a s a lva g e va lue o f $ 1 0 ,0 0 0 a t th e e nd o f th a t tim e . De p re c ia tio n h a s b e e n re c o rd e d fo r 7 ye a rs o n a s tra ig h tline b a s is . In 2 0 1 0 (ye a r 8 ) , it is d e te rm in e d th a t th e to ta l e s tim a te d life s h o u ld b e 1 5 ye a rs with a s a lva g e va lu e o f $ 5 ,0 0 0 a t th e e nd o f th a t tim e . Questions: Wh a t is th e jo u rn a l e ntry to c o rre c t th e No Entry Required p rio r ye a rs ' d e p re c ia tio n? C a lc ula te th e d e p re c ia tio n e xp e ns e fo r 2010. Chapter 4-37 LO 4 Explain how to report irregular items. Change in Estimate Example Change in Estimate Example Afte r 7 ye a rs Equipment cost $510,000 First, establish NBV at First, establish NBV at Salvage value 10,000 date of change in estimate. date of change in estimate. Depreciable base 500,000 Useful life (original) 10 years Annual depreciation $ 50,000 x 7 years = $350,000 Balance Sheet (Dec. 31, 2009) $510,000 350,000 $160,000 LO 4 Explain how to report irregular items. Fixed Assets: Equipment Accumulated depreciation Net book value (NBV) Chapter 4-38 Change in Estimate Example Change in Estimate Example Ne t b o o k va lue $ 1 6 0 ,0 0 0 S a lva g e va lu e (ne w) 5 ,0 0 0 De p re c ia b le b a s e 1 5 5 ,0 0 0 Us e ful life re m a ining 8 ye a rs An nua l d e p re c ia tio n $ 1 9 ,3 7 5 Journal entry for 2010 Depreciation expense Accumulated depreciation Chapter 4-39 Afte r 7 ye a rs Depreciation Expense Depreciation Expense calculation for 2010. calculation for 2010. 19,375 19,375 LO 4 Explain how to report irregular items. Reporting Irregular Items Reporting Irregular Items Corrections of Errors R e s ult fro m : mathematical mistakes mistakes in application of accounting principles oversight or misuse of facts Corrections treated as prior period adjustments Ad ju s tm e nt to th e b e g inn in g b a la nc e o f re ta ine d e a rn ing s Chapter 4-40 LO 4 Explain how to report irregular items. Intraperiod Tax Allocation Intraperiod Tax Allocation R e la te s th e inc o m e ta x e xp e n s e to th e s p e c ific ite m s th a t g ive ris e to th e a m o un t o f th e ta x e xp e n s e . Inc o m e ta x is a llo c a te d to th e fo llo win g ite m s : (1) In c o m e fro m c o ntin uing o p e ra tio ns b e fo re ta x (2) Dis c o ntin ue d o p e ra tio ns (3) Extra o rd ina ry ite m s (4) C h a ng e s in a c c o u nting p rinc ip le (5) C o rre c tio n o f e rro rs Chapter 4-41 LO 5 Explain intraperiod tax allocation. Example of Intraperiod Tax Allocation Example of Intraperiod Tax Allocation I ncome St at ement (in t h o us and s ) Sales Co s t o f g o o d s s o ld T o t al o t h e r I nc o m e f r o m c o nt . o pe r . b e f o r e t a x e s I nc o m e t a x e x pe ns e I ncome f rom cont inuing operat ions Discont inued operat ions: No te : lo s s e s re d uc e th e to ta l ta x I nt e r e s t e x pe ns e $ 8 5 ,0 0 0 2 9 ,0 0 0 14 (2 1,0 0 0 ) (4 ,0 0 0 ) 7 9 ,0 0 0 2 4 ,0 0 0 5 5 ,0 0 0 315 189 504 5 4 ,4 9 6 539 $ 3 ,9 5 7 5 T o ta l T a x Allo c a te d $ 2 4 ,0 0 0 (1 3 5 ) (6 1 ) (2 3 1 ) $ 2 3 ,5 7 3 Loss on operat ions, net of $ 135 t ax Loss on disposal, net of $ 61 t ax Tot al loss on discont inued operat ions I ncome bef ore ext raordinary it em Ext raordinary loss, net of $ 231 t ax N et income Chapter 4-42 LO 5 Explain intraperiod tax allocation. Earnings Per Share Earnings Per Share Calculation Ne t inc o m e P re fe rre d d ivid e n d s We ig h te d a ve ra g e n um b e r o f s h a re s o uts ta n d ing An im p o rta nt b us ine s s in d ic a to r. Me a s u re s th e d o lla rs e a rne d b y e a c h s h a re o f c o m m o n s to c k. Mus t b e d is c lo s e d o n th e th e inc o m e s ta te m e n t. Chapter 4-43 LO 6 Identify where to report earnings per share information. Earnings Per Share Earnings Per Share Brief Exercise 4-8 In 2011, Kirby Puckett Corporation reported net income of $1,200,000. It declared and paid preferred stock dividends of $250,000. During 2011, Puckett had a weighted average of 190,000 common shares outstanding. Compute Puckett's 2007 earnings per share. Ne t inc o m e P re fe rre d d ivid e n d s We ig h te d a ve ra g e n um b e r o f s h a re s o uts ta n d ing $ 1 ,2 0 0 ,0 0 0 $ 2 5 0 ,0 0 0 = $5.00 p e r s h a re 1 9 0 ,0 0 0 Chapter 4-44 LO 6 Identify where to report earnings per share information. Retained Earnings Statement Retained Earnings Statement Changes in Retained Earnings Increase Net income C h a ng e in a c c o un ting p rinc ip le Erro