LO 5 Identify where to report earnings per share information.
4-52Common terms used for income statement Common terms used for income statement analysis:analysis:EBITDA – Earnings before income, taxes, EBITDA – Earnings before income, taxes, depreciation and amortizationdepreciation and amortizationEBIT – Earnings before income taxesEBIT – Earnings before income taxesOperating incomeOperating incomePre-tax incomePre-tax income
4-531.Understand the uses and limitations of an income statement.2.Describe the content and format of the income statement.3.Prepare an income statement.4.Explain how to report various income items.5.Identify where to report earnings per share information.6.Understand the reporting of accounting changes and errors.7.Prepare a retained earnings statement.8.Explain how to report other comprehensive income.After studying this chapter, you should be able to:Income Statement and Related Information4LEARNING OBJECTIVESLEARNING OBJECTIVES
4-54A change in accounting principle results when an entity adopts a new accounting principle that is differentfrom the one previously used . A company needs to recognize \the change in accounting principle by:- restating prior periods’ financial statements, and- adjusting the beginning retained earnings balance of the earliest year presented.EXAMPLE: Change from LIFO to FIFOAccounting Changes and ErrorsLO 6 Understand the reporting of accounting changes and errors.Changes in Accounting Principle
4-55Change in Accounting Principle:Gaubert Inc. decided in March 2014 to change from FIFO to weighted-average inventory pricing. Gaubert’s income before taxes, using the new weighted-average method in 2014, is $30,000. Illustration 4-20Calculation of a Change inAccounting PrincipleIllustration 4-21Income StatementPresentation of a Changein Accounting Principle (Based on 30% tax rate)Pretax Income DataAccounting Changes page 180Advance slide in presentation mode to reveal answers.LO 6
4-56Accounting Changes and ErrorsLO 6 Understand the reporting of accounting changes and errors.Changes in Accounting Principles
4-57Change in Accounting EstimatesAccounting ChangesLO 6 Understand the reporting of accounting changes and errors.
4-58Change in Estimate:Arcadia HS, purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been recorded for 7 years on a straight-line basis. In 2014 (year 8), it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.Questions:What is the journal entry to correct the prior years’ depreciation?Calculate the depreciation expense for 2014.Change in Accounting Estimate LO 6 Understand the reporting of accounting changes and errors.
4-59Equipment$510,000Fixed Assets:Accumulated depreciation350,000Net book value (NBV)$160,000Balance Sheet(Dec. 31, 2013)After 7 yearsEquipment cost $510,000Salvage value- 10,000Depreciable base500,000Useful life (original)10 yearsAnnual depreciation$ 50,000x 7 years = $350,000