ch04

Chapter 4-1

Chapter 4-2

C H A P T E R C H A P T E R 44

INCOME STATEMENT AND INCOME STATEMENT AND RELATED INFORMATIONRELATED INFORMATION

Intermediate Accounting13th Edition

Kieso, Weygandt, and Warfield

Chapter 4-3

1.1. Understand the uses and limitations of an income Understand the uses and limitations of an income statement.statement.

2.2. Prepare a single-step income statement.Prepare a single-step income statement.

3.3. Prepare a multiple-step income statement.Prepare a multiple-step income statement.

4.4. Explain how to report irregular items.Explain how to report irregular items.

5.5. Explain intraperiod tax allocation.Explain intraperiod tax allocation.

6.6. Identify where to report earnings per share Identify where to report earnings per share information.information.

7.7. Prepare a retained earnings statement.Prepare a retained earnings statement.

8.8. Explain how to report other comprehensive income.Explain how to report other comprehensive income.

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

Chapter 4-4

ElementsElements

Single-stepSingle-step

Multiple-stepMultiple-step

Condensed Condensed income statementsincome statements

Income Income StatementStatement

Format of the Format of the Income Income

StatementStatement

Reporting Reporting Irregular ItemsIrregular Items

Special Special Reporting IssuesReporting Issues

UsefulnessUsefulness

LimitationsLimitations

Quality of Quality of EarningsEarnings

Discontinued Discontinued operationsoperations

Extraordinary Extraordinary itemsitems

Unusual gains and Unusual gains and losseslosses

Changes in Changes in accounting accounting principlesprinciples

Changes in Changes in estimatesestimates

Corrections of Corrections of errorserrors

Intraperiod tax Intraperiod tax allocationallocation

Earnings per shareEarnings per share

Retained earnings Retained earnings statementstatement

Comprehensive Comprehensive incomeincome

Income Statement and Related Income Statement and Related InformationInformation

Income Statement and Related Income Statement and Related InformationInformation

Chapter 4-5

Evaluate past performance.

Income StatementIncome StatementIncome StatementIncome Statement

LO 1 Understand the uses and limitations of an income statement.LO 1 Understand the uses and limitations of an income statement.

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

Predicting future performance.

Usefulness

Chapter 4-6

Companies omit items that cannot be measured reliably.


Limitations


Income measurement involves judgment.

Income is affected by the accounting methods employed.

Chapter 4-7

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

market price of stock increases and

value of stock options increase.



Quality of earnings is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows.

Quality of Earnings

Chapter 4-8

Format of the Income StatementFormat of the Income StatementFormat of the Income StatementFormat of the Income Statement


Revenues – Inflows or other enhancements of assets or – Inflows or other enhancements of assets or settlements of its liabilities that constitute the entity’s settlements of its liabilities that constitute the entity’s ongoing major or central operations.ongoing major or central operations.

SalesSales

Fee revenueFee revenue

Interest revenueInterest revenue

Dividend revenueDividend revenue

Rent revenueRent revenue

Examples of Revenue Accounts

Elements of the Income Statement

Chapter 4-9



Expenses – Outflows or other using-up of assets or – Outflows or other using-up of assets or incurrences of liabilities that constitute the entity’s incurrences of liabilities that constitute the entity’s ongoing major or central operations.ongoing major or central operations.

Cost of goods soldCost of goods sold

Depreciation expenseDepreciation expense

Interest expenseInterest expense

Rent expenseRent expense

Salary expenseSalary expense

Examples of Expense Accounts


Chapter 4-10



Gains – Increases in equity (net assets) from – Increases in equity (net assets) from peripheral or incidental transactions.peripheral or incidental transactions.

Losses - Decreases in equity (net assets) from - Decreases in equity (net assets) from peripheral or incidental transactions.peripheral or incidental transactions.

