1. Certified General Accountants
Module 1
Certified General Accountants
Financial Accounting Fundamentals
(FA1)
Module 9
Accounting for Partnerships and Corporations
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2. © 2010 McGraw-Hill Ryerson Limited.
Learning Objectives
List the characteristics of a proprietorship and a partnership and explain the importance of mutual agency and unlimited liability in a partnership. (Level 2)
Allocate partnership earnings to partners (a) on a fractional basis, (b) in the partners’ capital ratio and (c) through the use of salary interest allowances and a fixed ratio. (Level 1)
Explain the advantages, disadvantages and organization of corporations. (Level 2)
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3. © 2010 McGraw-Hill Ryerson Limited.
Learning Objectives
Explain the differences in the financial statements for corporate and unincorporated organizations. (Level 1)
Record the issuance of shares. (Level 1)
State the differences between common and preferred shares and allocate dividends between common and preferred shares. (Level 2)
Record cash dividends and explain their effects on the assets and shareholders’ equity of a corporation. (Level 2)
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4. © 2010 McGraw-Hill Ryerson Limited.
Learning Objectives
Calculate book value per share and interpret and apply this ratio in decision-making scenarios. (Level 2)
Record share dividends, share splits, and retirement of shares and explain their effects on the assets and shareholders’ equity. (Level 2)
Calculate earnings per share for companies with simple capital structures and interpret and apply this ratio in decision-making scenarios. (Level 2)
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5. © 2010 McGraw-Hill Ryerson Limited.
Partnerships
C H A P T E R 14
Slides Content
1-3 Learning objectives
4-7 Introduction to partnerships
8-11 Liabilities of partners
Profit and loss sharing
22-33 Admission of a partner
Withdrawal of a partner
42-49 Liquidation of a partnership
Review and end of chapter
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6. © 2010 McGraw-Hill Ryerson Limited.
Partnership
An unincorporated association of two or more persons to pursue a business for profit as co-owners.
LO 1
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7. Partnership Agreement
Usually include the partners’:
Names and contributions,
Rights and duties,
Sharing of income and losses,
Withdrawal provisions,
Dispute procedures, …
LO 1
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8. Partnership Agreement
Usually include the partners’:
Procedures for admission and withdrawal of new partners, and
Rights and duties of surviving partners in the event of a partner’s death.
LO 1
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9. Characteristics of Partnerships
Limited life
Taxation of partners
Co-ownership of property
Mutual agency
Unlimited liability
LO 1
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10. © 2010 McGraw-Hill Ryerson Limited.
Liability of Partners
Partners’ liabilities depend upon the form of partnership.
Partnership forms:
General partnerships
Limited partnerships
Limited liability partnerships
LO 1
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11. © 2010 McGraw-Hill Ryerson Limited.
Liability of Partners
General Partnerships Each partner has unlimited liability for the partnership’s debts.
LO 1
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12. © 2010 McGraw-Hill Ryerson Limited.
Liability of Partners
Limited Partnerships
At least one general partner who assumes management duties and unlimited liability for the debts of the partnership.
Other partners may be limited partners who have no personal liability beyond the amounts they invested in the partnership.
LO 1
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13. © 2010 McGraw-Hill Ryerson Limited.
Liability of Partners
Limited Liability Partnerships
Protects innocent partners from malpractice or negligence resulting from the acts of another partner.
All partners are personally responsible for other partnership debts.
LO 1
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14. Partnership Accounting
Separate capital account and withdrawal account for each partner.
Partnership income or loss is allocated to partners based on partnership agreement.
Partners can invest assets and liabilities in the partnership.
Assets invested are recorded at fair market value.
LO 2
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15. Illustration: Formation of a partnership
Jackson and Thompson create a partnership. Jackson invests $20,000 cash and Thompson invests $20,000 cash and equipment with a fair market value of $10,000.
The entries to record these investments are:
Cash ,000
Jackson, capital ,000
Equipment ,000
Thompson, capital ,000
LO 2
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16. Dividing Income or Loss
The partnership income or loss may be allocated based on:
Fractional basis
Ratio of capital investments
Salaries, interest allowance, and a fixed ratio
LO 3
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17. Illustration: Income and loss sharing based on a fractional basis.
Jackson and Thompson agree to share income and losses on a 2:1 ratio. The income for the year is $90,000.
The entry to close the income summary account is :
Income summary ,000
Jackson, capital ,000
Thompson, capital ,000
2/3 x 90,000 = 60,000
1/3 x 90,000 = 30,000
LO 3
© 2010 McGraw-Hill Ryerson Limited.

