Solution_Chpt05 - Chapter5_solution 8 The four major...

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Chapter5_solution 8. The four major subtotals or totals on the income statement are: (a) gross profit, (b) income from operations, (c) income before income taxes, and (d) net income. 9. Extraordinary items are reported on the income statement separately. They are items that are both unusual and infrequent . They are set out separately to aid the user in evaluating the profit performance of the business. Inclusion of extraordinary items in the regularly occurring revenue and expense categories would lead the user to believe that they are normal and will recur often in the future, which would be misleading. 14. The three major categories of footnotes are: (1) descriptions of accounting rules applied to the company’s statements, often called significant accounting policies (e.g., the depreciation method applied to property, plant, and equipment), (2) additional details about financial statement numbers (e.g., sales by geographic region), and (3) relevant financial information not listed on the statements (e.g., the existence of a bank line of credit). ANSWERS TO MULTIPLE CHOICE 1. c) 2. b) 3. d) 4. a) 5. b) 6. c) 7. b) 8. c) 9. d) 10. b) E5-1. Players Definitions 1
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F (1) Financial analyst A (2) Creditor H (3) Independent auditor G (4) Private investor D (5) SEC C (6) Institutional investor E
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