Gains and losses can result fromGains and losses can result from

sale of investments or plant assets, sale of investments or plant assets,

settlement of liabilities, settlement of liabilities,

write-offs of assets.write-offs of assets.


Chapter 4-11

Single-Step FormatSingle-Step FormatSingle-Step FormatSingle-Step Format

LO 2 Prepare a single-step income statement.LO 2 Prepare a single-step income statement.

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

Income Statement (in thousands)

Revenues:

Sales 285,000$

I nterest revenue 17,000

Total revenue 302,000

Expenses:

Cost of goods sold 149,000

Selling expense 10,000

Administrative expense 43,000

I nterest expense 21,000

I ncome tax expense 24,000

Total expenses 247,000

Net income 55,000$

Earnings per share 0.75$

RevenuesRevenues

ExpensesExpenses

Net IncomeNet Income

Single- Single- StepStep

Single- Single- StepStep

No distinction between No distinction between OperatingOperating and and Non-Non-operatingoperating categories. categories.

Chapter 4-12

Single-Step Single-Step FormatFormat

Single-Step Single-Step FormatFormat


Administrative expense: Revenues:

Offi cers' salaries 4,900$ Sales 96,500$

Depreciation 3,960 Rental revenue 17,230

Cost of goods sold 63,570 Total revenues 113,730

Rental revenue 17,230 Expenses:

Selling expense: Cost of goods sold 63,570

Transportation- out 2,690 Selling expense 17,150

Sales commissions 7,980 Administrative exense 8,860

Depreciation 6,480 I nterest expense 1,860

Sales 96,500 I ncome tax expense 7,580

I ncome tax expense 7,580 Total expenses 99,020

I nterest expense 1,860 Net income 14,710$

I ncome Statement

For the year ended Dec. 31, 2011

E4-4: Prepare an income statement from the data below.

Solution on notes page

Chapter 4-13

The single-step income statement emphasizesThe single-step income statement emphasizes

a. a. the gross profit figure.the gross profit figure.

b. b. total revenues and total expenses.total revenues and total expenses.

c. c. extraordinary items more than it is extraordinary items more than it is emphasized emphasized in the multiple-step income in the multiple-step income statement.statement.

d. d. the various components of income from the various components of income from continuing operations.continuing operations.

ReviewReview

Single-Step FormatSingle-Step FormatSingle-Step FormatSingle-Step Format


Chapter 4-14

Separates operating transactions from nonoperating transactions.

Matches costs and expenses with related revenues.

Highlights certain intermediate components of income that analysts use.

LO 3 Prepare a multiple-step income statement.LO 3 Prepare a multiple-step income statement.

Multiple-Step FormatMultiple-Step FormatMultiple-Step FormatMultiple-Step Format

Background

Chapter 4-15

1. Operating section

2. Nonoperating section

3. Income tax

4. Discontinued operations

5. Extraordinary items

6. Earnings per share



Income Statement Sections

Chapter 4-16



The presentation The presentation divides information divides information into major into major sections. sections.

The presentation The presentation divides information divides information into major into major sections. sections.


Sales 285,000$


Gross profit 136,000

Operating expenses:

Selling expenses 10,000

Administrative expenses 43,000

Total operating expense 53,000

Income from operations 83,000

Other revenue (expense):


I nterest expense (21,000)

Total other (4,000)

I ncome bef ore taxes 79,000


Net income 55,000$

Earnings per share 0.75$

1. Operating 1. Operating Section Section

1. Operating 1. Operating Section Section

2. Nonoperating 2. Nonoperating Section Section

2. Nonoperating 2. Nonoperating Section Section

3. Income tax 3. Income tax 3. Income tax 3. Income tax

Chapter 4-17

Multiple-Step Multiple-Step FormatFormat

Multiple-Step Multiple-Step FormatFormat

Administrative expense: Sales 96,500$

Offi cers' salaries 4,900$ Cost of goods sold 63,750

Depreciation 3,960 Gross profit 32,750

Cost of goods sold 63,750 Operating Expenses:

