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Intermediate Accounting Ch 4 Essay

2441 words - 10 pages

What we’ll cover:

1. Income Statement

2. Format of the Income Statement

3. Reporting Irregular Items

4. Special Reporting Issues

1. Income Statement

a. Usefulness

• Evaluate past performance

• Predicting future performance

• Help assess the risk or uncertainty of achieving future cash flows

b. Limitations

• Companies omit items that cannot be measured reliably

• Income is affected by the accounting methods employed

• Income measurement involves judgment

c. Quality of Earnings

• Companies have incentives to manage income to meet or beat Wall Street expectations, so that

o market ...view middle of the document...

b. Single Step Income Statement

• The single-step statement consists of just two groupings:

Revenues

Expenses

Net Income

• No distinction between Operating and Non-operating categories.

|Example: |
| |
|Income Statement (in thousands) |
|Revenues | |
| Sales |$285,000 |
| Interest revenue |17,000 |
| Total revenue |302,000 |
|Expenses: | |
| Cost of goods sold |149,000 |
| Selling expenses |10,000 |
| Administrative expense |43,000 |
| Interest expense |21,000 |
| Income tax expense |24,000 |
| Total expenses |247,000 |
|Net Income |$55,000 |
| | |
|Earnings per share |$ 0.75 |

c. Multiple-Step Format (Illustration 4-2, pg. 166)
• Separates operating transactions from nonoperating transactions.
• Matches costs and expenses with related revenues.
• Highlights certain intermediate components of income that analysts use.
• The presentation divides information into major sections.
1. Operating section
2. Nonoperating section
3. Income tax
4. Discontinued operations
5. Extraordinary items
6. Earnings per share
| |
|Example: |
| |
| |
|Income Statement (in thousands) |
|Sales |$285,000 |
|Cost of goods sold |149,000 ...

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