acct 3001 chapt 4 book
retrospective adjustment
A company recognizes a change in accounting principle by making a ____ ___ to the financial statements.
retrospective retained earnings
A company recognizes a change in accounting principle by making a ______ adjustment to the financial statements to the beginning ____ ____ of the earliest year presented
ordinary and typical activities.
A company should not report a restructuring charge as an extraordinary item because these write-offs are part of a company's_____and ______activities.
per share
A company that reports a discontinued operation or an extraordinary item must report ____ ___ amounts for these line items either on the face of the income statement or in the notes to the financial statements.
earnings per share
A distilled and important income figure, calculated as net income minus preferred dividends (income available to common stockholders), divided by the weighted average of common shares outstanding.
Appropriated Retained Earnings
A retained earnings account that is restricted for a specific use, usually to comply with contractual requirements, board of directors' policy, or current necessity.
Noncontrollable interest
A section on the multiple step income statement that reports allocation of income to controlling shareholders
income tax
A section on the multiple step income statement that reports federal and state taxes levied on income from continuing operations
discontinued operations
A section on the multiple step income statement that reports material gains or losses resulting from the disposition of a component of the business
Extraordinary items
A section on the multiple step income statement that reports unusual and infrequent material gains and losses
other revenues and gains other expenses and losses
Adjustment of accruals on long-term contracts is considered is part of _____ _____ and _____ on the income statement
changes in accounting estimates
Adjustments or changes that companies must make because financial circumstances did not turn out as expected.
changes in accounting principle
Adjustments or changes that results when a company adopts a different accounting principle.
modified all-inclusive concept
Approach, adopted by the accounting profession, that dictates that companies record just about all items, including irregular ones, as part of net income, and that companies must highlight irregular items in the financial statements.
Net income- preferred dividends ________________________ weighted average of common stocks outstanding
Calculate earnings per share
extraordinary
Changes in accounting estimates are not considered errors or ____ items.
errors
Changes in estimate are not considered _______.
retroactive
Changes in lifo or fifo would result in a ____ change to statements
prior years
Companies account for changes in accounting estimates in the period of change if they affect only that period, or in the period of change and future periods if the change affects both. They do not carry back such changes to ___ __.
errors
Companies correct ______by making proper entries in the accounts and reporting the corrections in the financial statements (as an adjustment to the beginning balance of retained earnings) in the year in which they are discovered.
unusual items
Companies tend to report ____ _____ in a separate section just above "Income from operations before income taxes,"
Income from continuing operations
Companies use the phrase "____ from ____ _____" only when gains or losses on discontinued operations occur.
prior period adjustments
Corrections of accounting errors made in previous accounting periods
losses
Decreases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from expenses or distributions to owners.
reported net of tax
Discontinued operations are ____ net of tax
disposal of a component of a business for which the company can clearly distinguish operations and cash flows from the rest of the company's operations
Discontinued operations criteria
Continuing operations shown net of tax
Discontinued operations is shown after _____ ____ but before extraordinary items and is ______ net of tax
common stock
EPS measures the number of dollars earned by each share of ____ _____.
other expenses and losses
Effects of a strike, including those against competitors and major suppliers is considered is part of _____ _____ and _____ on the income statement
Reported net of tax
Extraordinary items are ___ net of tax
shown net of taxes
Extraordinary items are _____ net of tax
unusual gains or losses other revenues and gains other expenses and losses
Gains or losses from exchange or translation of foreign currencies, including those relating to major devaluations and revaluations is considered is part of _____ _____ and _____ on the income statement
Unusual gain or loss
Gains or losses from sales of assets used in business is an example of on the multi step income statement
comprehensive income
Income measure that includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
single-step income statement
Income statement format that consists of just two groupings: revenues and expenses. Expenses are deducted from revenues to arrive at net income or loss. Companies that use the single-step income statement in financial reporting typically do so because of its simplicity.
current operating performance approach
Income-reporting approach that advocates reporting only regular and recurring revenue and expense elements, but not irregular items, in income.
Gains
Increases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from revenues or investments by owners.
Revenues
Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.
statement of stockholders' equity
It typically shows balances at the beginning of the period, additions and deductions, and balances at the end of the period
Discontinued operations
Loss of disposal from operation of pizza division will be found under this section of the income statement
other expenses and losses
Loss on disposal of part of texstile division will annotated under this section
Extraordinary items
Major casualty(earthquake), expropriation, or a prohibition under a newly enacted law or regulation is reported under this section
Transaction approach
Method of income measurement that focuses on the income-related activities—revenue, expense, gain, and loss transactions—that have occurred during the period.
