Premium Essay

Intermediate Accounting Ch 4

In: Business and Management

Submitted By ellewoods1
Words 2418
Pages 10
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 price of stock increases and

o 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.

2. Format of the Income Statement

a. Elements of the Income Statement

• Revenues – Inflows of assets or settlements of its liabilities that constitute the entity’s ongoing major or central operations. Examples of Revenue Accounts:

o Sales

o Fee revenue

o Interest revenue

o Dividend revenue

o Rent revenue

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

o Cost of goods sold

o Depreciation expense

o Interest expense

o Rent expense

o Salary expense

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

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

Similar Documents

Premium Essay

Intermediate Accounting

...LP3.2 Assignment: Case Study  Directions Access the financial statements of Proctor & Gamble in Appendix 5B in the textbook to answer the questions found in Chapter 4’s Using Your Judgment-Financial Reporting Problem. Follow the instructions indicated in the case study. Provide answers for parts a-e. Submit this assignment to your instructor via the dropbox “LP3.2 Assignment: Case Study.” This assignment is worth 20 points and will be graded according to the following scoring guide. Rating Scale x Criteria = Total Points Scoring Guide (20 Points) | Rating Scale | 4 | Work meets or exceeds criterion at a high level of competence. | 3 | Work reflects an understanding of criterion with minor misunderstandings/misconceptions. | 2 | Criterion partially met, but one or more important concepts/skills are missing or flawed. | 1 | Work reflects an attempt to meet criterion, but significant misunderstandings/misconceptions are apparent. | 0 | Criterion not met or work is absent. | Criteria | 1. | Identified the type of use of income statement format used by P&G. | 2. | Stated P&G's primary revenue sources. | 3. | Computed P&G's gross profit for 2007-2009 and explained trends to gross profit and financial ratios. | 4. | Provided distinction between operating and non-operating revenue. | 5. | Utilized appropriate grammar, punctuation, and spelling. | Financial Reporting Problem Proctor & Gamble a) What type of income statement......

Words: 484 - Pages: 2

Premium Essay

Intermediate Accounting

...CHAPTER 4 INCOME STATEMENT AND RELATED INFORMATION IFRS questions are available at the end of this chapter. TRUE-FALSe—Conceptual Answer No. Description T 1. Usefulness of the income statement. F 2. Limitations of the income statement. F 3. Earnings management. T 4. Transaction approach of income measurement. T 5. Single-step income statement. T 6. Revenues and gains. F 7. Multiple-step vs. single-step income statement. F 8. Multiple-step income statement. T 9. Multiple-step vs. single-step income statement. F 10. Current operating performance approach. T 11. Reporting discontinued operations. F 12. Reporting extraordinary items. F 13. Irregular items. T 14. Intraperiod tax allocation. F 15. Reporting earnings per share. F 16. Computation of earnings per share. T 17. Prior period adjustments. F 18. Retained earnings restrictions. F 19. Comprehensive income definition. T 20. Reporting other comprehensive income. Multiple Choice—Conceptual Answer No. Description c 21. Elements of the income statement. d 22. Usefulness of the income statement. b 23. Limitations of the income statement. d S24. Use of an income statement. d S25. Income statement reporting. c 26. Income statement information. b 27. Example of managing earnings down. c 28. Example of managing earnings up. b 29. Improving current net income. a 30. Decreasing current net income. d 31. Single-step income statement......

