Highlights certain components of income that analysts

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Entrepreneurial Finance
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Chapter 4 / Exercise 2
Entrepreneurial Finance
Leach/Melicher
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Highlights certain components of income that analysts use assessing financial performance.Format of the Income StatementIntermediate ComponentsLO 3 Prepare an income statement.
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Entrepreneurial Finance
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Chapter 4 / Exercise 2
Entrepreneurial Finance
Leach/Melicher
Expert Verified
4-9CABRERA COMPANYIncome StatementFor The Year Ended December 31, 20141. Operating Section 2. Nonoperating Section 3. Income tax Multiple-StepIllustration 4-2
4-10SalesSales Revenue3,000,000$ Less: Sales discounts25,000$ Sales returns and allowances50,00075,000Net Sales2,925,000Cost of Goods Sold1,980,000Gross Profit945,000Operating ExpensesOPERATING SECTIONSalaries Expenses300,000* includes Selling, General and Administrative ExpensesUtilities Expenses25,000Insurance Expense15,000Depreciation Expense18,000Miscellaneous Expense5,000363,000Income from Operations582,000Other Revenues and GainsDividend Revenue20,000Other Expenses and LossesNONOPERATING SECTION Loss on sale of equipment40,000UNUSUAL GAINS AND LOSSESIncome from continuing operations before income tax562,000Income tax224,800INCOME TAX ASSUMING 40% TAX RATEIncome from continuing operations337,200Discontinued OperationsDISCONTINUED OPERATIONS55,000*includes results of operations and gain/loss on disposalLoss on disposal of ABC division (net of tax)80,00025,000* tax affect may be listed on separate line or in notesIncome before extraordinary item312,200Extraordinary item - loss from earthquate (net of tax)45,000EXTRAORDINARY ITEMNet Income267,200$ Less: Net income attributable to noncontrolling interests500NONCONTROLLING INTERESTNet income attributable to Section 5 Incorporated266,700$ Per share of common stockIncome from continuing operations3.37Income from operations of discontinued division, net of tax0.55Loss on disposal of discontinued operation, net of tax0.80EARNING PER SHAREIncome before extraordinary item3.12Extraordinary loss, net of tax0.45Net Income2.67Income from operations of discontinued ABC division (net of tax)
4-11Common for companies to present some or all of the following sections and totals within the income statement.1.Operating section 2.Nonoperating section3.Income tax4.Discontinued operations5.Extraordinary items6.Noncontrolling interest7.Earnings per shareIntermediate ComponentsLO 3 Prepare an income statement.NEW ITEMS FOR INTERMEDIATE I
4-12Companies are required to report unusual and irregular items as part of net income so users can better determine the long-run earning power of the company.These income items fall into four general categories:1.Unusual gains and losses.2.Discontinued operations.3.Extraordinary items.4.Noncontrolling interest.LO 4 Explain how to report various income items.Reporting Various Income ItemsModified all inclusive conceptModified all inclusive concept
4-13LO 4Reporting Various Income ItemsUnusual Gains and LossesThe following items may need separate disclosure in the income statement.

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