18. Income and loss sharing based on ratio of capital investments.
Jackson and Thompson agree to share income and losses on the basis of their beginning capital investments. Assume partnership income for the year is $90,000, and Jackson and Thompson’s beginning-of-year capital balances are $20,000 and $30,000 respectively.
The entry to close the income summary account is :
Income summary ,000
Jackson, capital ,000
Thompson, capital ,000
20,000/50,000 x 90,000 = 36,000
30,000/50,000 x 90,000 = 54,000
LO 3
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19. © 2010 McGraw-Hill Ryerson Limited.
Income and loss sharing based on salaries, interest allowance, and a fixed ratio
Jackson and Thompson agree to share income or losses as follows:
Annual salary allowances of $30,000 for Jackson and $10,000 for Thompson.
Interest allowances of 10% of beginning-of-year capital balance.
Remainder to be shared equally.
Assume partnership income for the year is $90,000 and Jackson and Thompson’s beginning-of-year capital balances are $80,000 and $70,000 respectively.
LO 3
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20. © 2010 McGraw-Hill Ryerson Limited.
The entry to close the income summary account is :
Income summary ,000
Jackson, capital ,500
Thompson, capital 34,500
LO 3
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21. © 2010 McGraw-Hill Ryerson Limited.
Income and loss sharing based on salaries, interest allowance, and a fixed ratio
Assume the same income and loss sharing agreement as before and that there is a net loss of $10,000 for the year.
LO 3
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22. © 2010 McGraw-Hill Ryerson Limited.
The entry to close the income summary account is :
Thompson, capital ,500
Income summary ,000
Jackson, capital ,500
LO 3
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23. © 2010 McGraw-Hill Ryerson Limited.
Organization and Operation of Corporations
C H A P T E R 15
Slides Content
1-3 Learning objectives
4-8 Characteristics of partnerships
9-15 Corporate financial statements
Issuing shares
24-25 Mini quiz
Preferred shares
30-38 Cash dividends
Mini quiz
Preferred shares-features
Closing entries
Review and end of chapter
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24. © 2010 McGraw-Hill Ryerson Limited.
Characteristics of Corporations
Separate legal entity
Limited liability of shareholders
Ownership rights are transferable
Continuous life
Shareholders are not corporate agents
Ease of capital accumulation
Government regulation
Corporate taxation
LO 1
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25. © 2010 McGraw-Hill Ryerson Limited.
Incorporation
Corporation may be created under provincial or federal laws.
Charter, articles of incorporation, letters patent, or memorandum of association is completed and signed by the shareholders.
Investors purchase shares and elect a board of directors.
LO 1
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26. © 2010 McGraw-Hill Ryerson Limited.
Organization Costs
Costs include legal fees, promoters’ fees and amounts paid to obtain a charter.
Organization costs are expensed as incurred.
LO 1
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27. © 2010 McGraw-Hill Ryerson Limited.
Corporate Organization Structure
Shareholders
Board of directors
Chief executive officer (CEO)
and other executive officers
Employees of the corporation
LO 1
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28. © 2010 McGraw-Hill Ryerson Limited.
Rights of Shareholders
According to the Canada Business Corporations Act, shareholders have the right to:
Vote.
Receive dividends that have been declared.
Receive property of the corporation after its closure.
LO 1
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29. © 2010 McGraw-Hill Ryerson Limited.
Corporate Financial Statements
LO 2
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30. © 2010 McGraw-Hill Ryerson Limited.
Corporation
Single Proprietorship
The statements are identical except for the $12 of income tax expense.
LO 2
