Professional Documents
Culture Documents
Wed 1/26
Quiz #2 on P&L (no scantron needed) Chapter 5 B/S and SCF
Expenses
Net Income
SingleStep
$ 285,000 149,000 136,000 10,000 43,000 53,000 83,000 17,000 (21,000) (4,000) 79,000 24,000 55,000
0.75
$
$
Non-operating Section:
Interest expense and revenue Other gains and losses May include unusual gains and losses
Irregular Items
Reporting when both Discontinued Operations and Extraordinary Items are present.
Income Statement (in thousands) Sales Cost of goods sold
Interest expense Total other Income before taxes Income tax expense Income from continuing operations Discontinued operations: Loss from operations, net of tax Loss on disposal, net of tax Total loss on discontinued operations Income before extraordinary item Extraordinary loss, net of tax Net income $ 315 189 504 54,496 539 53,957
$ 285,000 149,000
(21,000) (4,000) 79,000 24,000 55,000
Discontinued Operations
(specify $ or % of tax)
Extraordinary Item
(specify $ or % of tax)
2.
Two important dates in reporting discontinued operations: Measurement date (when management commits itself to a plan of segments disposal) Disposal date (the date of sale of the segment).
The time between the measurement date and the disposal date is often called the phase-out period
2.
Year-end
Measurement Date
Year-end
Final Disposal
Part of Loss on Disposition: estimate future disposal costs and accrue (D)
(A)
Combine actual portion (C) + estimated portion (D) = Loss on Disposition on I/S
2. 3.
Taxes (IFRS 5)
US GAAP requires both pre-tax and post-tax income /loss to be disclosed on face of income statement IFRS requires only post-tax income or loss to be disclosed
2.
Items are reported net of tax (i.e. below the line). Items that are NOT Extraordinary Items under GAAP:
Losses from write-down or write-off of receivables, inventories, etc. Gains and losses from: Exchange or translation of foreign currency Disposal of a segment of a business
http://www.sec.gov/Archives/edgar/data/1468516/000119312510045310/d10k.htm
Accounting Changes
Categories of Accounting Changes:
1. Change in Accounting Estimate 2. Accounting Errors in Financial Statements 3. Change in Accounting Principle
Accounting Changes
What possible ways can we handle these changes?
1.
2.
3.
Reporting:
Reported retrospectively as a restatement
Correct error in year(s) originally made by a direct entry to the affected line item(s). In following years the effect flows through beginning R/E. If error prior to years presented, just adjust beginning R/E.
Errors from previous periods do not flow through current period income.
(2)
In 2010, the company wrote off $87,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings and credited to inventory.
(3)
2007 depreciation was understated by $100,000. Subsequent years depreciation was correctly recorded
How is this reported? Retrospectively, prospectively, currently? Steps to report change. 1) Provide 3 years comparative P&L using restated amounts 2) Provide 2 years comparative B/S using FIFO inventory value and restated Retained Earnings 3) Restate 2006 beginning Retained Earnings to reflect $25,000 higher net income from 2005 What were the journal entries that made the above happen (ignoring taxes)?
During 2007, Shi Corp. did not issue any additional common stock. The following also occurred during 2007:
Income from continuing operations before taxes Discontinued operations (loss before taxes) Preferred dividends declared Common dividends declared Effective tax rate $23,650,000 $ 3,225,000 $ 1,075,000 $ 2,200,000 35%
Any part of retained earnings appropriated for a specific purpose is shown as restricted earnings.
So dividends cant be paid out from restricted R/E (can be part of a debt covenant)
Report equity & other debt investment using fair value method
Mark investment to market on B/S. Recognize unrealized gain or loss. Where depends upon classification
Trading Income Statement Available-for-Sale Other comprehensive income
Other issues
Can calculate gain or loss at the portfolio level Potential for earnings management here?
Unrealized Gains/Losses
Example: on 1/1/09 Big bought shares of Little for $100,000. The shares were < 20% of the total outstanding stock of Little Company. On 12/31/09 the shares had a fair value of $125,000. Little paid dividends of $1000 to Big. How is this accounted for at 1/1/09 and 12/31/09?
Do E17-7
Do E4-14, E4-15