Words: 4342 - Pages: 18

Premium Essay

Intermediate Accounting

...Check Figures to accompany INTERMEDIATE ACCOUNTING Seventh Edition Spiceland, Sepe and Nelson Chapter 1 BE 1-1 Net income, $208,000 BE 1-2 1. Liabilities BE 1-3 2. The economic entity assumption BE 1-4 1.The matching principle BE 1-5 3. Disagree, matching principle E1-1 Req. 1, Net operating cash flow, Yr. 2, $50,000 Req. 2, Net income, Year 1, $25,000 E1-2 Req. 1, Net income, Year 2, $190,000 E1-5 3. Auditors E1-6 5. Comprehensive income E1-7 8. f E1-8 4. Timeliness E1-9 7. b E1-10 6. The going concern assumption E1-11 2. The periodicity assumption E1-12 1. Disagree, Monetary unit assumption E1-13 4. Agree, Matching principle E1-14 3. g. Matching principle Chapter 2 BE 2-1 4. –180,000, accounts receivable BE 2-2 2. Dr. Salaries expense, $40,000 BE 2-3 Accounts payable balance, $42,000 BE 2-4 2. Dr. Note receivable, $10,000 BE 2-5 1. Dr. Insurance expense, $3,000 BE 2-7 2. Cr. Prepaid advertising, $1,000 BE 2-9 Total operating expenses, $107,000 BE 2-10 Total assets, $91,000 BE 2-11 Cr. Retained earnings, $35,000 BE 2-12 Net income, $143,000 E2-1 6. + $6,000, Prepaid insurance E2-2 3. Dr. Inventory, $90,000 E2-3 Total debits, $471,000 E2-4 2. Cr. Cash, $40,000 E2-5 6. b E2-6 9. I E2-8 4. Dr. Interest expense, $4,000 E2-9 6. Cr. Supplies, $5,250 E2-11 Net income, $101,000 E2-12 Cr. Retained earnings, $177,000 E2-13 Cr. Retained earnings, $66,000 E2-14 Req. 3, Accrued wages,......

Words: 7295 - Pages: 30

Free Essay

Intermediate Accounting

...to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.” Liabilities are contingent on one or more future events to confirm the potential loss, payee, date payable or even existence of the loss. FASB identifies three categories to define the likelihood of losses that include probable, reasonably possible and remote. Liabilities that are probable and can be reasonably estimated should be accrued including pending litigation. The company should disclose the information that it has about the case including the probability of a favorable outcome and similarities to other cases. Kieso, Weygandt, & Warfield. (2012). Intermediate Accounting. 14th ed. Hoboken, NJ: John, Wiley & Sons. (a) Warranty costs are expensed as incurred under the cash-basis method. The costs are charged in the period in which the seller or manufacturer complies with the warranty. No liability is recorded for the future warranty costs and charges are not recorded at the time of sale. This method is normally used when the costs are immaterial or the warranty covers a short period. The cash-basis must be used when a liability is not probable or cannot be reasonably estimated. However, if it is probable that a warranty will occur and the costs can be reasonably estimated, the accrual method must be used. The costs are charged as an expense in the year of the sale. The accrual......

Words: 298 - Pages: 2

Premium Essay

Intermediate Accounting

...Dr P&L- Depreciation $500,000 Cr accumulated depreciation $500,000 Dr P&L – Interest expense Cr Interest payable (ii) 1/1/12 Equipment Production unit $10,000,000 20 years Depre: $500,000 Electrical systems $3,000,000 10 years Depre: $300,000 Sub-assemblies $2,000,000 4 years Depre: $500,000 1/1 Dr Equipment $15,000,000 Cr Bank $15,000,000 31/12 Dr P&L – Depreciation $1300,000 Cr Accumulated depreciation $1300,000 Depreciation is to be calculated by the cost of the non-current asset over its useful life. For the new manufacturing equipment of Creative, the three components are of different useful life although they were acquired on the same date. So, the depreciation in the books of the Creative have to be recorded in three calculations: The depreciation for the year of the Production unit is calculated by $10,000,000 (cost) over 20 years (useful life), which is $500,000. The electrical systems is to be used over 10 year, thus its depreciation for the year 2012 is $3,000,000/10 years, amounted $300,000. For the sub-assemblies, total depreciation expense for the year is $2,000,000/4 years, which is $500,000. So the total depreciation expense for the year is $1,300,000 (iii) 1/1/12 Freehold land $2,620,000 Building $4,192,000 [construction Feb to Oct ] 40 years Depre: $17,466.7 1/1 Dr Freehold land $2,620,000 Cr Borrowings 1/2 Dr Building $4,192,000 Cr......

Words: 729 - Pages: 3

Premium Essay

Intermediate Accounting

...the income tax expense section of the income statement for 2010 beginning with "income before income taxes." (a) X (.40) = $320,000 taxes due for 2010 X = $320,000 ÷ .40 X = $800,000 taxable income for 2010 (b) Taxable income [from part (a)] $800,000 Excess depreciation 120,000 Municipal interest 10,000 Unearned rent (40,000) Pretax financial income for 2010 $890,000 (c) 2010 Income Tax Expense ($320,000 + $42,000 – $14,000) 348,000 Deferred Tax Asset ($40,000 X .35) 14,000 Income Tax Payable ($800,000 X .40) 320,000 Deferred Tax Liability ($120,000 X .35) 42,000 2011 Income Tax Expense ($343,000 + $7,000 – $10,500) 339,500 Deferred Tax Liability [($120,000 ÷ 4) X .35] 10,500 Income Tax Payable ($980,000 X .35) 343,000 Deferred Tax Asset [($40,000 ÷ 2) X .35] 7,000 (d) Income before income taxes $890,000 Income tax expense Current $320,000 Deferred ($42,000 – $14,000) 28,000 348,000 Net income $542,000...