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31. © 2010 McGraw-Hill Ryerson Limited.
ABC Corporation
Statement of Changes in Equity
For Year Ended December 31, 2011
Share Capital
Retained Earnings
Total Equity
Balance, Jan. 1 $0
Issuance of shares
500
Net income(loss) 48
Dividends
(40)
Balance, Dec. 31
$500 $8
$508
Shareholder (owner) investments are recorded in the share capital account.
LO 2
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32. © 2010 McGraw-Hill Ryerson Limited.
ABC Corporation
Statement of Changes in Equity
For Year Ended December 31, 2011
Share Capital
Retained Earnings
Total Equity
Balance, Jan. 1 $0
Issuance of shares
500
Net income(loss) 48
Dividends
(40)
Balance, Dec. 31
$500 $8
$508
Retained earnings represents the income to date that has been kept (retained) by the corporation for the purpose of reinvestment.
LO 2
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33. Statement of Changes in Equity For Year Ended December 31, 2011
ABC Corporation
Statement of Changes in Equity
For Year Ended December 31, 2011
Share
Capital
Retained Earnings
Total
Equity
Balance, Jan. 1 $0
Issuance of shares
500
Net income(loss) 48
Dividends
(40)
Balance, Dec. 31
$500 $8
$508
Dell’s Servicing
Statement of Changes in Equity
For Year Ended December 31, 2011
I. Dell, Capital, January $0
Add: Owner Investment
Net Income
Total $560
Less: Withdrawals
I. Dell, Capital, December $520
LO 2
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34. © 2010 McGraw-Hill Ryerson Limited.
ABC Corporation
Partial Balance Sheet
December 31, 2011
Equity
Share Capital $500
Retained Earnings
Total Equity $508
Dell’s Servicing
Partial Balance Sheet
December 31, 2011
Equity
I. Dell, Capital $520
The balance sheets for corporations and single proprietorships are identical except for the equity section.
LO 2
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35. © 2010 McGraw-Hill Ryerson Limited.
ABC Corporation
Partial Balance Sheet
December 31, 2011
Equity
Share Capital $500
Retained Earnings
Total Equity $508
Dell’s Servicing
Partial Balance Sheet
December 31, 2011
Equity
I. Dell, Capital $520
The equity sections for both organizations include the same transactions in total: net income (losses), distributions of income, and owner investments.
LO 2
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36. © 2010 McGraw-Hill Ryerson Limited.
Issuing Shares
Companies obtain capital, or money, by issuing shares.
This is referred to as equity financing.
Shares may be sold directly to investors or may be sold through a brokerage house.
If a company only has one class of shares, they are known as common shares.
The CBCA requires all shares to be no par value.
LO 3
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37. © 2010 McGraw-Hill Ryerson Limited.
Issuing Share Capital
Example: Dillon Snowboards Ltd. issued 30,000 common shares for $300,000 cash. The entry to record this would be: Cash 300,000 Common Shares 300,000
LO 3
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38. © 2010 McGraw-Hill Ryerson Limited.
Equity
Example: Equity of Dillon Snowboards Ltd. after the first year of operating. Assume net income of $65,000 and no dividend payments.
Equity
Common Shares, unlimited shares authorized, 30,000 shares issued and outstanding
$300,000
Retained earnings
65,000
Total equity
$365,000
LO 3
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39. © 2010 McGraw-Hill Ryerson Limited.
Equity
Identifies how many shares the corporation is allowed to sell.
Equity
Common Shares, unlimited shares authorized, 30,000 shares issued and outstanding
$300,000
Retained earnings
65,000
Total equity
$365,000
LO 3
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40. © 2010 McGraw-Hill Ryerson Limited.
Equity
Identifies how many shares have been sold or given out.
Equity
Common Shares, unlimited shares authorized, 30,000 shares issued and outstanding
$300,000
Retained earnings
65,000
Total equity
$365,000
LO 3
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41. © 2010 McGraw-Hill Ryerson Limited.
Equity
Defines how many shares are held by shareholders.
