income statement Flashcards
computation of net income
gross sales-cogs-selling and admin expense+gain in sale of AVS securities X (effective interest rate) +income fro continuing operaton
how should correction of errors be reported in the income?
Adjustment to the opening balance of retained earnings, bet of the related income tax effect.
under equity method, dividend received from investee reduced the carrying amount of the investment. They do not affect the amount of investment income that investor recognize. true or false.
true.
is exchange gain included in the determination of net income?
yes
what is included in OCI
The net effect of a change in accounting principle doesn’t affect this year’s income. The $3,000 unrealized loss on AFS securities(run through OCI) and the $2,000 gain of currency adjustment(also OCI) net to a $1,000 loss. With net income of $11,000 and the $1,000 from OCI, comprehensive income is $10,000.
indirect vs direct method
Under the direct method, actual cash inflows and outflows are listed line by line such as “cash paid to suppliers” or “cash received from customers”.
Under the indirect method, you start with net income on the accrual basis, and list adjustments to get to the net cash flows from operating activities, and each line is an adjustment, such as an “increase in accounts payable” or a “decrease in accounts receivable”,instead of an actual amount of cash in or out.
Therefore, since the gain on the sale of a plant asset is a noncash item, it would appear on a cash flow statement prepared under the indirect method.
does temporary transfer affect an internal service fund’s net income
no
dividend received increase cash flows from operating activities?
yes
Cash provided by operating activities is computed as follows:
Cash received from customers $25,000
Total cash received $25,000
Interest paid to bank on note 3,000
Cash paid to employees 8,000
——-
Total cash paid out 11,000
Net cash provided 14,000
Cash received from sale of equipment is included in investing activities.
In Dart Co.’s Year 2 single-step income statement, as prepared by Dart’s controller, the section titled “Revenues” consisted of the following:
Sales $250,000
Purchase discounts 3,000
Recovery of accounts written off 10,000
——–
Total revenues $263,000
In its Year 2 single-step income statement (statement of profit or loss), what amount should Dart report as total revenues?
$250,000
The single-step income statement presents all revenue and gains in the upper part of the statement. Purchase discounts are shown as deductions in the expense section. Recovery of accounts written off has no effect on the income statement since cash is increased and allowance for doubtful accounts is decreased.
under allowance method, the allowance for doubtful accounts sists as a contra account to AR. If a customer’s receivables, it is written off from AR, and deducted from the balance sheet. effects on BS and income statements
no effects
when the receivable was written off under the direct write off method, effects on BS and income statements
both would be reduced.
under indirect method, would the gain on sale of plant asset be included in the operating activities of the cash flow statement?
yes, because it is an non cash item and indirect method is on an accrual basis.
proper treatment of cost of equipment used in research and development activities that will have alternative future uses.
capitalized and depreciated just like regular business assets.
is gain on sale of plant asset included in the operating activities section of a cash flow statement prepared using the indirect method?
yes, because it is an adjustment rather than an actual amount of cash in or out.
