1. Income Statement and Related Information
Chapter 4
Intermediate Accounting
12th Edition
Kieso, Weygandt, and Warfield
Prepared by Coby Harmon, University of California, Santa Barbara

2. Elements of the Income Statement
Revenues – Inflows or other enhancements of assets or settlements of its liabilities that constitute the entity’s ongoing major or central operations.
Examples of Revenue Accounts
Sales
Fee revenue
Interest revenue
Dividend revenue
Rent revenue
Look page 129

3. Elements of the Income Statement
Expenses – Outflows or other using-up of assets or incurrences of liabilities that constitute the entity’s ongoing major or central operations.
Examples of Expense Accounts
Cost of goods sold
Depreciation expense
Interest expense
Rent expense
Salary expense
LO 1 Understand the uses and limitations of an income statement.

4. Elements of the Income Statement
Gains – Increases in equity (net assets) from peripheral or incidental transactions.
Losses - Decreases in equity (net assets) from peripheral or incidental transactions.
McDonald's example
Gains and losses can result from
sale of investments or plant assets,
settlement of liabilities,
write-offs of assets.
LO 1 Understand the uses and limitations of an income statement.

5. Single-Step Income Statement
The single-step statement consists of just two groupings:
Net
Sales
Revenues
Expenses
Net Income
Single- Step
No distinction between Operating and Non-operating categories.
LO 2 Prepare a single-step income statement.

6. Single-Step Income Statement
Review
The single-step income statement emphasizes
a. the gross profit figure.
b. total revenues and total expenses.
c. extraordinary items more than it is emphasized in the multiple-step income statement.
d. the various components of income from continuing operations.
LO 2 Prepare a single-step income statement.

7. Multiple-Step Income Statement
Background
Separates operating transactions from nonoperating transactions.
Matches costs and expenses with related revenues.
Highlights certain intermediate components of income that analysts use.
Look page 131, 132,133

8. Multiple-Step Income Statement
The presentation divides information into major sections.
1. Operating Section
2. Nonoperating Section
3. Income tax
LO 3 Prepare a multiple-step income statement.

9. Multiple-Step Income Statement
Review
A separation of operating and non operating activities of a company exists in
a. both a multiple-step and single-step income statement.
b. a multiple-step but not a single-step income statement.
c. a single-step but not a multiple-step income statement.
d. neither a single-step nor a multiple-step income statement.
LO 3 Prepare a multiple-step income statement.

10. Reporting Irregular Items
Companies are required to report irregular items in the financial statements so users can determine the long-run earning power of the company.
Illustration 4-5 Number of Irregular Items Reported in a Recent Year by 600 Large Companies
LO 4 Explain how to report irregular items.

11. Reporting Irregular Items
Irregular items fall into six categories
Discontinued operations.
Extraordinary items.
Unusual gains and losses.
Changes in accounting principle.
Changes in estimates.
Corrections of errors.
LO 4 Explain how to report irregular items.

12. Reporting Irregular Items
Discontinued Operations occurs when,
(a) company eliminates the
results of operations and
cash flows of a component.
there is no significant continuing involvement in that component.
Amount reported “net of tax.”
LO 4 Explain how to report irregular items.

13. Reporting Discontinued Operations
Exercise: McCarthy Corporation had after tax income from continuing operations of $55,000,000 in During 2007, it disposed of its restaurant division at a pretax loss of $270,000. Prior to disposal, the division operated at a pretax loss of $450,000 in Assume a tax rate of 30%. Prepare a partial income statement for McCarthy.
Income from continuing operations $55,000,000
Discontinued operations:
Loss from operations, net of $135,000 tax 315,000
Loss on disposal, net of $81,000 tax 189,000
Total loss on discontinued operations 504,000
Net income $54,496,000
Look another illustration (4-6) page 136

14. Reporting Discontinued Operations
Discontinued Operations are reported after “Income from continuing operations.”
Previously labeled as “Net Income”.
Moved to
LO 4 Explain how to report irregular items.