r c o rre c tio ns Decrease Net loss Divid e n d s C h a n g e in a c c o u nting p rinc ip le s Erro r c o rre c tio n s Chapter 4-45 LO 7 Prepare a retained earnings statement. Retained Earnings Statement Retained Earnings Statement Woods, Inc. Statement of Retained Earnings For the Year Ended December 31, 2011 Balance, January 1 Net income Dividends Balance, December 31 $1,050,000 360,000 (300,000) $1,060,000 Be fo re is s uing th e re p o rt fo r th e y e a r e nd e d De c e m b e r 3 1 , 2 0 1 1 , y o u d is c o ve r a $ 5 0 ,0 0 0 e rro r (ne t o f ta x) th a t c a us e d th e 2 0 1 0 inve nto ry to b e o ve rs ta te d (o ve rs ta te d inve nto ry c a us e d C O G S to b e lo we r a nd th us ne t inc o m e to b e h ig h e r in 2 0 1 0 ) . Wo uld th is d is c o ve ry h a ve a ny im p a c t o n th e re p o rting o f th e S ta te m e nt o f R e ta ine d Ea rning s fo r 2 0 1 1 ? Chapter 4-46 LO 7 Prepare a retained earnings statement. Retained Earnings Statement Retained Earnings Statement Woods, Inc. Statement of Retained Earnings For the Year Ended December 31, 2011 Balance, January 1, as previously reported Prior period adjustment - error correction Balance, January 1, as restated Net income Dividends Balance, December 31 $1,050,000 (50,000) 1,000,000 360,000 (300,000) $1,060,000 Chapter 4-47 LO 7 Prepare a retained earnings statement. Retained Earnings Statement Retained Earnings Statement Restricted Retained Earnings Disclosed In notes to the financial statements As Appropriated Retained Earnings Chapter 4-48 LO 7 Prepare a retained earnings statement. Comprehensive Income Comprehensive Income All changes in equity during a period except those resulting from investments by owners and distributions to owners. I ncome St at ement (in t h o us a nd s ) Sales $ 8 5 ,0 0 0 2 Co s t o f g o o d s s o ld Gr o s s pr o f it Operat ing expenses: 9 ,0 0 0 14 6 ,0 0 0 13 ,0 0 0 10 4 3 ,0 0 0 5 3 ,0 0 0 8 3 ,0 0 0 ,0 0 0 17 (2 1,0 0 0 ) (4 ,0 0 0 ) 7 9 ,0 0 0 2 4 ,0 0 0 $ 5 ,0 0 0 5 + O th e r C o m p re h e ns ive Inc o m e Unre a lize d g a ins a nd lo s s e s o n a va ila b le fo r s a le s e c uritie s . T ra ns la tio n g a ins a nd lo s s e s o n fo re ig n c urre nc y. P lus o th e rs R e p o rte d in S to c kh o ld e rs ' Eq uity A d ve r t is ing e x pe ns e De pr e c ia t io n e x pe ns e T o t a l o pe r a t ing e x pe ns e I ncome f rom operat ions Ot her revenue (expense): I nt e r e s t r e ve nue I nt e r e s t e x pe ns e T o t a l o t h e r I nc o m e b e f o r e t a x e s I nc o m e t a x e x pe ns e N et income Chapter 4-49 LO 8 Explain how to report other comprehensive income. Comprehensive Income Comprehensive Income Three approaches to reporting Comprehensive Income (SFAS No. 130, June 1997): 1. 2. 3. A second separate income statement; A combined income statement of comprehensive income; or As part of the statement of stockholders' equity Chapter 4-50 LO 8 Explain how to report other comprehensive income. Comprehensive Income Comprehensive Income TwoStatement Format for Comprehensive Income Illustration 419 Chapter 4-51 LO 8 Explain how to report other comprehensive income. Comprehensive Income Comprehensive Income Combined Income Statement Combined Income Statement V. Gill I nc . Co m b ine d S t at e m e nt o f Co m p r e h e ns ive I nc o m e Fo r t h e Ye ar End e d De c e m b e r 3 1, 2 0 0 7 S ale s r e ve nue Co s t o f g o o d s s o ld Gr o s s pr o f it O pe r at ing e x p e ns e s Ne t inc o m e Unr e a liz e d h o ld ing g ain, ne t o f t ax Co m p r e h e ns ive inc o m e $ 8 0 0 ,0 0 0 6 0 0 ,0 0 0 2 0 0 ,0 0 0 0 ,0 0 0 9 ,0 0 0 110 0 ,0 0 0 3 $ 0 ,0 0 0 14 Chapter 4-52 LO 8 Explain how to report other comprehensive income. Comprehensive Income Comprehensive Income S ta te m e nt o f S to c kh o ld e rs ' Eq uity (m o s t c o m m o n) Illustration 420 Chapter 4-53 LO 8 Explain how to report other comprehensive income. Comprehensive Income Comprehensive Income Balance Sheet Presentation Illustration 421 Regardless of the display format used, the accumulated other comprehensive income of $90,000 is reported in the stockholders' equity section of the balance sheet. Chapter 4-54 LO 8 Explain how to report other comprehensive income. Next Time Next Time Chapter 5 Balance Sheet & Statement of Cash Flows Chapter 4-55 ...
View Full Document

This note was uploaded on 02/07/2012 for the course SMITH bmgt310 taught by Professor Sb during the Fall '11 term at Maryland.

Ask a homework question - tutors are online