Intermediate Accounting - Chapter 4 - The income statement,

comprehensive Income
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1. Accounting changes accounting principle, 10. modified The new standard is applied to the adoption
estimate and reporting retrospective period only. Prior period financial statements
entity approach are not restated. The cumulative effect of the
change on prior periods' net income is
2. Change in accounted
shown as an adjustment to the beginning
estimate/depreciation/amortization prospectively
balance of retained earnings in the adoption
or depletion
period
3. Diluted EPS the earnings per share
11. multiple-step separately classifies income statement items
a company would have
income by operating and non-operating. Reports
based on the total
statement series of intermediate subtotals
number of shares
including the effects of 12. Nonoperating includes gains and losses and revenues and
all stock options and income expenses related to peripheral or incidental
convertible bonds activities of the company.
4. earnings quality refers to the ability of 13. Nonoperating interest income or expense and gains or
reported earnings items losses on sale of investments
(income) to predict a
14. Operating includes revenues and expenses directly
company's future
Income related to the principal revenue-generating
earnings.
activities of the company
5. EPS (net income - preferred primary activities of business
dividends) / average
15. prior period record a journal entry that adjusts any
common shares
adjustment balance sheet accounts to their appropriate
outstanding
levels and would account for the income
6. How are discontinued operations Reported Net of Tax effects of the error by increasing or
reported? When are they used? after Continuing decreasing the beginning retained earnings
Operations but before balance in a statement of shareholders'
Extraordinary Items. equity
Company decides to
16. Prospective This approach requires neither a modification
cease operating a
approach of prior period financial statements nor an
segment of its business
adjustment to account balances. Instead, the
(represents a strategic
change is simply implemented in the current
shift and has major
period and all future periods.
effect on operations
and financials) Includes 17. restructuring include costs associated with mgmt.'s plans
Income (or loss) from costs to materially change the scope of business
the period plus the operations. Recognized in the period the exit
gain (or loss) from or disposal cost is incurred. Ex: termination
disposal benefits payable and costs associated with
closing facilities.
7. How is income tax expense Reported as a separate
shown? line in the income 18. retrospective The new standard is applied to all periods
statement approach presented in the financial statements. That is,
we restate prior period financial statements
8. IFRS Cash Flow investing: DIV received
as if the new accounting method had been
and interest rec
used in those prior periods. We revise the
financing: interest paid
balance of each account affected to make
and div paid
those statements appear as if the newly
9. Income from continuing operations Revenues adopted accounting method had been
includes Less cost of goods applied all along.
sold
Operating expenses
Operating Income
19. Revenues a company loses a major customer, 30. What is Refers to the ability of reported earnings
issues affecting misstatement of revenue, premature earnings (income) to predict a company's future
earnings quality revenue recognition quality? earnings
20. single-step first all revenues and gains are listed then 31. What is income One of two methods used by management
income all expenses and losses are listed besides shifting? to manipulate earnings
statement income tax expense which is listed at the
32. What is income Helps investors to predict future
bottom
smoothing? performance but it could also hide
21. US GAAP Cash operating: div receive, interest received underlying risks, therefore controversial
Flow and paid
33. What is other Certain gains & losses that are excluded
financing: div paid
comprehensive form the calculation of net income, but
22. What are Long-lived assets. Balance should be income? included in calculation of comprehensive
goodwill reduced if there has been a significant income
impairments impairment of the value Includes net income, gains, losses that
and asset change shareholders' equity but not
impairments? traditional net income
MUST INCLUDE NET INCOME
23. What are non- Earnings reduced by any expenses the
GAAP reporting company feels are unusual and
earnings? should be excluded.
Includes: restructuring costs, acquisition
cots, write-down of impaired assets, stock-
based compensation.
24. What are Costs associated with plans by
restructuring management to materially change either
costs? the scope or manner in which its
company's operations are conducted
Associated with shutdown or relocation of
facilities or downsizing operations
25. What Discontinuance of a component of an
constitutes a entity whose operations and cash flows
discontinued can be clearly distinguished from the rest
operation? of the entity.
Discontinued operations & tax
expense/benefit are reported separately
Reported: When component has been sold
OR considered held for sale
26. What is Amount of other comprehensive income
accumulated (nonowner changes in quite other than net
other income) accumulated over the current and
comprehensive prior periods.
income (OCI)?
27. What is an Statement of operations or statement of
income earnings that is used to summarize the
statement? profit-generating activities that occurred
during a particular report period
28. What is Traditional net income + other non owner
comprehensive changes in equity
income? Total change in equity for reporting period
other than from transactions with others
29. What is the amount of income earned per share of
earnings per a company's outstanding common stock
share? Links company's profitability to value of
individual share of ownership