4-28 Companies 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 Items Reporting Various Income Items Modified all inclusive concept Modified all inclusive concept
4-29 LO 4 Reporting Various Income Items Reporting Various Income Items Unusual Gains and Losses The following items may need separate disclosure in the income statement. (About one unusual item a year in a large company.) 1.Losses on the write-down or write-off of assets . 2.Gains or losses from exchange or translation of foreign currencies. 3.Restructuring charges. 4.Other gains or losses from sale or abandonment of property, plant, or equipment used in the business. 5.Effects of a strike . 6.Adjustment of accruals on long-term contracts.
4-30 Occurs when, (1) company eliminates the results of operations of a component of the business, and (2) there is no significant involvement in that component after the disposal transaction. Amounts reported “net of tax.” Discontinued Operations LO 4 Explain how to report various income items. Reporting Various Income Items Reporting Various Income Items
4-31 Illustration: KC Products Inc., a highly diversified company, decides to discontinue its electronics division. During the current year, the electronics division lost$300,000 (net of tax). KC Products sold the division at the end of the year at a loss of $500,000 (net of tax). Show how the discontinued operations would be reported on the income statement for KC Products. Discontinued Operations Discontinued Operations Income from continuing operations $20,000,000 Discontinued operations: Loss from operations, net of tax 300,000 Loss on disposal, net of tax 500,000 Net income $19,200,000 Total loss on discontinued operations 800,000 LO 4 Advance slide in presentation mode to reveal answers. Illustration 4-8
4-32 Discontinued Operations are reported after “Income from continuing operations.” Without a discontinued operations this line would be “net income.” Illustration 4-9 Discontinued Operations Discontinued Operations
4-33 ► The allocation of tax within a period. ► Helps users understand the impact of income taxes on the various components of net income. ► Intraperiod tax allocation is used for: (1) income from continuing operations, (2) discontinued operations, and (3) extraordinary items. Intraperiod Tax Allocation LO 4 Explain how to report various income items. Discontinued Operations Discontinued Operations
4-34 Earnings per Share (Discontinued Operations) Shiga Nagoya Corporation Page 195 Exercise 4-13 Exercise 4-13 Exercise 4-13 Exercise 4-13
4-35 Extraordinary items are nonrecurring material items that differ significantly from a company’s typical business activities. Extraordinary item must meet both of the following criteria: Unusual nature and Infrequently of occurrence
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