Chapter 4 Intermediate Accounting

Front 1

define income statement

Back 1

the report that measures the success of company operations for a given period of time

Front 2

why do investors and creditors use the income statement?

Back 2

1.evaluate past performance
2.provide a basis for predicting future performance
3. help assess the risk or uncertainty of achieving future cash flows

Front 3

what elements are found in the income statement?

Back 3

revenue,expense,gain,and losses

Front 4

what are some limitations of the income statement?

Back 4

1. companies omit items from the i.s that they cannot measure reliably
2. income #'s are affected by the accounting methods employed
3. income measurement involves judgement.

Front 5

what is earnings management?

Back 5

the planned timing of revenues, expenses, gains and losses to smooth bumps in earnings

Front 6

T/F. earnings management can negatively affect the quality of earnings.

Back 6

true. if it distorts the info in a way that is less useful for predicting future earnings and cash flows

Front 7

define revenues

Back 7

inflows or other enhancements of assets of an entity during a period from activities that constitute the entity's ongoing major operations

Front 8

define expenses

Back 8

outflows or other using up of assets during a period from carrying out activities that constitute the entity's ongoing major operations

Front 9

define gains

Back 9

increase in equity (net assets) from peripherial or incidental transactions of an entity

Front 10

define losses

Back 10

decrease in equity (net assets) from peripherial or incidental transactions of an entity

Front 11

name some examples of revenues

Back 11

sales,interest,rents

Front 12

what are some examples of expenses

Back 12

cost of goods sold,interest

Front 13

describe the format of a single step income statement

Back 13

it consists of only two groups: revenues and expenses. expenses are deducted from revenues to arrive at net income or loss

Front 14

what are the 6 sections of a multistep income statement (in order)

Back 14

1. operating section
2. non operating section
3. income tax
4. discontinued operations
5. extraordinary items
6. earnings per share

Front 15

what are the four sections found in the operating section of a multistep i.s.

Back 15

1. sales/revenue
2. cost of goods sold
3. selling expense
4. administrative or general expense

Front 16

what are the two sections found in the non operating section of a multistep i.s

Back 16

1. other revenue/gains
2. other expenses/losses

Front 17

what are six categories of irregular items?

Back 17

1. discontinued operations
2. extraordinary items
3. unusual gains and losses
4. changes in accounting principle
5. changes in estimates
6. corrections of errors

Front 18

when is something classified as a discontinued operation?

Back 18

a company eliminates the results of perations and cash flows of a component from its ongoing operations and there is no significant continuing involvement in that component after the disposal transaction.

Front 19

how is discontinued operations shown on the i.s

Back 19

shown net of tax before extraordinary items and after continuing operations

Front 20

what are extraordinary items

Back 20

events and transactions that are unusual in nature and infrequent in occurrence

Front 21

give two examples of an extraordinary item

Back 21

1. prohibition of a newly enacted law
2. earthquake in nyc

Front 22

how are extraordinary items shown in the i.s?

Back 22

net of taxes in a seperate section just before net income

Front 23

define unusual gains and losses

Back 23

unusual or infrequent but not both

Front 24

how are unusual gains or losses shown on the income statement?

Back 24

in seperate section above income before extraordinary items. not shown net of tax

Front 25

what is changes of principle?

Back 25

change from one generally accepted principle to another

Front 26

what is intraperiod tax allocation?

Back 26

companies report irregular items (except for unusual gains and losses) on the income statement net of tax.

Front 27

what items on the income statement have intraperiod tax allocation?

Back 27

income from continuing operations, discontinued operations, and extraordinary items.

Front 28

what is earnings per share?

Back 28

net income - preferred dividends divided by weighted average of common shares outstanding.

Front 29

what is comprehensive income?

Back 29

all changes in equity during a period except those resulting from investments by owners nad distributions to owners.