The Income Statement, the Statement of Comprehensive Income, and the Statement of Stockholders’ Equity

Download The Income Statement, the Statement of Comprehensive Income, and the Statement of Stockholders’ Equity

Post on 05-Dec-2014

66 views

Category:

Business

1 download

Embed Size (px)

DESCRIPTION

The Income Statement, the Statement of Comprehensive Income, and the Statement of Stockholders Equity

TRANSCRIPT

<ul><li> 1. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 1 </li> <li> 2. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 2 The Income Statement, the Statement of Comprehensive Income, &amp; the Statement of Stockholders Equity Chapter 11 </li> <li> 3. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 3 Evaluate quality of earnings </li> <li> 4. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 4 Earnings Quality </li> <li> 5. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 5 Revenue Recognition Revenue is recognized when earned </li> <li> 6. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 6 Cost of Goods Sold and Gross Profit </li> <li> 7. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 7 Operating and Other Expenses Largest operating expenses include salaries, wages, utilities, and supplies The lower the cost relative to sales, the more efficiently management is operating the business Cutting costs can either help or hurt the bottom line </li> <li> 8. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 8 Account for foreign-currency gains and losses </li> <li> 9. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 9 International Transactions JOURNAL Date Accounts Debit Credit 7-28 Accounts Receivable (1 million pesos x $0.086) 86,000 Sales 86,000 10-18 Cash (1 million pesos x $0.083) 83,000 Foreign currency transaction loss 3,000 Accounts Receivable 86,000 </li> <li> 10. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 10 International Transactions JOURNAL Date Accounts Debit Credit 9-15 Inventory (20,000 Swiss francs x $1.15) 23,000 Accounts payable 23,000 10-18 Accounts payable 23,000 Cash (20,000 Swiss francs x $1.10) 22,000 Foreign-currency transaction gain 1,000 </li> <li> 11. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 11 Reporting Foreign-Currency Gains &amp; Losses Gains and losses netted Shown as Other Revenue or Expense Income Statement (Partial) Other Expenses and Losses: Foreign-Currency Transaction Loss, net $2,000 $3,000 loss less $1,000 gain </li> <li> 12. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 12 Account for other items on the income statement </li> <li> 13. Interest Expense and Interest Income Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 13 Interest expense Interest income Cost of borrowing money Return earned on invested money </li> <li> 14. From the income statement From the tax return Income Statement Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 14 Corporate Income Taxes Income tax expense Income before taxes Income tax rate From the income statement account Income tax payable Taxable income From the tax return Income tax rate Income Statement account Balance sheet Balance sheet account account </li> <li> 15. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 15 Exercise 11-19A JOURNAL Date Accounts Debit Credit 12-31 Income Tax Expense ($500,000 x 40%) 200,000 Deferred Tax Liability 24,000 Income Tax Payable ($440,000 x 40%) 176,000 Income taxes paid </li> <li> 16. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 16 Exercise 11-19A Deferred tax liability 32,000 24,000 56,000 </li> <li> 17. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 17 Value of Corporate Stock Estimated value of common stock Estimated future annual income Investment capitalization rate Current market value of company Number of common shares outstanding Current market price per share </li> <li> 18. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 18 Investment Decision Rule If the estimated value of the company Decision Exceeds Current market value of the company Buy the stock because the price may go up Equals Hold the stock because the price will hold steady Is less than Sell the stock because the price may go down </li> <li> 19. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 19 Discontinued Operations Sale or closure of a business segment Gain or loss reported net of income tax Typically not considered by analysts in making predictions </li> <li> 20. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 20 Change in estimates Change in principles Examples: Estimated life of plant asset Percent uncollectible of receivables Report new amounts for current and future periods Example: Change in inventory method (FIFO to LIFO) Report retrospectively Prior period amounts are restated Accounting Changes </li> <li> 21. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 21 Compute earnings per share </li> <li> 22. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 22 Earnings per Share (EPS) Net income Net income mmiinnuuss PPrreeffeerrrreedd DDiivviiddeennddss AAvveerraaggee ## ooff CCoommmmoonn SShhaarreess OOuuttssttaannddiinngg Key measure of business success </li> <li> 23. Common shares outstanding = shares issued less treasury shares Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 23 Exercise 11-20A Preferred stock $20 par, 2%, 11,000 shares issued $220,000 Common stock, $2.50 par, 1,100,000 shares issued 2,750,000 Treasury stock, common, 120,000 shares at cost 480,000 Preferred Dividend Preferred Dividend = = $ $222200,0,00000 x x 2 2%% $$44,,440000 Common shares outstanding = shares issued less treasury shares 1,100,000 120,000 = 1,100,000 120,000 = 980,000 980,000 </li> <li> 24. $6,200,000 $4,400 Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 24 Exercise 11-20A Net Net I Innccoommee m miinnuuss P Prreeffeerrrreedd D Diivviiddeennddss AAvveerraaggee # # o off C Coommmmoonn S Shhaarreess O Ouuttssttaannddiinngg Earnings per share 980,000 $6.32 </li> <li> 25. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 25 Correcting Retained Earnings Prior period adjustments Corrections to Retained Earnings for errors of an earlier period Revenue or expense recorded incorrectly in an earlier period Correction of error adjusts beginning balance of retained earnings </li> <li> 26. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 26 Analyze the statement of comprehensive income and the statement of stockholders equity </li> <li> 27. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 27 Comprehensive Income Change in total stockholders equity from all non-owner sources Net income plus: Unrealized gains (losses) on available-for-sale investments Foreign-currency translation adjustments Reported: Separate statement OR Combined with net income in unified statement of comprehensive income </li> <li> 28. Additional paid-in capital Retained earnings Accumulated other comprehensive income Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 28 Statement of Stockholders Equity Column for each element of equity Common stock Treasury stock Row for each transaction that affected equity Beginning balance + Net earnings + or - Accumulated other comprehensive income + Issuance of stock - Repurchase of stock - Dividends </li> <li> 29. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 29 Differentiate managements and auditors responsibilities in financial reporting </li> <li> 30. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 30 Managements Responsibility Issues report on and declares responsibility for internal control over financial reporting States it has conducted an assessment of internal controls based on developed frameworks Internal controls determined to be effective Internal controls audited by outside auditors </li> <li> 31. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 31 Auditors Report CPAs examine financial statements of publicly-traded companies Auditors determine if statements comply with GAAP Decide if internal controls meet standards Combined report issued on the financial statements and system of internal controls Audit adds credibility to financial statements and internal control system </li> <li> 32. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 32 </li> <li> 33. Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall. 33 </li> </ul>