Equity
Common Shares, unlimited shares authorized, 30,000 shares issued and outstanding
$300,000
Retained earnings
65,000
Total equity
$365,000
LO 3
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42. © 2010 McGraw-Hill Ryerson Limited.
Equity
Discloses dollars invested by shareholders in exchange for shares.
Equity
Common Shares, unlimited shares authorized, 30,000 shares issued and outstanding
$300,000
Retained earnings
65,000
Total equity
$365,000
LO 3
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43. © 2010 McGraw-Hill Ryerson Limited.
Equity
This reflects accumulated profits/losses less dividends.
Equity
Common Shares, unlimited shares authorized, 30,000 shares issued and outstanding
$300,000
Retained earnings
65,000
Total equity
$365,000
LO 3
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44. © 2010 McGraw-Hill Ryerson Limited.
Preferred Shares
Shares that give their owners a priority status over common shareholders including:
Receiving dividends, and
Distribution of assets on liquidation.
Do not usually have the right to vote.
Are listed before common shares in the equity section.
LO 3
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45. © 2010 McGraw-Hill Ryerson Limited.
Issuing Preferred Shares for Cash
Example: Dillon Snowboards Ltd. issued 5,000 preferred shares with a dividend preference of $3 per share for a total of $125,000 cash. The entry to record this would be: Cash 125,000 Preferred Shares 125,000
LO 3
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46. © 2010 McGraw-Hill Ryerson Limited.
Equity
After Issue of Preferred Shares
Equity
Contributed Capital:
Preferred shares, $3, unlimited shares authorized, 5,000 shares issued and outstanding
$125,000
Common Shares, unlimited shares authorized, 30,000 shares issued and outstanding
$405,000
Represents the dividend preference. Preferred shareholders are entitled to dividends at the rate of $3 per preferred share when declared.
Total contributed capital
$530,000
Retained earnings
303,000
Total equity
$365,000
LO 3
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47. © 2010 McGraw-Hill Ryerson Limited.
Preferred Shares
Reasons for issuing preferred shares include:
No sacrifice of control,
Potential to increase return to common shareholders,
Appeal to potential investors, and
Market price of common shares may be too low.
LO 3
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48. © 2010 McGraw-Hill Ryerson Limited.
Dividends
Are a distribution of earnings to shareholders
Reduce retained earnings
Are decided by the board of directors
May be in cash or shares
LO 4
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49. © 2010 McGraw-Hill Ryerson Limited.
Dividends
Important dates:
Date of declaration
The date the directors vote to pay a dividend. This creates a legal liability for the corporation.
LO 4
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50. © 2010 McGraw-Hill Ryerson Limited.
Dividends
Important dates:
Date of declaration
Date of record
Date of payment
The future date specified by the directors for identifying those shareholders listed in the corporation’s records to receive dividends.
LO 4
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51. © 2010 McGraw-Hill Ryerson Limited.
Dividends
Important dates:
Date of declaration
Date of record
Date of payment
The date the shareholders receive payment.
LO 4
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52. © 2010 McGraw-Hill Ryerson Limited.
Cash Dividends
Example: On November 9, the board of directors of a company with 5,000 common shares outstanding declared a $1 per share dividend payable December 1 to the shareholders of record on November 22.
On November 9, the date of declaration, the entry would be either:
Cash Dividends ,000
Common Dividends Payable ,000 or
Retained Earnings ,000
LO 4
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53. © 2010 McGraw-Hill Ryerson Limited.
Cash Dividends
No entry is required on November 22, the date of record.
LO 4
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54. © 2010 McGraw-Hill Ryerson Limited.
