Class 05 Flashcards
unusual income statement items
what kind of CF statement must we use?
multi-step
what is the multi-step format?
- sales
- COGS
a. gross profit - operating expenses
a. selling, admin
b. depreciation
i. operating expenses income - other revenue G/L (non operating)
a. interest revenue/expense
b. PPE G/L
i. income before tax - income tax
a. cont. operations income - discont. operations (net of taxes)
a. discont. operations income
b. G/L of disposal - non-controlling interest
a. net income
b. EPS
what are irregular items on the IS?
- unusual + infrequent G/L
- change in accounting estimates
- discontinued operations
- non-controlling interest
what are unusual + infrequent G/L?
unrelated to day to day operations
(interest/dividend revenue)
where do “unusual + infrequent G/L” appear?
after income from operations + before income from cont. operation)
where do “changes in accounting estimates” appear?
before operating income
how do you adjust for “changes in accounting estimates”?
- recalculate the depreciation from new estimates
- new depreciation expense = divide year balance / new predictions
- old > new = overstated (add the difference on the IS)
- RE value = difference * years overstated
where do “discontinued operations” appear?
after income from cont. operations + before net income
what’s considered “discontinued operations”?
- must be able to separate the CFs
- provide a reason + disclosure
- record manner + timing
- record 2 lines on the IS
how do you calculate “discontinued operations”?
(net sales - book value) tax rate)
you get a tax credit on L—which means pre-tax is more negative)
where do “non-controlling interest” appear?
after income from cont. operations + before net income (NI limited to the % of company you own)
what items bypass the IS?
- changes in AC rules + errors
- other comprehensive income
what are “changes in AC rules + errors”?
back track to prior years assuming the new method
where are “changes in AC rules + errors” reflected?
Beg. RE (old vs new + (1 - t)) on the statement of RE (current year)
how do you account “changes in AC rules + errors”?
if old balance > new—dr. RE + cr. “account”