Rental revenue 17,230 Selling expense 17,150

Selling expense: Administrative exense 8,860

Transportation- out 2,690 Total operating expenses 26,010

Sales commissions 7,980 I ncome from operations 6,740

Depreciation 6,480 Other revenue (expense):

Sales 96,500 Rental revenue 17,230

I ncome tax expense 7,580 I nterest expense (1,860)

I nterest expense 1,860 Total other 15,370

I ncome before tax 22,110


Net income 14,530$

I ncome Statement

For the year ended Dec. 31, 2011

Illustration (E4-4): Prepare an income statement from the data below.


Chapter 4-18

ReviewReview

A separation of operating and non operating activities A separation of operating and non operating activities of a company exists inof a company exists in

a. a. both a multiple-step and single-step income both a multiple-step and single-step income statement.statement.

b. b. a multiple-step but not a single-step income a multiple-step but not a single-step income statementstatement..

c. c. a single-step but not a multiple-step income a single-step but not a multiple-step income statementstatement..

d. d. neither a single-step nor a multiple-step neither a single-step nor a multiple-step income income statementstatement..



Chapter 4-19

Companies are required to report irregular items Companies are required to report irregular items in the financial statements so users can in the financial statements so users can determine the long-run earning power determine the long-run earning power of the company. of the company.

LO 4 Explain how to report irregular items.LO 4 Explain how to report irregular items.

Reporting Irregular ItemsReporting Irregular ItemsReporting Irregular ItemsReporting Irregular Items

Illustration 4-5 Illustration 4-5 Number of Irregular Items Reported in a Recent Year by 600 Large Companies

Chapter 4-20

Irregular items fall into six categories

1. Discontinued operations.

2. Extraordinary items.

3. Unusual gains and losses.

4. Changes in accounting principle.

5. Changes in estimates.

6. Corrections of errors.



Chapter 4-21

Discontinued Operations occurs when,

(a) company eliminates the

results of operations and

cash flows of a component.

(b) there is no significant continuing involvement in that component.

Amount reported “net of tax.”



Chapter 4-22

Illustration: KC Corporation had after tax income from continuing operations of $55,000,000 in 2008. During 2008, it disposed of its restaurant division at a pretax loss of $270,000. Prior to disposal, the division operated at a pretax loss of $450,000 in 2008. Assume a tax rate of 30%. Prepare a partial income statement for KC.

Reporting Discontinued OperationsReporting Discontinued OperationsReporting Discontinued OperationsReporting Discontinued Operations

Income from continuing operations $55,000,000

Discontinued operations:

Loss from operations, net of $135,000 tax

315,000Loss on disposal, net of $81,000 tax

189,000Net income $54,496,000

Total loss on discontinued operations 504,000


Chapter 4-23

Reporting Discontinued OperationsReporting Discontinued OperationsReporting Discontinued OperationsReporting Discontinued Operations


I nterest revenue 17,000 I nterest expense (21,000)

Total other (4,000) I ncome bef ore taxes 79,000 I ncome tax expense 24,000 I ncome from continuing operations 55,000


Loss from operations, net of tax 315

Loss on disposal, net of tax 189

Total loss on discontinued operations 504

Net income 54,496$

Discontinued Discontinued Operations are Operations are

reported after “Income reported after “Income from continuing from continuing

operations.”operations.”

Previously labeled as “Net Income”.

Moved to


I ncome Statement (in thousands)

Sales 285,000$


Chapter 4-24

Extraordinary items are nonrecurring material items that differ significantly from a company’s typical business activities.

Extraordinary Item must be both of an

Unusual Nature and Occur Infrequently

Company must consider the environment in which it operates.

Amount reported “net of tax.”



Chapter 4-25

Are these items Extraordinary?

