O they include cost of goods sold or cost of sales

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Accounting
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Chapter 4 / Exercise EX4-14
Accounting
Reeve/Warren
Expert Verified
are the cost of resources used to earn revenues during a period. oThey include:Cost of goods sold or cost of sales, Selling, general and administrative expenses, Research and development expense, other expense, and Income tax expenseComponent Elements of Income:
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Accounting
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Chapter 4 / Exercise EX4-14
Accounting
Reeve/Warren
Expert Verified
oPreparing an Income Statement:ooIncome Statement Formats:oCompanies prepare their income statements in one of two different formats: single-step income statementsIn a single-step income statement, there are only two categories: total revenues and total expenses.multiple-step income statements (aka “classified income statements”).
A multiple-step income statement provides classifications of revenues and expenses that financial statement users find useful, with three important subtotals:Form of the Income Statement:oTraditionally, the income statement is presented in the following multiple-step form+ Income from continuing operations+ Income from discontinued operations*+ Extraordinary Items*o= Net Income/LossExtraordinary Items:Extraordinary itemsare events and transactions that are both unusual in natureand infrequent in occurrence. They must contain “a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity . . . [and] be of a type that would not reasonably be expected to recur in the foreseeable future.The line between “unusual” and “extraordinary” items is a fineline. To be extraordinary an item must be (a) unusual and (b) infrequent. In essence, an “unusual” item is one that is unusual but frequent. Extraordinary items are presented in the income statement ona net-of-tax basis. Extraordinary items and items from discontinued operations are presented in the income statement on a net-of-tax basis. All other items are presented on a gross-of-tax basis.+ Other Comprehensive Incomeo= Comprehensive IncomeComprehensive incomeis a fairly new development in financial reporting. The purpose of comprehensive income is to capture those unrecognized built-in gains and losses resulting from shifting market trends.Comprehensive income must be shown somewhere on the financial statements, although it does not matter where.Most companies include a report of comprehensive income as part of the statement of stockholders’ equity. Three of the more common adjustments made as “other comprehensive income” are:oForeign currency translation adjustmentsoUnrealized gains and losses on available-for-sale securitiesoDeferred gains and losses on derivative financial instruments
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Income Statement Summary:o+ Income from continuing operationso+ Income from discontinued operationso+ Extraordinary Items= Net Income/Losso+ Other Comprehensive Income= Comprehensive IncomeoRemember: Extraordinary items and items from discontinued operations are presented in the incomestatement on a net-of-tax basis. All other items are presented on a gross-of-tax basis. Income Statement Financial Ratios:oReturn on Sales

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