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32 Cards in this Set

  • Front
  • Back
What are the six irregular items shown on the Income Statement?
1. Discontinued operations
2. Extraordinary items
3. Unusual gains and losses
4. Changes in accounting principle
5. Changes in estimates
6. Corrections of errors
The computation for the basic earnings per share is:
Net Income-preferred dividends/
Weighted Average Common Shares Outstanding
There are three methods to report comprehensive income. They are:
1. As a second income statement.
2. A combined statement of comprehensive income.
3. Part of the statement of stockholders' equity.
IDEA
I-Income from continuing operations (Operating, non-operating)
D-Discontinued operations
E-Extraordinary items
A-Accounting principle, cumulative effect of changed in
PUFE
P-Pension minimum liability adjustments
U-Unrealized gains and losses
F-Foreign currency items
E-Effective portion cash flow hedges
Comprehensive Income
Net Income (per Income Statement) + Other Comprehensive Income (PUFE) = Comprehensive Income
What are the intermediate components of the Multiple-Step income Statement?
1. Operating Section
2. Non-operating section
3. Income tax
4. Discontinued operations
5. Extraordinary items
6. Earnings per share
Where are discontinued operations reported?
On the income statement after "income from Continuing operations" (previously labeled Net Income)
Extraordinary items
Nonrecurring material items that differ significantly from a company's typical business activities. Must be both:
Unusual in nature AND Occur infrequently.
**reported NET of tax
Material items that are unusual or infrequent, but not both, should be reported where?
In a separate section on the Income Statement just above “Income from continuing operations before income taxes.”

The Board prohibits net-of-tax treatment for these items.
Other comprehensive income.
Gains and losses that bypass net income but affect stockholders' equity
What is not reported in an income statement under IFRS?
Extraordinary items
How are expenses classified under IFRS?
Companies must classify expenses either by nature or function
What is not an acceptable way of displaying the components of other comprehensive income under IFRS?
Within the statement of retained earnings
What are the required classification and disclosure requirements of discontinued operations?
a) Gain or Loss from operations of the discontinued segment (net of tax)
b) Gain or loss from disposal of a discontinued segment (net of tax)
Basic calculation of COGS
Beginning Inventory + Purchases – Ending Inventory = COGS
Discontinued Operations
Material gains and losses resulting from disposal of a segment of the business.
a) The results of operations and cash flows of a component of a company have been (or will be) eliminated from the ongoing operations, AND
b) There is no significant continuing involvement in that component after the disposal transaction
Extraordinary Items
Unusual and infrequent material gains and losses. CONSIDER the environment in which the entity operates.
Change in Estimate
Normal, recurring corrections and Adjustments. They are shown in the Income Statement in the account which is affected (NOT net of tax).
Free Cash Flow
Net cash provided by operating activities - Capital Expenditures - Dividends = Free Cash Flow
Current Debt Coverage Ratio
Net Cash Provided by Operating Activities / Average Total Liabilities = Current Debt Coverage Ratio
Current Cash Debt Coverage Ratio
Net cash provided by operating activities / Average current liabilities = Current Cash debt Coverage Ratio
Describe the major disclosure techniques for the balance sheet
Companies use four methods to disclose pertinent information in the balance sheet:
(1) Parenthetical explanations
item.
(2) Notes
(3) Cross-reference and contra items
(4) Supporting schedules
Determine which balance sheet information requires supplemental disclosure
Four types of information normally are supplemental to account titles and amounts presented in the balance sheet:
(1) Contingencies: Material events that have an uncertain outcome. (2) Accounting policies: Explanations of the valuation methods used or the basic assumptions made concerning inventory valuation, depreciation methods, investments in subsidiaries, etc. (3) Contractual situations: Explanations of certain restrictions or covenants attached to specific assets or, more likely, to liabilities. (4) Fair values: Disclosures related to fair values, particularly related to financial instruments.
Identify the content of the statement of cash flows
In the statement of cash flows, companies classify the period’s cash receipts and cash payments into three different activities: (1) Operating activities: Involve the cash effects of transactions that enter into the determination of net income. (2) Investing activities: Include making and collecting loans, and acquiring and disposing of investments (both debt and equity) and of property, plant, and equipment. (3) Financing activities: Involve liability and owners’ equity items. Financing activities include (a) obtaining capital from owners and providing them with a return on their investment, and (b) borrowing money from creditors and repaying the amounts borrowed.
Prepare a basic statement of cash flows
Companies follow four steps to prepare the statement of cash flows from these sources: (1) Determine the cash provided by operating activities. (2) Determine the cash provided by or used in investing and financing activities. (3) Determine the change (increase or decrease) in cash during the period. (4) Reconcile the change in cash with the beginning and ending cash balances
To analyze financial statements, we classify ratios into four types, as follows:
LIQUIDITY RATIOS. Measures of the company’s short-term ability to pay its maturing obligations.

ACTIVITY RATIOS. Measures of how effectively the company uses its assets.

PROFITABILITY RATIOS. Measures of the degree of success or failure of a given company or division for a given period of time.

COVERAGE RATIOS. Measures of the degree of protection for long-term creditors and investors.
3 types of liquidity ratios
1. Current ratio
2. Quick or acid-test ratio
3. Current cash debt coverage ratio
3 types of activity ratios
1. Receivables turnover
2. Inventory turnover
3. Asset turnover
6 types of profitability ratios
1. Profit margin on sales
2. Rate of return on assets
3. Rate of return on common stock equity
4. Earnings per share
5. Price earnings ratio
6. Payout ratio
5 types of coverage ratios
1. Debt to total assets
2. Times interest earned
3. Cash debt coverage ratio
4. Book value per share
5. Free cash flow
The stockholders’ equity section is usually divided into what three parts?
Capital stock, additional paid-in capital, retained earnings.