(a) A large portion of a tobacco manufacturer’s crops are destroyed by a hail storm. Severe damage from hail storms in the locality where the manufacturer grows tobacco is rare.

(b) A citrus grower's Florida crop is damaged by frost.

(c) A company sells a block of common stock of a publicly traded company. The block of shares, which represents less than 10% of the publicly-held company, is the only security investment the company has ever owned.

YESYES

Reporting Extraordinary ItemsReporting Extraordinary ItemsReporting Extraordinary ItemsReporting Extraordinary Items

NONO

YESYES


Chapter 4-26

Are these items Extraordinary?

(d) A large diversified company sells a block of shares from its portfolio of securities which it has acquired for investment purposes. This is the first sale from its portfolio of securities.

(e) An earthquake destroys one of the oil refineries owned by a large multi-national oil company. Earthquakes are rare in this geographical location.

(f) A company experiences a material loss in the repurchase of a large bond issue that has been outstanding for 3 years. The company regularly repurchases bonds of this nature.

NONO


YESYES

NONO


Chapter 4-27

Illustration: KC Corporation had after tax income from continuing operations of $55,000,000 in 2007. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporation’s tax rate is 30%. Prepare a partial income statement for KC Corporation beginning with income from continuing operations.

Income from continuing operations $55,000,000

Extraordinary loss, net of $231,000 tax 539,000

Net income $54,461,000


($770,000 x 30% = $231,000 tax)


Chapter 4-28


I nterest revenue 17,000 I nterest expense (21,000)

Total other (4,000) I ncome bef ore taxes 79,000 I ncome tax expense 24,000 I ncome from continuing operations 55,000

Extraordinary loss, net of tax 539

Net income 54,461$

Extraordinary Items Extraordinary Items are reported after are reported after

“Income from “Income from continuing continuing

operations.”operations.”

Previously labeled as “Net Income”.


Moved to



Sales 285,000$


Chapter 4-29


I nterest expense (21,000) Total other (4,000)

I ncome bef ore taxes 79,000 I ncome tax expense 24,000 I ncome from continuing operations 55,000


Loss from operations, net of tax 315

Loss on disposal, net of tax 189


I ncome before extraordinary item 54,496

Extraordinary loss, net of tax 539

Net income 53,957$

Reporting when both Reporting when both

Discontinued Discontinued

Operations and Operations and

Extraordinary Items Extraordinary Items

are present. are present.

Discontinued OperationsDiscontinued Operations

Extraordinary ItemExtraordinary Item



Sales 285,000$


Chapter 4-30

Irregular transactions such as discontinued Irregular transactions such as discontinued operations and extraordinary items should be operations and extraordinary items should be reported separately inreported separately in

a. a. both a single-step and multiple-step income both a single-step and multiple-step income statementstatement..

b. b. a single-step income statement onlya single-step income statement only..

c. c. a multiple-step income statement onlya multiple-step income statement only..

d. d. neither a single-step nor a multiple-step neither a single-step nor a multiple-step income income statementstatement..

ReviewReview



Chapter 4-31

Unusual Gains and Losses

Material items that are unusual or infrequent, but not both, should be reported in a separate section just above “Income from continuing operations before income taxes.”

Examples can include:

Write-downs of inventoriesForeign exchange transaction gains and losses

The Board prohibits net-of-tax treatment for these items.



Chapter 4-32

Unusual Gains and Losses



Illustration 4-9Illustration 4-9Income Statement Presentation of Unusual Charges

Chapter 4-33

Changes in Accounting Principles

Retrospective adjustment

Cumulative effect adjustment to beginning retained earnings

Approach preserves comparability

Examples include: change from FIFO to average cost

change from the percentage-of-completion to the completed-contract method



Chapter 4-34



Change in Accounting Principle: Gaubert Inc. decided in March 2010 to change from FIFO to weighted-average inventory pricing. Gaubert’s income before taxes, using the new weighted-average method in 2010, is $30,000.