Cash Dividends
On December 1, the date of payment, the entry would be: Common Dividends Payable 5,000 Cash 5,000
LO 4
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55. © 2010 McGraw-Hill Ryerson Limited.
Cash Dividends
On December 31, the corporation’s year end, the closing entry would be: Retained Earnings 5,000 Cash Dividends 5,000 No closing entry would be necessary if the Retained Earnings account was debited on the date of declaration.
LO 4
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56. © 2010 McGraw-Hill Ryerson Limited.
Deficits and Cash Dividends
A corporation with a debit balance in Retained Earnings is said to have a deficit.
Deficits reduce total equity.
Corporations are not allowed to pay cash dividends when there is a deficit.
LO 4
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57. © 2010 McGraw-Hill Ryerson Limited.
Preferred Shares
Common shares cannot receive dividends unless preferred share dividends are paid first.
Preferred dividends are not guaranteed.
The board of directors must declare a dividend before shareholders are entitled to a dividend.
Preferred shares may be either cumulative or non-cumulative.
LO 5
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58. © 2010 McGraw-Hill Ryerson Limited.
Preferred Shares
Cumulative
Undeclared dividends accumulate until they are paid.
Common shareholders cannot receive dividends until all cumulative dividends are paid.
Non-Cumulative
Have no right to prior periods’ unpaid dividends if they were not declared.
LO 5
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59. © 2010 McGraw-Hill Ryerson Limited.
Financial Disclosure of Dividends
A liability for a dividend does not exist until the directors declare a dividend.
Dividends in arrears on cumulative preferred shares must be disclosed in the corporation’s financial statements.
LO 5
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60. © 2010 McGraw-Hill Ryerson Limited.
Preferred Shares
Non-participating
Have dividends limited to a maximum amount each year.
Participating
Have a feature in which preferred shareholders share with common shareholders in any dividends paid in excess of the dollar amount stated on the preferred shares.
LO 5
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61. © 2010 McGraw-Hill Ryerson Limited.
Preferred Shares
Convertible
Gives holders the option of exchanging their preferred shares into common shares at a specified rate.
Offers holders of convertible shares a higher potential return.
LO 5
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62. © 2010 McGraw-Hill Ryerson Limited.
Preferred Shares
Callable (redeemable)
The issuing corporation, at its option, may purchase (retire) these shares from their holders at specified future prices and dates.
The amount paid to call and retire a preferred share is its call price.
LO 5
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63. © 2010 McGraw-Hill Ryerson Limited.
Closing Entries
Income summary is closed to retained earnings.
The cash dividends declared account is closed to retained earnings (assuming dividends were not debited to retained earnings when declared).
LO 6
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64. © 2010 McGraw-Hill Ryerson Limited.
Corporate Reporting:
Income, Earnings Per
Share, and Retained Earnings
C H A P T E R 16
Slides Content
1-3 Learning objectives
4-11 Share dividends
12-13 Mini-quiz
Share splits
16-19 Share repurchases
EPS
23-29 Reporting income information
Retained earnings
Accounting changes
Review
Treasury shares
41 End of chapter
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65. © 2010 McGraw-Hill Ryerson Limited.
Share Dividends
A corporation’s distribution of its own shares to its shareholders without receiving payment in return.
LO 1
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66. © 2010 McGraw-Hill Ryerson Limited.
Share Dividends
Transfer a portion of equity from retained earnings to contributed capital.
Do not reduce a corporations’ assets or equity.
LO 1
© 2010 McGraw-Hill Ryerson Limited.