1) Operating section 2) Non Operating section 3) Income tax 4) Discontinued Operations 5)Extraordinary Items 6) Non Controlling interest 7) Earnings per share
Multi step income statement sections (7)
1) Other revenues and gains 2) Other expenses and losses
Non Operating Section of the multiple step income statement is comprised of: 2
income or expense
Non controlling interest is not reported as an item of ___ or ___
allocation of net income or loss divided between two classes 1)the majority of interest represented by the shareholders who own the controlling interest and 2) the noncontrolling interest *minority interest
Noncontrolling interest criteria def and criteria (2)
extraordinary items
Nonrecurring material items that differ significantly from a company's typical business activities. They are distinguished by their unusual nature and by the infrequency of their occurrence.
Discontinued operations
Occurs for a company when two things happen: (1) a company eliminates the results of operations and cash flows of a component from its ongoing operations, and (2) there is no significant continuing involvement in that component after the disposal transaction.
statement of stockholders' equity
One of the basic financial statements, which reports the changes in each stockholders' equity account and in total stockholders' equity during the year.
1)Sales or revenues section 2)Cost of Goods Sold Section 3)Selling Expenses 4)Administrative or general Expenses
Operating Section of the Multiple step income statement is comprised of (4 sections)
Expenses
Outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations.
intraperiod tax allocation
Reporting of irregular items within an accounting period on the income statement or statement of retained earnings net of tax. Such allocation relates the income tax expense of the fiscal period to the specific items that give rise to the amount of the tax provision. It helps financial statement users better understand the impact of income taxes on the various components of net income, and it discourages statement readers from using pretax measures of performance when evaluating financial results.
unusual gains or losses other expenses and losses
Restructuring charges is considered is part of _____ _____ and _____ on the income statement
total retained earnings
Retained earnings free(unrestricted) + retained earnings appropriated =
Non Operating Section
Section of the multiple step income statement that reports revenues and expenses resulting from secondary or auxiliary activities of the company. In addition special gains that are infrequent or unusual, but not both, are normally reported in this section
operating section
Section of the multiple step income statement that reports the revenues and expenses of the company's principal operations
income tax
Subtract out any applicable _____ ___ when determining amount to list for loss or income from discontinued operations
Quality of earnings
The extent to which earnings is useful to investors and creditors in making resource allocation decisions, generally in terms of predicting future earnings and cash flows.
Income Statement
The financial report that measures the success of company operations for a given period of time.
Earnings Management
The planned timing of revenues, expenses, gains, and losses to smooth out bumps in earnings.
Noncontrolling interest
The portion of equity (net assets) interest in a subsidiary not attributable to the parent company.
infrequence of occurrence
The underlying event or transaction should be of a type that the company does not reasonably expect to recur in the foreseeable future, taking into account the environment in which the company operates
unusual nature
The underlying event or transaction should possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the company, taking into account the environment in which it operates.
1. Sales 2. Discounts 3. Allowances 4. Returns other related info
Under the operating section, A. Sales or revenue section presents: (4 examples) Its main purpose is to arrive at the net amount of sales revenue.
the cost of goods that were sold to produce sales
Under the operating section, B. "Cost Of Goods Sold" shows:________ to produce sales
expenses resulting form the companies efforts to make sales
Under the operating section, Selling expenses lists____________ resulting from the companies efforts to _____ ____
1) material 2) character typical of the customary business activities 3) unusual or infrequent but not both
Unusual gains and losses must be meet 3 criteria
not reported net of tax
Unusual gains or losses are _____ net of tax
1.material 2. Character typical of the customary business activities 3. Unusual or infrequent but not both
Unusual gains or losses not considered extraordinary must meet 3 criteria
Unusual gain or loss
Write downs of receivables inventories is an example of on the multi step income statement
change in accounting principle
a change in the method of inventory pricing from FIFO to average-cost is considered to be a change in accounting ______
Retained earnings 100 A/R 100
a company determined that it incorrectly overstated its accounts receivable and sales revenue by $100 in 2014. In 2015, it will:
acct 3001 chapter 4
acct 3001 chapter 4
Unusual gain or loss
adjustments of accrued contract prices is an example of on the multi step income statement
selling expense under operating expenses
advertising expense is a _____ _____ under what section on the income statement
change in accounting principle
change from accounting for construction contracts from the percentage-of-completion to the completed-contract method is considered to be a change in accounting ______
current
companies estimate useful lives and salvage values of depreciable assets, uncollectible receivables, inventory obsolescence, and the number of periods expected to benefit from a particular expenditure and therefore make changes to the ____ period
face
companies must disclose earnings per share on the ____ of the income statement.