Illustration 4-10Illustration 4-10Calculation of a Change inAccounting Principle

Illustration 4-11Illustration 4-11Income StatementPresentation of a Changein Accounting Principle (Based on 30% tax rate)

Pretax Income Data


Chapter 4-35

Changes in Estimate

Accounted for in the period of change and future periods

Not handled retrospectively

Not considered errors or extraordinary items

Examples include:

Useful lives and salvage values of depreciable assets

Allowance for uncollectible receivables

Inventory obsolescence



Chapter 4-36

Change in Estimate: Arcadia HS, purchased Arcadia HS, purchased equipment for $510,000 which was estimated to have a equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been recorded for the end of that time. Depreciation has been recorded for 7 years on a straight-line basis. In 2010 (year 8), it is 7 years on a straight-line basis. In 2010 (year 8), it is determined that the total estimated life should be 15 determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that years with a salvage value of $5,000 at the end of that time.time.

Questions:Questions: What is the journal entry to correct the What is the journal entry to correct the

prior years’ depreciation?prior years’ depreciation? Calculate the depreciation expense Calculate the depreciation expense

for 2010.for 2010.

No Entry No Entry RequiredRequired

Change in Estimate ExampleChange in Estimate ExampleChange in Estimate ExampleChange in Estimate Example


Chapter 4-37

EquipmenEquipmentt

$510,000$510,000

Fixed Assets:Fixed Assets:

Accumulated depreciationAccumulated depreciation 350,000350,000

Net book value (NBV)Net book value (NBV) $160,000$160,000

Balance SheetBalance Sheet (Dec. 31, (Dec. 31, 2009)2009)

Change in Estimate ExampleChange in Estimate ExampleChange in Estimate ExampleChange in Estimate ExampleAfter 7 yearsAfter 7 years

Equipment cost Equipment cost $510,000$510,000

Salvage valueSalvage value - 10,000 - 10,000

Depreciable baseDepreciable base 500,000500,000

Useful life (original)Useful life (original) 10 years 10 years

Annual depreciationAnnual depreciation $ 50,000 $ 50,000 x 7 years = x 7 years = $350,000$350,000

First, establish First, establish NBV at date of NBV at date of

change in change in estimate.estimate.

First, establish First, establish NBV at date of NBV at date of

change in change in estimate.estimate.


Chapter 4-38

Change in Estimate ExampleChange in Estimate ExampleChange in Estimate ExampleChange in Estimate ExampleAfter 7 yearsAfter 7 years

Net book value Net book value $160,000$160,000

Salvage value (new) Salvage value (new) 5,0005,000

Depreciable baseDepreciable base 155,000155,000

Useful life remainingUseful life remaining 8 years 8 years

Annual depreciationAnnual depreciation $ 19,375$ 19,375

Depreciation Depreciation Expense Expense

calculation for calculation for 2010.2010.

Depreciation Depreciation Expense Expense

calculation for calculation for 2010.2010.

Depreciation expense 19,375

Accumulated depreciation 19,375

Journal entry for 2010


Chapter 4-39

Corrections of Errors

Result from: mathematical mistakes mistakes in application of accounting

principles oversight or misuse of facts

Corrections treated as prior period adjustments

Adjustment to the beginning balance of retained earnings



Chapter 4-40

Corrections of Errors: To illustrate, in 2011, Hillsboro Co. determined that it incorrectly overstated its accountsreceivable and sales revenue by $100,000 in 2010. In 2011, Hillboro makes the following entry to correct for this error (ignore income taxes).



Retained earnings 100,000

Accounts receivable100,000

Chapter 4-41

Relates the income tax expense to the specific items that give rise to the amount of the tax expense.

