ch04+student - Chapter 4: Income Statement and Related...

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Chapter 4: Income Statement and Related Information
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Elements Single-step Multiple-step Condensed income statements Income Statement Format of the Income Statement Reporting Irregular Items Special Reporting Issues Usefulness Limitations Quality of Earnings Discontinued operations Extraordinary items Unusual gains and losses Changes in accounting principles Changes in estimates Corrections of errors Intraperiod tax allocation Earnings per share Retained earnings statement Comprehensive income Income Statement and Related Information
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u Evaluate past performance. Income Statement LO 1 Understand the uses and limitations of an income statement. u Help assess the risk or uncertainty of achieving future cash flows. u Predicting future performance. Usefulness
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Income Statement Limitations LO 1 Understand the uses and limitations of an income statement. u Companies omit items that cannot be measured reliably. u Income is affected by the accounting methods employed. u Income measurement involves judgment.
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Companies have incentives to manage income to meet or beat Wall Street expectations, so that u market price of stock increases and u value of stock options increase. Income Statement LO 1 Understand the uses and limitations of an income statement. Quality of earnings is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows. Quality of Earnings
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Format of the Income Statement LO 1 Understand the uses and limitations of an income statement. Revenues – Inflows or other enhancements of assets or settlements of its liabilities that constitute the entity’s ongoing major or central operations. u Sales u Fee revenue u Interest revenue Examples of Revenue Accounts Elements of the Income Statement u Dividend revenue u Rent revenue
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Format of the Income Statement LO 1 Understand the uses and limitations of an income statement. Expenses – Outflows or other using-up of assets or incurrences of liabilities that constitute the entity’s ongoing major or central operations. Examples of Expense Accounts Elements of the Income Statement u Cost of goods sold u Depreciation expense u Interest expense u Rent expense u Salary expense
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Format of the Income Statement LO 1 Understand the uses and limitations of an income statement. Gains and losses can result from u sale of investments or plant assets, u settlement of liabilities, u write-offs of assets. Elements of the Income Statement Gains – Increases in equity (net assets) from peripheral or incidental transactions. Losses - Decreases in equity (net assets) from peripheral or incidental transactions.
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Single-Step Format LO 2 Prepare a single-step income statement. Income Statement
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This note was uploaded on 03/01/2012 for the course FIN 3154 taught by Professor Jceasterwood during the Spring '08 term at Virginia Tech.

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ch04+student - Chapter 4: Income Statement and Related...

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