Words: 336 - Pages: 2

Premium Essay

Intermediate Accounting

...INTERMEDIATE (FINANCIAL) ACCOUNTING I SUBCLASS KLM CASE ANALYSIS QUESTIONS CASE 1 – REVENUE RECOGNITION AND EARNINGS MANAGEMENT INTERMEDIATE (FINANCIAL) ACCOUNTING I SUBCLASS KLM CASE ANALYSIS QUESTIONS CASE 2 – REVENUE RECOGNITION FOR A CONSTRUCTION PROJECT HKU Technology Inc. (Hereafter, HKU Tech) is a large construction contracting firm that serves a variety of industrial customers that purchase machinery and equipment from HKU Tech. HKU Tech’s business primarily involves the design and manufacture of large, industrial machinery and tooling that is used by its customers in manufacturing parts and components for fighter jets, transport planes, and other aerospace-related machinery and equipment. All of HKU Tech’s construction contracts involve the design, development, and manufacture of machines that are unique and customized to the specifications of its customers. HKU Tech negotiates all its contracts with its customers on either a fixed-price or cost-plus basis. HKU Tech has developed an accounting policy to recognize revenue related to its customized construction contracts, which is outlined as follows: The Company performs under a variety of contracts, some of which provide for reimbursement of cost plus fees, and others that are fixed-price-type contracts. Revenues and fees on these contracts are primarily recognized on a contract-by-contract basis using the percentage-ofcompletion method of accounting, which is most often based on contract costs incurred to date......

Words: 1474 - Pages: 6

Premium Essay

Intermediate Accounting

...FASB Accounting Standards Codification Case This case consists of a series of questions. For each question, your mission is to locate the paragraph in the FASB Accounting Standards Codification (ASC) that answers the question. Please CUT AND PASTE the paragraph from the standards into this document for each question and provide a full reference, including the topic, subtopic, section, and paragraph (e.g. “ASC 605-15-25-1”, or “ASC Master Glossary” for definitions). Submit a hard copy of your answers by Wednesday, October 30th 9:00 am. The FASB Codification database is available at: http://aaahq.org/ascLogin.cfm Student Access Username: AAA51226 Password: KMFpjSW 1.   To gain familiarity with the content and organization of the FASB’s Accounting Standard Codification (ASC), use the general topics presented below and determine where the following accounting terms would be located. Topical Categories:         Section # General Principles ................................... 100 Presentation .............................................. 200 Assets........................................................... 300 Liabilities...................................................... 400 Equity........................................................... 500 Revenue........................................................ 600 Expenses..................................................... 700 Broad Terms............................................... 800 Industry.................

Words: 2093 - Pages: 9

Premium Essay

Intermediate Accounting

...Necole Willis Homework Week 4 May 31, 2013 E 6-5 (a) $30,000 X 4.96764 = $149,029.20. (b) $30,000 X 8.31256 = $249,376.80. (c) ($30,000 X 3.03735 X .50663 = $46,164.38. E 6-12 Building A—PV = $600,000. Building B— Rent X (PV of annuity due of 25 periods at 12%) = PV $69,000 X 8.78432 = PV $606,118.08 = PV Building C— Rent X (PV of ordinary annuity of 25 periods at 12%) = PV $7,000 X 7.84314 = PV $54,901.98 = PV Cash purchase price $650,000.00 PV of rental income – 54,901.98 Net present value $595,098.02 Building C is more advantageous E 7-2 1. $925,000.00 2. Checking account balance $600,000 Overdraft (17,000) Petty cash 300 Coin and currency 1,350 $584,650 3. Checking account balance $590,000 Certified check from customer 9,800 $599,800 4. Checking account balance $37,000 Money market mutual fund 48,000 $85,000 5. Checking account balance $700,000 Cash advance received from customer 900 ......

