1266 234 the statement of shareholders equity will

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: 000) Net income 4,036,500 $ (52,000) (520,000) $ Earnings per share: Income from continuing operations Disposal of business segment Extraordinary items Net earnings per share * $97,500 = $ 2.17 0.13 (0.29) $ _ 2.01 [Discontinued segment's sales – Discontinued segment's cost of goods sold – Discontinued segment's operating expenses (1 – Tax rate of 35%) The objectives of financial accounting are to allow prediction of future cash flows. Earnings numbers are useful because they reflect changes in a company’s resources. Some measures such as income from operations reflect amounts expected to persist in the future from the normal business operations. Other measures, such as income from continuing operations, reflect an infrequent or unusual item with less persistence. Finally, extraordinary items, disposal gains and losses, and cumulative effects of accounting method changes have low persistence and are less useful for prediction of future cash flows. P13–11 a. b. The sale of the credit card division (disposal of a business segment) would be shown on the income statement after net income from continuing operations; the segment would be separated into two line items, the income from the discontinued operations up to the date of disposal and the gain from the disposal (both shown net of tax). The restructuring charges would be shown in “Other revenues and expenses”, on the income statement after the calculation of net operating income. Sears’ performance over the two­year period is better measured when the one­time, non­recurring items are removed from the analysis. The profitability of $309 million is not as strong as it appears, because it includes a gain from the sale of a division (that will not recur in the following year); likewise, the following year’s profits of $53 million should actually be viewed more positively because the restructuring expense (which is presumably a non­recurring item) dragged down that year’s bottom line. P13–12 a. b. Recognized income and expense under IFRS is similar to comprehensive income under U.S. GAAP. The SORIE would be presented as: Net profit 1,500 Fair value gains(losses) on available­for­sale securities and currency translation gains(losses) Total recognized income and expense c. (1,266) 234 The statement of shareholders’ equity will show the effects from currency and securities transactions that affect equity but do not affect profitability. (The balance sheet will also show the end result in the shareholder equity section.) P13–13 a. Adjusting journal entries (1 ) Inventory (ending) (+A) Cost of Goods Sold (E, –SE) (–A) 480,000 737,000 Purchases (–A) 750,000 Inventory (beginning) 467,000 Recorded cost of inventory sold. (2 ) Bad Debt Expense (E, –SE) Accounts (–A) 25,000* Allowance for Doubtful 25,000 Estimated bad debt expense. *$25,000 = $75,000 – $50,000 Balance in Allowance for Doubtful Accounts (3 ) Depreciation Expense (E, –SE) Depreciation (–A) 85,000 Accumulated 85,000 Depreciated fixed assets. (4 ) Insurance Expense (E, –SE) 20,000 Prepaid Insurance (–A) 20,000 Recognize...
View Full Document

Ask a homework question - tutors are online