Intermediate accounting 17e by kieso ch04

Intermediate Accounting Seventeenth Edition Kieso ● Weygandt ● Warfield Chapter Income Statement and Related Information This slide deck contains animations Please disable animations if they cause issues with your device Learning Objectives After studying this chapter, you should be able to: Understand the uses and limitations of an income statement Describe the content and format of the income statement Discuss how to report various income items Explain the reporting of accounting changes and errors Describe related stockholders’ equity statements Copyright ©2019 John Wiley & Sons, Inc Preview of Chapter (1 of 5) Income Statement and Related Information Income Statement • Usefulness • Limitations • Quality of earnings Copyright ©2019 John Wiley & Sons, Inc Preview of Chapter (2 of 5) Income Statement and Related Information Content and Format of the Income Statement • Elements • Intermediate components • Condensed income statements Single-step income statements Copyright â2019 John Wiley & Sons, Inc Preview of Chapter (3 of 5) Income Statement and Related Information Reporting Various Income Items • Unusual and infrequent gains and losses • Discontinued operations • Noncontrolling interest in income • Earnings per share • Summary Copyright ©2019 John Wiley & Sons, Inc Preview of Chapter (4 of 5) Income Statement and Related Information Accounting Changes and Errors • Changes in accounting principle • Change in accounting estimates • Corrections of errors • Summary Copyright ©2019 John Wiley & Sons, Inc Preview of Chapter (5 of 5) Income Statement and Related Information Related Stockholders’ Equity Statements • Retained earnings statement • Comprehensive income • Statement of stockholders’ equity • Balance sheet presentation Copyright ©2019 John Wiley & Sons, Inc Learning Objective Identify the Uses and Limitations of an Income Statement Copyright ©2019 John Wiley & Sons, Inc Income Statement Usefulness LO • Evaluate past performance of the company • Provide a basis for predicting future performance • Help assess the risk or uncertainty of achieving future cash flows Copyright ©2019 John Wiley & Sons, Inc Income Statement Limitations LO • Companies omit items they cannot measure reliably • Income is affected by the accounting methods employed Income measurement involves judgment Copyright â2019 John Wiley & Sons, Inc 10 Comprehensive Income Net Income Other Comprehensive Income + Income Statement (in thousands) Sales $285,000 Cost of goods sold 149,000 Gross profit 136,000 • Operating expenses: Selling expenses 10,000 Administrative expenses 43,000 Total operating expense 53,000 Income from operations 83,000 Other revenue (expense): Interest revenue 17,000 Interest expense (21,000) Total other LO for-sale securities • Translation gains and losses on foreign currency • Plus others (4,000) Income before taxes 79,000 Income tax expense 24,000 Net income Unrealized gains and losses on available- Reported in Stockholders’ Equity $ 55,000 Copyright ©2019 John Wiley & Sons, Inc 61 Comprehensive Income Review Question Gains and losses that bypass net income but affect stockholders' equity are referred to as a comprehensive income b other comprehensive income c prior period income d unusual gains and losses LO Copyright ©2019 John Wiley & Sons, Inc 62 Comprehensive Income Review Question Answer Gains and losses that bypass net income but affect stockholders' equity are referred to as a comprehensive income b other comprehensive income c prior period income d unusual gains and losses LO Copyright ©2019 John Wiley & Sons, Inc 63 Comprehensive Income Companies must display the components of other comprehensive income in one of two ways: A single continuous statement (one statement approach) or two separate, but consecutive statements of net income and other comprehensive income (two statement approach) LO Copyright ©2019 John Wiley & Sons, Inc 64 Comprehensive Income One Statement Approach Advantage - does not require the creation of a new financial statement Disadvantage - net income buried as a subtotal on the statement LO Copyright ©2019 John Wiley & Sons, Inc 65 Comprehensive Income Two Statement Approach LO Copyright ©2019 John Wiley & Sons, Inc 66 Statement of Stockholders’ Equity • Reports changes in each stockholders’ equity account and total equity for the period • Following items are disclosed in the statement:  Contributions (issuances of shares) and distributions (dividends) to owners  Reconciliation of carrying amount of each component of stockholders’ equity from beginning to end of period LO Copyright ©2019 John Wiley & Sons, Inc 67 Statement of Stockholders’ Equity (chart) LO Copyright ©2019 John Wiley & Sons, Inc 68 Statement of Stockholders’ Equity Balance Sheet Presentation LO Copyright ©2019 John Wiley & Sons, Inc 69 Learning Objective Compare the Accounting Procedures for Income Reporting Under G AAP and IFRS Copyright ©2019 John Wiley & Sons, Inc 70 IFRS Insights (1 of 4) Relevant Facts Similarities • Both GAAP and IFRS require companies to indicate the amount of net income attributable to noncontrolling interest • With the recent FASB Accounting Standards Update, under both I FRS and GAAP, unusual and infrequent income items are reported in Income before income taxes (i.e., not an extraordinary item treatment, with reporting similar to discontinued operations) • Both GAAP and IFRS follow the same presentation guidelines for discontinued operations, but I FRS defines a discontinued operation more narrowly Both standard-setters have indicated a willingness to develop a similar definition to be used in the joint project on financial statement presentation LO Copyright ©2019 John Wiley & Sons, Inc 71 IFRS Insights (2 of 4) Relevant Facts Similarities • Both GAAP and IFRS have items that are recognized in equity as part of comprehensive income but not affect net income Both GAAP and IFRS allow a one statement or two statement approach to preparing the statement of comprehensive income Differences • Presentation of the income statement under GAAP follows either a single-step or multiple-step format I FRS does not mention a single-step or multiple-step approach • Under IFRS, companies must classify expenses by either nature or function G AAP does not have that requirement, but the SEC requires a functional presentation LO Copyright ©2019 John Wiley & Sons, Inc 72 IFRS Insights (3 of 4) Relevant Facts Differences • IFRS identifies certain minimum items that should be presented on the income statement G AAP has no minimum information requirements However, the SEC rules have more rigorous presentation requirements • IFRS does not define key measures like income from operations S EC regulations define many key measures and provide requirements and limitations on companies reporting non-G AAP/IFRS information • Under IFRS, revaluation of property, plant, and equipment, and intangible assets is permitted, with gains reported as other comprehensive income The effect of this difference is that application of I FRS results in more transactions affecting equity but not net income LO Copyright ©2019 John Wiley & Sons, Inc 73 IFRS Insights (4 of 4) On The Horizon The I A S B and FASB have worked on a project that would restructure the financial statements One stage of this project will address the issue of how to classify various items in the income statement A main goal of this new approach is to provide information that better represents how businesses are run, that is, an idea to require comprehensive income be reported in a combined statement of comprehensive income This approach draws attention away from just one number—net income This broad project is on hold; both Boards are working on separate, narrower projects in response to non-GAAP reporting LO Copyright ©2019 John Wiley & Sons, Inc 74 Copyright Copyright © 2019 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein Copyright ©2019 John Wiley & Sons, Inc 75 ... Chapter (4 of 5) Income Statement and Related Information Accounting Changes and Errors • Changes in accounting principle • Change in accounting estimates • Corrections of errors • Summary Copyright... Statement Limitations LO • Companies omit items they cannot measure reliably • Income is affected by the accounting methods employed • Income measurement involves judgment Copyright ©2019 John Wiley... format of the income statement Discuss how to report various income items Explain the reporting of accounting changes and errors Describe related stockholders’ equity statements Copyright ©2019 John