Income tax is allocated to the following items:

(1) Income from continuing operations before tax

(2) Discontinued operations

(3) Extraordinary items

(4) Changes in accounting principle

(5) Correction of errors

Special Reporting IssuesSpecial Reporting IssuesSpecial Reporting IssuesSpecial Reporting Issues

LO 5 Explain intraperiod tax allocation.LO 5 Explain intraperiod tax allocation.

Intraperiod Tax Allocation

Chapter 4-42

Extraordinary Gain: Schindler Co. has income before income tax and extraordinary item of $250,000. It has an extraordinary gain of $100,000 from a condemnation settlement received on one its properties. Assuming a 30 percent income tax rate.




Illustration 4-13

Chapter 4-43

Extraordinary Loss: Schindler Co. has income before income tax and extraordinary item of $250,000. It has an extraordinary loss from a major casualty of $100,000. Assuming a 30 percent income tax rate.




Illustration 4-14

Chapter 4-44

I nterest expense (21,000) Total other (4,000)

I ncome f rom cont. oper. bef ore taxes 79,000 I ncome tax expense 24,000 I ncome from continuing operations 55,000


Loss on operations, net of $135 tax 315

Loss on disposal, net of $61 tax 189


I ncome before extraordinary item 54,496

Extraordinary loss, net of $231 tax 539

Net income 53,957$

Calculation of Calculation of

Total TaxTotal Tax

Example of Intraperiod Tax Example of Intraperiod Tax AllocationAllocation

Example of Intraperiod Tax Example of Intraperiod Tax AllocationAllocation

$24,000$24,000

(135)(135)(61)(61)

(231)(231)

$23,573$23,573LO 5 Explain intraperiod tax allocation.LO 5 Explain intraperiod tax allocation.


Sales 285,000$

Cost of goods sold 149,000 Note: losses reduce Note: losses reduce

the total taxthe total tax

Chapter 4-45

An important business indicator.

Measures the dollars earned by each share of common stock.

Must be disclosed on the the income statement.


LO 6 Identify where to report earnings per share LO 6 Identify where to report earnings per share information.information.

Net income - Preferred dividends

Weighted average number of shares outstanding

Earnings Per Share

Chapter 4-46

Earnings Per Share (BE4-8): In 2010, Hollis Corporation reported net income of $1,000,000. It declared and paid preferred stock dividends of $250,000. During 2010, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2010 earnings per share.


- $250,000$1,000,000

190,000= $3.95 per share

LO 6 Identify where to report earnings per share LO 6 Identify where to report earnings per share information.information.

Net income - Preferred dividends

Weighted average number of shares outstanding

Chapter 4-47


LO LO 66

EPS

Divide by weighted-average shares

outstanding

Chapter 4-48 LO 7 Prepare a retained earnings statement.LO 7 Prepare a retained earnings statement.

IncreaseIncrease

Net income

Change in accounting principle

Error corrections

DecreaseDecrease

Net loss

Dividends

Change in accounting principles

Error corrections

Retained Earnings Statement


Chapter 4-49

Woods, Inc.Statement of Retained Earnings

For the Year Ended December 31, 2011

Balance, January 1 1,050,000$ Net income 360,000 Dividends (300,000) Balance, December 31 1,110,000$

Before issuing the report for the year ended December 31, 2011, you discover a $50,000 error (net of tax) that caused 2010 inventory to be overstated (overstated inventory caused COGS to be lower and thus net income to be higher in 2010). Would this discovery have any impact on the reporting of the Statement of Retained Earnings for 2011?


LO 7 Prepare a retained earnings statement.LO 7 Prepare a retained earnings statement.

Chapter 4-50



Woods, Inc.Statement of Retained Earnings


Balance, January 1 1,050,000$ Prior period adjustment - error correction (50,000) Balance, January 1 (restated) 1,000,000 Net income 360,000 Dividends (300,000) Balance, December 31 1,060,000$


Chapter 4-51

Restricted Retained Earnings

Disclosed

In notes to the financial statements

As Appropriated Retained Earnings



Chapter 4-52

Comprehensive Income

All changes in equity during a period except All changes in equity during a period except

those resulting from investments by owners and those resulting from investments by owners and distributions to owners.