expenses
cost of goods sold, depreciation, interest, rent, salaries and wages, and taxes are examples of
unusual gains or losses other expenses and losses
deferred research and development costs is considered is part of _____ _____ and _____ on the income statement
selling expense under operating expenses
delivery expense is a _____ _____ under what section on the income statement
administrative expenses under operating expenses
depreciation of building is a _____ _____ under what section on the income statement
administrative expenses under operating expenses
depreciation of office equipment is a _____ _____ under what section on the income statement
selling expense under operating expenses
depreciation of sales equipment is a _____ _____ under what section on the income statement
1) disposal of a component of a business 2) company can clearly distinguish operations and cash flows from the rest of the company's operations
discontinued operations must meet two criteria
(net income - preferred dividends) ____________________________ Weighted avg of common shares outstanding
earnings per share =
Material Unusual and Infrequent
extraordinary items criteria (3)
1) unusual in nature 2) infrequency of occurence
extraordinary items must me two criteria:
1) material 2) unusual 3) infrequent
extraordinary items must meet 3 criteria
Discontinued operations
food distributor that sells whole to supermarket chains and through fast-food restarants decides to discontinue the division that sells to one of the two classes of customers
Multiple-Step Income Statement
format that separates operating transactions from nonoperating transactions, and matches costs and expenses with related revenues. It highlights certain intermediate components of income that analysts use to compute ratios for assessing the performance of the company.
extraordinary items
gain or loss from expropriation example of on the multi step income statement
extraordinary
gain or loss from expropriation is considered
extraordinary items
gain or loss from prohibition under a new law example of on the multi step income statement
not added disclosed
gains and losses from available for sale securities are ___ ___ to net income and are rather ____
Unusual gain or loss
gains or losses from fluctuations of the foreign exchange is an example of on the multi step income statement
unusual gains or losses other revenues and gains other expenses and losses
gains or losses from sale or abandonment of property, plant, or equipment used in the business is considered is part of _____ _____ and _____ on the income statement
extraordinary items
gains or losses resulting from casualties example of on the multi step income statement
relevance and faithful representation
higher-quality earnings exhibit higher levels of ____ and _____ representation.
administrative expenses under operating expenses
insurance expense is a _____ _____ under what section on the income statement
gain
is any excess of the selling price over the book value that is not normally part of operations
administrative expenses under operating expenses
legal and professional services is a _____ _____ under what section on the income statement
unusual gains or losses other expenses and losses
losses on the write down or write off of receivables; inventories; property, plant, and equipment is considered is part of _____ _____ and _____ on the income statement
extraordinary loss
major casualty such as an earthquake, if earthquakes are not common, is considered
administrative expenses under operating expenses
misc office expenses is a _____ _____ under what section on the income statement
amount minus the associated tax
net of tax=
non controlling interest
net profit (loss) attributable to non controlling shareholders example of on the multi step income statement
administrative expenses under operating expenses
office salaries is a _____ _____ under what section on the income statement
administrative expenses under operating expenses
officers salaries is a _____ _____ under what section on the income statement
Other revenues and gains
on the multiple step income statement, under Nonoperating section; A list of other revenues and or gains incurred general net of the related expenses, from non operating transactions
other expenses and losses
on the multiple step income statement, under Nonoperating section; a list of the expenses or losses incurred generally net of any related incomes from non operating transactions
selling expense under operating expenses
postage and stationery is a _____ _____ under what section on the income statement
extraordinary
prohibition under a newly enacted law or regulation is considered
Income Statement
provides investors and creditors with information that helps them predict the amounts, timing, and uncertainty of future cash flows.
restructuring charge
relates to a major reorganization of company affairs, such as costs associated with employee layoffs, plant closing costs, write-offs of assets, and so on.
Discontinued operations
sale by a diversified company of major division that represents only activities in the electronics industry example of on the multi step income statement
selling expense under operating expenses
sales office salaries is a _____ _____ under what section on the income statement
selling expense under operating expenses
sales salaries and commissions is a _____ _____ under what section on the income statement
Revenues
sales, fees, interest, dividends, and rents are examples of
selling expense under operating expenses
shipping supplies and expense is a _____ _____ under what section on the income statement
administrative expenses under operating expenses
stationary supplies and postage is a _____ _____ under what section on the income statement
selling expense under operating expenses
telephone and internet expense is a _____ _____ under what section on the income statement
gains and losses
the sale of investments or plant assets, settlement of liabilities, and write-offs of assets due to impairments or casualty are examples of
selling expense under operating expenses
travel and entertainment is a _____ _____ under what section on the income statement
general administration
under the Operating section; Adminstrative or general expenses reports expenses of ____ ____
excluded
unrealized gains and losses on available-for-sale securities are _____ from net income
other revenues and gains other expenses or losses above extraordinary items on the I/S not shown net of tax
unusual gains and losses are often reported as "____ ____ and ____" or "____ ____ and ____" and found above ______ on the income statement. They are ______ net of tax
administrative expenses under operating expenses
utilities expense is a _____ _____ under what section on the income statement
extraordinary
when a company sells the only significant security investment it has ever owned, the gain or loss meets the criteria of an _____ item