ACC 311 ch 4 ppt

7 5 reporting irregular items reporting irregular

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Unformatted text preview: r e 3. Income tax 3. Income tax 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 $ 0 .7 5 . Reporting Irregular Items Reporting Irregular Items Irregular items fall into six categories Discontinued operations. Extraordinary items. Unusual gains and losses. Changes in accounting principle. Changes in estimates. Corrections of errors. Chapter 4-11 Discontinued Operations Discontinued Operations Discontinued Operations occurs when (a) a company eliminates the results of operations and cash flows of a component, and (b) there is no significant continuing involvement in that component. A component of a company has operations and cash flows that can be clearly distinguished operationally and for financial reporting purposes from the rest of the company. Amounts are reported “net of tax.” Chapter 4-12 Discontinued Operations Discontinued Operations Current FASB View: A discontinued operation is a component that has either been disposed of or is classified as held for sale, and represents a separate major line of business or major geographical area of operations, or is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations. Chapter 4-13 Discontinued Operations -- Example Discontinued Operations Example A sporting goods manufacturer has a division that designs, manufactures, and sells bicycles. The division is the lowest unit level at which cash flows can be distinguished. Company sells the bicycle division. Reported under discontinued operations. Company outsources manufacturing operations, but remains in the bicycle business. Does not constitute sale of a component. Operating gain and gain on sale will be included in company’s income from cont...
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