Income Statement and Related Information DONALD E.KIESO·JERRY J.WEYGANDT TERRY D.WARFIELDII I Intermediate Chapter 4 Accounting EDITION Intermediate Accounting 12th Edition Kieso,Weygandt,and Warfield : www Chapter 4-1
Chapter 4-1 Intermediate Accounting 12th Edition Kieso, Weygandt, and Warfield
Learning Objectives 1.Understand the uses and limitations of an income statement. 2.Prepare a single-step income statement. 3.Prepare a multiple-step income statement. 4.Explain how to report irregular items. 5.Explain intraperiod tax allocation. 6.Identify where to report earnings per share information. 7.Prepare a retained earnings statement. 8.Explain how to report other comprehensive income. Chapter 4-2
Chapter 4-2
Income Statement and Related Information Format of the Special Income Reporting Income Statement Reporting Irregular Items Statement Issues Usefulness Elements 0 Discontinued Intraperiod tax Limitations Single-step operations allocation Quality of Earnings 0 Multiple-step 0 Extraordinary items Earnings per share Condensed income 0 Unusual gains and 0 Retained earnings statements losses statement 0 Changes in Comprehensive accounting income principles 0 Changes in estimates Corrections of errors Chapter 4-3
Chapter 4-3
Income Statement Usefulness of the Income Statement Evaluate past performance. Predicting future performance. Help assess the risk or uncertainty of achieving future cash flows. Chapter 4-4 LO 1 Understand the uses and limitations of an income statement
Chapter 4-4 Evaluate past performance. Predicting future performance. Help assess the risk or uncertainty of achieving future cash flows. Usefulness of the Income Statement
Income Statement Limitations of the Income Statement Companies omit items that cannot be measured reliably. Income is affected by the accounting methods employed. Income measurement involves judgment. Chapter 4-5 LO 1 Understand the uses and limitations of an income statement
Chapter 4-5 Companies omit items that cannot be measured reliably. Income is affected by the accounting methods employed. Income measurement involves judgment. Limitations of the Income Statement
Income Statement Quality of Earnings Companies have incentives to manage income to meet or beat Wall Street expectations,so that the market price of stock increases and the 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. Chapter 4-6 LO 1 Understand the uses and limitations of an income statement
Chapter 4-6 Companies have incentives to manage income to meet or beat Wall Street expectations, so that the market price of stock increases and the 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
Elements of the Income Statement Revenues -Inflows or other enhancements of assets or settlements of its liabilities that constitute the entity's ongoing major or central operations. Examples of Revenue Accounts Sales Fee revenue Interest revenue Dividend revenue Rent revenue Chapter 4-7 LO 1 Understand the uses and limitations of an income statement
Chapter 4-7 Revenues Examples of Revenue Accounts
Elements of the Income Statement 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 0 Cost of goods sold Depreciation expense Interest expense Rent expense Salary expense Chapter 4-8 LO 1 Understand the uses and limitations of an income statement
Chapter 4-8 Expenses Examples of Expense Accounts
Elements of the Income Statement Gains Increases in equity(net assets)from peripheral or incidental transactions. Losses -Decreases in equity (net assets)from peripheral or incidental transactions. Gains and losses can result from 0 sale of investments or plant assets, settlement of liabilities, write-offs of assets. Chapter 4-9 LO 1 Understand the uses and limitations of an income statement
Chapter 4-9 Gains Losses
Single-Step Income Statement The single-step statement Income Statement (in thousands) consists of just two Revenues: Sales $285,000 groupings: Interest revenue 17,000 Total revenue 302,000 Revenues Expenses: Single- Cost of goods sold 149000 Expenses Step Advertising expense 10,000 Depreciation expense 43,000 Net Income Interest expense 21,000 Income tax expense 24,000 Total expenses 247,000 No distinction between Net income $ 55,000 Operating and Non-operating $ 0.75 categories. Earnings per share Chapter 4-10 LO 2 Prepare a single-step income statement
Chapter 4-10 I n c o m e S t a t e m e n t (in t h o u s a n d s ) R e v e n u e s : S ale s $ 2 8 5 , 0 0 0 I n t e r e s t r e v e n u e 1 7 , 0 0 0 T o t al r e v e n u e 3 0 2 , 0 0 0 E x p e n s e s : C o s t o f g o o d s s old 1 4 9 , 0 0 0 A d v e r tisin g e x p e n s e 1 0 , 0 0 0 D e p r e cia tio n e x p e n s e 4 3 , 0 0 0 I n t e r e s t e x p e n s e 2 1 , 0 0 0 I n c o m e t a x e x p e n s e 2 4 , 0 0 0 T o t al e x p e n s e s 2 4 7 , 0 0 0 N e t i n c o m e $ 5 5 , 0 0 0 E a r n i n g s p e r s h a r e $ 0.7 5