Includes:

all revenues and gains, expenses and losses reported in net income, and

all gains and losses that bypass net income but affect stockholders’ equity.



Chapter 4-53



Sales 285,000$


Gross profit 136,000

Operating expenses:

Selling expenses 10,000

Administrative expenses 43,000

Total operating expense 53,000

Income from operations 83,000



I nterest expense (21,000)

Total other (4,000)

I ncome bef ore taxes 79,000


Net income 55,000$

Other Comprehensive Other Comprehensive IncomeIncome

Unrealized gains and losses on available-for-sale securities.

Translation gains and losses on foreign currency.

Plus others

+

Reported in Stockholders’ Equity


LO 8 Explain how to report other comprehensive income.LO 8 Explain how to report other comprehensive income.

Chapter 4-54

ReviewReview

Gains and losses that bypass net income but affect Gains and losses that bypass net income but affect stockholders' equity are referred to as stockholders' equity are referred to as

a. a. comprehensive income.comprehensive income.

b. b. other comprehensive incomeother comprehensive income..

c. c. prior period incomeprior period income..

d. d. unusual gains and lossesunusual gains and losses..



Chapter 4-55

Three approaches to reporting Comprehensive Income (SFAS No. 130, June 1997):

1. A second separate income statement;

2. A combined income statement of comprehensive income; or

3. As part of the statement of stockholders’ equity



Chapter 4-56



Illustration 4-19Comprehensive Income

Second income statement

Chapter 4-57

V. Gill I nc.

Combined Statement of Comprehensive I ncome


Sales revenue 800,000$


Gross profi t 200,000

Operating expenses 90,000

Net income 110,000

Unrealized holding gain, net of tax 30,000

Comprehensive income 140,000$




Combined income statement

Chapter 4-58



Comprehensive Income - Statement of Stockholder’s Equity Illustration 4-20

Chapter 4-59



Comprehensive Income - Balance Sheet Presentation Illustration 4-21

Regardless of the display format used, the Regardless of the display format used, the accumulated accumulated other comprehensive income other comprehensive income of $90,000 is reported in the of $90,000 is reported in the stockholders’ equity section of the balance sheet.stockholders’ equity section of the balance sheet.

Chapter 4-60

ReviewReview

The FASB decided that the components of other The FASB decided that the components of other comprehensive income must be displayed comprehensive income must be displayed

a. a. in a second separate income statement.in a second separate income statement.

b. b. in a combined income statement of in a combined income statement of comprehensive comprehensive incomeincome..

c. c. as a part of the statement of stockholders' as a part of the statement of stockholders' equityequity..

d. d. Any of these options is permissibleAny of these options is permissible..



Chapter 4-61

Under iGAAP, companies must classify expenses by either nature or function. If a company uses the functional expense method on the income statement, disclosure by nature is required in the notes to the financial statements.

Presentation of the income statement under U.S. GAAP follows either a single-step or multiple-step format. iGAAP does not mention a single-step or multiple-step approach. In addition, under U.S. GAAP, companies must report an item as extraordinary if it is unusual in nature and infrequent in occurrence. Extraordinary items are prohibited under iGAAP.

Chapter 4-62

Under iGAAP, companies are required to prepare as a primary financial statement either a statement of stockholders’ equity similar to the one prepared under U.S. GAAP or a statement of recognized income and expense (called a SoRIE ).

Both iGAAP and U.S. GAAP have items that are recognized in equity as part of comprehensive income but do not affect net income. U.S. GAAP provides three possible formats for presenting this information. iGAAP allows either the statement of stockholders’ equity approach or the SoRIE format.

Under iGAAP revaluation of land, buildings, and intangible assets is permitted.

Chapter 4-63

Copyright © 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

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