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Unformatted text preview: on charges – are shown gross in the other gains and
losses on the income statement. Equity in net income of affiliates— is shown gross on the income
statement and before income from continuing operations. b. The items that would be expected to be persistent or be repeated in future years are research and
development costs, foreign currency translation, cost of products sold and equity income from affiliates.
Each of these items is an expense (or gain) that BristolMyers Squibb would expect to incur in future
years in the normal operation of the business. The other items are not expected to occur again in future
a. Federal Express should report this as an extraordinary gain on its income statement. This assumes that
aircraft being destroyed by fire is both unusual and infrequent. This is a onetime impact on the wealth of
Federal Express and would not be expected to persist in the future.
b. Motorola would report the gains related to these asset sales below the gross profit line in
a section called “Other Gains and Losses”. The sale of assets is not Motorola’s primary
business and so these gains should not be shown in the revenue section at the top of the income
statement. At the same time these sales are not extraordinary items since they are not unusual
and infrequent. These sales represent onetime increases in wealth to the company and would
not be expected to persist into the future. c. OwensCorning would report the $68 million restructuring charge below the income from operations line,
the $11 million of equity in net income of affiliates in the revenue section, and the $15 million accounting
change below the income from operations line. Both the restructuring charge and the accounting change
would not be expected to persist in the future but the equity in net income of affiliates would be expected
to persist in the future. d. OwensCorning would report the $875 million charge below the income from operations line on the income
statement. The class action lawsuits related to asbestos are (as a group) unusual and infrequent and
should not be reported in income from operations. This is a onetime reduction in the wealth of OCF and
would not be expected to persist into the future. ID13–9
a. Rising raw material costs would be reflected in Cost of Goods Sold on the income statement, as well as in
Inventory (Raw Materials) on the balance sheet. Currency fluctuations would be reflected in
comprehensive income under currencey translation adjustments. A gain would be reflected on the income statement under “other gains/expenses”. Increased costs to introduce new models would be reflected on
the income statement under operating expenses (engineering, marketing, etc.).
b. Rising material costs and costs to introduce new models might be expenses that will permanently affect
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- Fall '08