67. Share Dividends Keeps the market price of the share affordable.
Reasons:
Keeps the market price of the share affordable.
Conserves cash for business expansion.
Provides evidence of management’s confidence that the company is doing well.
LO 1
© 2010 McGraw-Hill Ryerson Limited.

68. Illustration: Share Dividends
The directors of X-Quest declare a 10% share dividend on December 31, The company currently has 10,000 shares outstanding and the market price of the shares is $15 per share. The dividend is to be distributed on January 20 to the shareholders of record on January 15.
The amount of the share dividend is calculated as follows:
Share dividend = (# of common shares outstanding x percentage x market price per share)
= 10,000 shares x 10% x $15 per share
= $15,000
LO 1
© 2010 McGraw-Hill Ryerson Limited.

69. Illustration: Share Dividends
On December 31, the date of declaration, the entry would be:
Share Dividends ,000
Common Share Dividends Distributable ,000 or
Retained Earnings ,000
LO 1
© 2010 McGraw-Hill Ryerson Limited.

70. Illustration: Share Dividends
On December 31, the company’s year-end, one of the closing entries would be:
Retained Earnings ,000
Share Dividends ,000
This entry would not be necessary if the Retained Earnings account was debited on the date of declaration.
LO 1
© 2010 McGraw-Hill Ryerson Limited.

71. Illustration: Share Dividends
No entry is required on January 15, the date of record.
On January 20, the date of distribution, the entry would be:
Common Share Dividends Distributable ,000
Common Shares ,000
LO 1
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72. © 2010 McGraw-Hill Ryerson Limited.
Illustration: Share Dividends
X-Quest Ltd.
Equity
Dec. 31, 2011
Before Declaration
of Dividend
Jan. 20, 2012
After Declaration
Contributed capital:
Common shares, unlimited shares authorized
Dec. 31, 2011: 10,000 shares issued and outstanding
$108,000
Jan. 20, 2012: 11,000 shares issued and outstanding
$123,000
Retained earnings
35,000
20,000
Total equity
$143,000
$15,000 has been transferred from Retained Earnings to Contributed Capital.
LO 1
© 2010 McGraw-Hill Ryerson Limited.

73. Share Splits
An act by a corporation to call in its outstanding shares and replace each share with more than one new share.
LO 1
© 2010 McGraw-Hill Ryerson Limited.

74. Share Splits
No journal entry is necessary but note disclosure of the split is required.
The Contributed Capital and Retained Earnings accounts are unchanged by a share split.
The number of shares changes with a share split.
The market value per share will decrease after a share split.
LO 1
© 2010 McGraw-Hill Ryerson Limited.

75. Repurchase of Shares Reasons:
Corporations may repurchase shares of its own outstanding share capital.
Reasons:
To avoid a hostile takeover by an investor.
To maintain a strong and stable market for the shares.
To show that management has confidence in the price of the shares.
LO 2
© 2010 McGraw-Hill Ryerson Limited.

76. The entry on May 1 would be: Common Shares 12,000 Cash 12,000
Illustration: Repurchase of Shares
Delta Inc. originally issued its shares at an average price of $12.
On May 1, the company purchased and retired 1,000 of its shares at the same price for which they were issued.
The entry on May 1 would be:
Common Shares ,000
Cash ,000
LO 2
© 2010 McGraw-Hill Ryerson Limited.

77. The entry on June 1 would be: Common Shares 6,000 Cash 5,500
Illustration: Repurchase of Shares
On June 1, the company retires 500 common shares, paying $11, which is less than the $12 average issue price.
The entry on June 1 would be:
Common Shares ,000
Cash ,500
Contributed Capital from
Retirement of Common Shares
LO 2
© 2010 McGraw-Hill Ryerson Limited.

78. The entry on July 5 would be: Common Shares 24,000
Illustration: Repurchase of Shares
On July 5, the company retires 2,000 common shares, paying $15, which is more than the $12 average issue price.
The entry on July 5 would be:
Common Shares 24,000
Contributed Capital from
Retirement of Common Shares* 500
Retained Earnings 5,500
Cash 30,000
*This brings the account balance to $0.
LO 2
© 2010 McGraw-Hill Ryerson Limited.

79. Earnings Per Share (EPS)
EPS is one of the most widely cited items of accounting information.
Earnings
per share =
(Net income ­ Preferred dividend declared) Weighted-average common shares outstanding
LO 3
© 2010 McGraw-Hill Ryerson Limited.