Words: 296 - Pages: 2

Premium Essay

Intermediate Accounting

...Company Name: GCL-Poly Energy Holdings Limited Stock Code: 3800 To: Albert From: XXX Date: 28/10/2014 Subject: The accounting requirements for leases BACKGROUND | As per our discussion, I have reviewed the consolidated financial statement of the GCL-Poly Energy Holdings Limited for the last year ended 31 December, 2013. For your reference, I would like to answer your question to facilitate your decision of lending the money as an investment that why the leased assets do should be recorded as the company’s assets under the accounting standard even the assets are not under the name of GCL. As per the financial statements, we can extract the following details: Obligation under finance lease – due within one year $654,197 Obligation under finance lease – due after one year $1,416,322 Explanation of accounting treatments In accordance to the IAS 17: Leases, it defines a finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. This means that even if the titles of the assets are not transferred, if the lessee bears the responsibility to the assets’ risks and rewards such as the repairs and maintenances, depreciation and any related expenses, together with the lease term covering the major useful lives of the assets, the company should reflect the assets under the non-current assets. This is more likely to reflect the true and fair financial......

Words: 952 - Pages: 4

Premium Essay

Intermediate Accounting

...Brief Exercises 1, 2, 3, 4, 5, 13 Concepts Problems for Analysis 1. Valuation and classification of land, buildings, and equipment. 1, 2, 3, 4, 6, 7, 12, 13, 15, 21 2. Self-constructed assets, capitalization of overhead. 5, 8, 20, 21 4, 6, 12, 16 3. Capitalization of interest. 8, 9, 10, 11, 2, 3, 4 13, 21 4, 5, 7, 8, 9, 10, 16 1, 5, 6, 7 3 4. Exchanges of assets. 12, 16, 17 8, 9, 10, 11, 12 3, 11, 16, 17, 18, 19, 20 4, 8, 9, 10, 11 4 5. Lump-sum purchases, issuance of stock, deferredpayment contracts. 12, 14 5, 6, 7 3, 6, 11, 12, 2, 11 13, 14, 15, 16 6. Costs subsequent to acquisition. 18, 19 13 21, 22, 23 7. Alternative valuations. 22 8. Disposition of assets. 23 Copyright © 2013 John Wiley & Sons, Inc. 1 Exercises 1, 2, 3, 5 1, 5, 6 2 1 3 14, 15 24, 25 Kieso, Intermediate Accounting, 15/e, Solutions Manual 4 1 (For Instructor Use Only) 10-1 ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) Learning Objectives Questions Brief Exercises Concepts for Analysis Exercises Problems 1, 2, 3, 4, 5, 11, 12, 13 1, 2, 3, 4, 5, 6, 11 CA10-1 4, 5, 6, 11, 12 3 CA10-2 1. Describe property, plant, and equipment. 1 2. Identify the costs to include in initial valuation of property, plant, and equipment. 2, 3, 4, 5, 6, 21 3. Describe the accounting problems associated......

Words: 18805 - Pages: 76

Free Essay

Intermediate Accounting

...Financial Accounting Standards Board The Financial Accounting Standards Board (FASB) has been the assigned organization in a private sector for establishing standards. These standards are important to be useful because it allows investors to make informed decisions. Financial information must be reliable, consistent and transparent. Since 1973, FASB has been part of a structure that’s independent of all other business and professional organizations. The rest of the parts are Financial Accounting Foundation (FAF), Financial Accounting Standards Advisory Council (FASAC), Governmental Accounting Standards Board (GASB) and Governmental Accounting Standards Advisory Council (GASAC). The role of monitoring and controlling business reporting and accounting practices in a modern organization is to establish and improve standards of financial accounting. FASB has a board full of members that participate in accomplishing the mission. There are 7 board members as well as several staff members that help assist. The board members are: * Russell Golden is a chairman. He began in July of 2013. He served six years as a staff member (technical Director) for the FASB before he got appointed to the chairmen. His term will end in 2017, but then he can get an appointment to an additional 3 more years. He is also chaired in FASB’S emerging issues task force. * James Kroeker is the vice chairman. He was appointed in September 2013. He served as the deputy managing partner for......

