Income Statement

Question 1

Major Components of the Income Statement (IDEA)

Answer 1

Income or Loss from Continuing Operations
Income or Loss from Discontinued Operations
Extraordinary Items
Cumulative Effect of Change in Accounting Principle

Question 2

Discontinued Operating is composed of:

Answer 2

The (normally) loss can consist of impairment loss, a gain/loss on disposal, or a gain/loss from actual operations. They are included in discontinued operations in the period in which they can occur.

Question 3

What qualifies as a component of an entity (disposal group) under US GAAP?

Answer 3

1) An operating segment,
2) Reportable segment,
3) Reporting unit,
4) Subsidiary, OR
5) An asset group- A collection of assets to be disposed of together as a group in a single transaction and the liabilities directly associated with those assets that will be transferred in that same transaction

Question 4

What qualifies as a component of an entity under US GAAP?

Answer 4

1) A separate major line of business or geographical area of operations, OR
2) A subsidiary acquired exclusively with a view to resale

Question 5

When is an component (disposal group) considered held for sale?

Answer 5

)3) There is an active program to locate a buyer

4) The sale of the component is probable and the sale is expected to be complete within one year
5) The sale is being actively marketed
6) Actions required to complete the sale make it unlikely that significant changes to the plan will be made or that the plan will be withdrawn

Question 6

Causes and treatment of changes in accounting estimate?

Answer 6

Treatment: Only restate future periods
Causes:
1) Changes in the lives of fixed assets
2) Adjustments of year end accrual of officer's salaries and/or bonuses
3) Write-downs of obsolete inventory
4) Material nonrecurring IRS adjustments
5) Settlement of litigation
6) Changes in accounting principle that are inseparable from a change in estimate (change form installment method to immediate recognition because uncollectibles can now be estimated

Question 7

Causes and treatment of changes in accounting principle?

Answer 7

Treatment: Retrospective restatement only if required by GAAP/IFRS or if the alternative principle is preferable