80. Earnings Per Share (EPS)
(Net income - Preferred dividends declared)* Weighted-average common shares outstanding** =
*Preferred dividends declared in current year unless preferred shares are cumulative. If the shares are cumulative, then dividends are subtracted regardless of whether they have been declared.
**The number of shares outstanding are restated when there are share dividends or share splits. The number of shares are restated as if the dividend or share split occurred at the start of the year.
LO 3
© 2010 McGraw-Hill Ryerson Limited.

81. Earnings Per Share (EPS)
Weighted average number of shares
Assume Lescon Inc. had 500,000 common shares outstanding on January1. It issued 40,000 shares on April 1 and retired 30,000 shares on October 31. The weighted average number of shares would be calculated as:
Time Period
Outstanding shares
Effect of split
Fraction of the year
Weighted average
Jan.-Mar.
500,000
X 2
X 3/12
= 125,000
Apr.- Oct.
540,000
X 7/12
= 315,000
November
510,000
X 1/12
= 85,000
Weighted –average outstanding shares
525,000
LO 3
© 2010 McGraw-Hill Ryerson Limited.

82. Profitability Book Value Per Share
Measures how much each share would be worth if the company was liquidated at the amounts reported on the balance sheet.
Equity applicable to common shares
Number of common shares outstanding
Book value
per common
share =
LO 4
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83. Reporting Income Information
Income statements are used to evaluate past performance and predict future performance.
Certain income-related transactions that are not part of a company’s normal, continuing operations are reported separately on the income statement.
Separating these other activities makes the income statement more useful to users.
LO 4
© 2010 McGraw-Hill Ryerson Limited.

84. Reporting Income Information
The income statement may be expanded to include:
Continuing Operations
Discontinued Operations
Earnings Per Share
Other Comprehensive Income
LO 4
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85. Other Comprehensive Income
Other comprehensive income includes gains and losses that are not part of net income but affect equity.
LO 4
© 2010 McGraw-Hill Ryerson Limited.

86. For Year Ended December 31, 2011
CanComp Corporation
Income Statement
For Year Ended December 31, 2011
Net sales……………………………………………………
$8,440,000
Cost of goods sold………………
5,950,000
Gross profit…………………………………………………
$2,490,000
Operating expenses……………………………………….
570,000
Operating income………………………………………….
$1,920,000
Other revenues and expenses:
Loss on relocating a plant……………………………….
(45,000)
Income from continuing operations before income tax..
$1,875,000
Income tax expense……………………………………….
397,000
Income from continuing operations……………………..
$1,478,000
Discontinued Operations
Income from operating Division A (net of $180,000 income taxes)………………………………………………
$420,000
Loss on disposal of Division A (net of $66,000 income tax benefit)………………………………………………….
Net income…………………………………………………
(154,000)
266,000
$1,744,000
Earnings per common share (200,000 shares)
Income from discontinued operations…………………..
Net income (basic EPS)…………………………………..
$7.39
1.33
$8.72
Continuing operations
Discontinued operations
Earnings per share
© 2010 McGraw-Hill Ryerson Limited.
LO 4

87. For Year Ended December 31, 2011
CanComp Corporation
Income Statement
For Year Ended December 31, 2011
Net sales……………………………………………………
$8,440,000
Cost of goods sold………………
5,950,000
Gross profit…………………………………………………
$2,490,000
Operating expenses……………………………………….
570,000
Operating income………………………………………….
$1,920,000
Other revenues and expenses:
Loss on relocating a plant……………………………….
(45,000)
Income from continuing operations before income tax..
$1,875,000
Income tax expense……………………………………….
397,000
Income from continuing operations……………………..
$1,478,000
Discontinued Operations
Income from operating Division A (net of $180,000 income taxes)………………………………………………
$420,000
Loss on disposal of Division A (net of $66,000 income tax benefit)………………………………………………….
Net income…………………………………………………
(154,000)
266,000
$1,744,000
Earnings per common share (200,000 shares)
Income from discontinued operations…………………..
Net income (basic EPS)…………………………………..
$7.39
1.33
$8.72
Continuing operations
Shows the revenues, expenses, and income generated by the company’s day-to-day operating activities.
Discontinued operations
Earnings per share
© 2010 McGraw-Hill Ryerson Limited.
LO 4