Words: 2085 - Pages: 9

Premium Essay

Intermediate Accounting

...following statements is not an objective of financial reporting? (Points: 5) Provide information that is useful in investment and credit decisions. Provide information about enterprise resources, claims to those resources, and changes to them. Provide the liquidation value of a company. Provide information that is useful in assessing cash flow prospects. 2. (TCO A) The Financial Accounting Standards Board employs a "due process" system which (Points: 5) has all CPAs in the United States vote on a new Statement. enables interested parties to express their views on issues under consideration. identifies the accounting issues that are the most important. requires that all accountants receive a copy of financial standards. 3. (TCO A) The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the (Points: 5) SEC AICPA IASB GASB 4. (TCO A) The cash method of accounting: (Points: 5) is used by most publicly-traded corporations for financial statement purposes. is not in accordance with the matching principle for most publicly-traded corporations. is often used on the income statement by large, publicly-held companies. All of the above is true. 5. (TCO A) Which of the following is an ingredient of relevance? (Points: 5) ......

Words: 831 - Pages: 4

Premium Essay

Intermediate Accounting 14th Ed. Ch 19 Answers

...CHAPTER 19 Accounting for Income Taxes ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics 1. Reconcile pretax financial income with taxable income. 2. Identify temporary and permanent differences. 3. Determine deferred income taxes and related items— single tax rate. 4. Classification of deferred taxes. 5. Determine deferred income taxes and related items— multiple tax rates, expected future income. 6. Determine deferred taxes, multiple rates, expected future losses. 7. Carryback and carryforward of NOL. 8. Change in enacted future tax rate. 9. Tracking temporary differences through reversal. 10. Income statement presentation. 9 8 16, 17, 18, 14, 21, 22 Questions 1, 13 3, 4, 5 6, 7, 13 2, 3, 4, 5, 6, 7, 9 15 10 Brief Exercises Exercises 1 1, 2, 4, 7, 12, 18, 20, 21 4, 5, 6, 7 Concepts Problems for Analysis 1, 2, 3, 8 2, 3, 4 3, 4, 5 2 1, 3, 4, 5, 7, 8, 3, 4, 8, 9 12, 14, 15, 19, 21, 23, 25 7, 11, 16, 18, 19, 20, 21, 22 2, 13, 16, 17, 18, 20, 22 3, 6 1, 2, 6, 7 10, 11, 12 2, 3, 5 1, 6, 7 10 12, 13, 14 11 9, 10, 23, 24, 25 16 8, 17 5 2, 7 2, 7 5, 6 1, 2, 3, 4, 5, 7, 1, 2, 3, 5, 10, 12, 16, 19, 7, 8, 9 23, 24, 25 7 1, 2, 7 11. Conceptual issues—tax allocation. 1, 2, 8, 19, 21, 22 7 12. Valuation allowance—deferred 8, 19 tax asset. 13. Disclosure and other issues. 15 7, 14, 15, 23, 24, 25 Copyright © 2010 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 13/e, Solutions Manual (For Instructor Use Only) 19-1 ASSIGNMENT......

Words: 22820 - Pages: 92

Premium Essay

Accounting Intermediate Ch 3 Hw

...Carolyn Gaudioso 8-29-12 Intermediate Accounting Homework 1 CAC: a) Coca cola b) Coca cola- 34% Pepsi-32% c) Pepsi co had more depreciation and amortization expense, there is a difference in these amounts because coca cola had a higher percentage increase from 2008 to 2009 and also a greater 5 year average growth rate which shows that coca cola is a more popular company and there is a reduction in a capital account of the value of an asset over time. Also their equipment that they use can depreciate faster than coca-cola’s equipment. FSAC: a) Percentage change in sales from 2008- 2007 is 9% increase and from 2008-2009 is decreased 2%. The percentage change in operating profits from 2007 to 2008 is 4% and from 2008-2009 it is 2%. The change in net cash flow less capital expenditures from 2007-2008 is decreased 2% and from 2008-2009 is 57%. b) The trend that seems to be more favorable is the sales and the trend that seems less favorable is the net cash flow less capital expenditures. The significance of the trend being less favorable from net cash flow less capital expenditure is that is shows that the net cash flow in 2008 is less than the capital expenditure thus causing a decrease in 2008 which causes a decrease of 2%. IFRS 3-6) a) April 2010-7,153. March 2009 -7,258.1 b) Cash in April 2010 -1,229. c) Selling and Marketing expense 2010-3,618.5. In 2009- 3,371.9 d) Revenues 2010-9,536.6. In 2009- 9062.1 e) Pg 102- Prepaid......

Words: 302 - Pages: 2