88. For Year Ended December 31, 2011
CanComp Corporation
Income Statement
For Year Ended December 31, 2011
Net sales……………………………………………………
$8,440,000
Cost of goods sold………………
5,950,000
Gross profit…………………………………………………
$2,490,000
Operating expenses……………………………………….
570,000
Operating income………………………………………….
$1,920,000
Other revenues and expenses:
Loss on relocating a plant……………………………….
(45,000)
Income from continuing operations before income tax..
$1,875,000
Income tax expense……………………………………….
397,000
Income from continuing operations……………………..
$1,478,000
Discontinued Operations
Income from operating Division A (net of $180,000 income taxes)………………………………………………
$420,000
Loss on disposal of Division A (net of $66,000 income tax benefit)………………………………………………….
Net income…………………………………………………
(154,000)
266,000
$1,744,000
Earnings per common share (200,000 shares)
Income from discontinued operations…………………..
Net income (basic EPS)…………………………………..
$7.39
1.33
$8.72
Shows:
The income from operating the discontinued segment prior to its disposal, and
The gain or loss from selling or closing down a segment.
Continuing operations
Discontinued operations
Earnings per share
© 2010 McGraw-Hill Ryerson Limited.
LO 4

89. For Year Ended December 31, 2011
CanComp Corporation
Income Statement
For Year Ended December 31, 2011
Net sales……………………………………………………
$8,440,000
Cost of goods sold………………
5,950,000
Gross profit…………………………………………………
$2,490,000
Operating expenses……………………………………….
570,000
Operating income………………………………………….
$1,920,000
Other revenues and expenses:
Loss on relocating a plant……………………………….
(45,000)
Income from continuing operations before income tax..
$1,875,000
Income tax expense……………………………………….
397,000
Income from continuing operations……………………..
$1,478,000
Discontinued Operations
Income from operating Division A (net of $180,000 income taxes)………………………………………………
$420,000
Loss on disposal of Division A (net of $66,000 income tax benefit)………………………………………………….
Net income…………………………………………………
(154,000)
266,000
$1,744,000
Earnings per common share (200,000 shares)
Income from discontinued operations…………………..
Net income (basic EPS)…………………………………..
$7.39
1.33
$8.72
Continuing operations
Shows the amount of income earned by a company’s outstanding common shares.
Discontinued operations
Earnings per share
© 2010 McGraw-Hill Ryerson Limited.
LO 4

90. Retained Earnings
Retained earnings are part of the shareholders’ claim on the company’s net assets.
Changes in retained earnings are detailed on the statement of changes in equity.
LO 5
© 2010 McGraw-Hill Ryerson Limited.

91. Restricted Retained Earnings
Restrictions are limits that identify how much of the retained earnings balance is not available for dividends or the repurchase of shares.
Must be disclosed on the financial statements or notes.
© 2010 McGraw-Hill Ryerson Limited.

92. Restricted Retained Earnings
Types
Statutory restrictions
Contractual restrictions
Voluntary restrictions
© 2010 McGraw-Hill Ryerson Limited.

93. Accounting Changes Types: Change in Accounting Policy
Correction of Error(s) in Prior Financial Statements
Change in Estimate
LO 5
© 2010 McGraw-Hill Ryerson Limited.

94. © 2010 McGraw-Hill Ryerson Limited.
Accounting Change
Accounting Treatment
Change in Accounting Policy
Retrospective restatement of financial statements,
Disclosure,
New policy or corrected amount is reported in current years’ operating results, and
Adjust opening balance of Retained Earnings.
Corrections of Error(s) in Prior Financial Statements
Change in Estimate
Accounted for in period of change and future.
LO 5
© 2010 McGraw-Hill Ryerson Limited.

95. © 2010 McGraw-Hill Ryerson Limited.
End of Module Nine
© 2010 McGraw-Hill Ryerson Limited.