Review Ch 4 1 Items that will be reported pre tax vs net of tax a Pre tax i Sales 1 Sales Revenue 2 Less Sales discounts sales returns and allowances ii COGS iii Operating Expenses iv Income from operations v Other revenues and gains vi Other expenses and losses b Net of tax i Net Income for the year ii EPS 2 Reported as extra ordinary or discontinued How will you report them a Extra ordinary i Under Income before income tax and extraordinary item ii Less Applicable income tax b Discontinued i Under Income from continuing operations subtracted by NI 3 Sections of Income Statement a Single step i Revenues ii Expenses iii Net Income b Multi step i Sales revenue less sales discounts sales returns and allowances COGS Gross Profit ii Operating Expenses 1 Selling Expenses 2 Admin Expenses iii Other revenue and gains iv Other expenses and losses v Income before income tax Income tax vi Net Income for the year c Continuing operations i Income from Continuing Operations 1 Income from Continuing Operations before Income Tax 2 Income tax 3 Discontinued Operations 4 Income before extraordinary item 5 Net income 4 Comprehensive Income CI NI OCI a Not a part of NI on Income Statement b Part of NI i Sales Revenue ii COGS iii Gross Profit iv Operating Expenses v NI c Part of CI i NI ii Other comprehensive income iii Comprehensive income d Thus these items are reported as OCI 5 Reported to all above reporting of a Correction of errors i Understatement ii Overstatement iii Not part of NI b Accounting Changes i Debit Retained Earnings ii Credit Accounts Receivable c Changes in estimates i Amounts related to prior periods 6 Find end balance of RE pay attention to OCI and AOCI a RE Jan 1 as reported b Correction for understatement of NI in prior period inventory error c RE Jan 1 as adjusted d NI e Cash dividends Stock dividends f RE Dec 31 7 Finding Income Tax Expense a Multi step i Other expenses and losses b Single step i Expenses 8 75 000 x 1 0 3 52 500 or 75 000 x 0 3 22 500 tax 75 000 22 500 52 500 net of tax Items may change Deprecation expense unrealized holding gain loss prior period adjustment other losses or gains that are not extraordinary discontinued Review Ch 5 1 Identify current assets non current assets current liabilities LTL a Current assets i Cash and cash equivalents ii Short term investments iii Receivables iv Inventories v Prepaid expenses b Non current assets i Investments ii Property plant equipment iii Intangible assets iv Other assets c Current Liabilities i Short term notes payable ii Accounts Payable iii Accrued employee compensation and benefits iv Unearned revenues v Income taxes payable vi Accrued special charges vii Current maturities of long term debt viii Other current liabilities d Long term Liabilities i Specific financing situations 1 Issuance of bonds 2 Long term lease obligations 3 Long term notes payable ii Ordinary operations of the company 1 Pension obligations 2 Deferred income tax liabilities iii Occurrence of non occurrence of one or more future events to confirm the amount payable 1 Payee 2 Date payable 3 Service or product warranties 4 Other contingencies 2 Cash flows operating investing financing activities a Operating i Cash effects of transactions that enter into the determination of net income b Investing i Making and collecting loans and acquiring and disposing of investments both debt and equity and property plant and equipment c Financing i Liability and Owner s Equity items 1 Obtaining resources from owners and providing them with a return on their investment 2 Borrowing money from creditors and repaying the amounts borrowed 3 Items that will affect stockholders equity a Retained earnings i Preferred stock ii Common stock iii Capital in excess of par value b Other Comprehensive Income c Non controlling interests d Total SE 4 Usefulness Limitations of BS and CF a Balance Sheet i Usefulness 1 It lists assets by section on the left side 2 It lists liabilities and SE by sections on the right side ii Limitations 1 The need for a sufficiently wide space in which to present the items side by side 2 To solve this problem list one section above the other on the same page b Cash Flows i Usefulness 1 It helps investors creditors and others know what is happening to a company s most liquid resource 2 Helps users evaluate liquidity solvency and financial flexibility ii Limitations 5 6 7 8 1 If you have a negative amount of net cash provided by operating activities indicates that a company may have to borrow or issue equity securities to acquire sufficient cash to pay its bills 2 You could easily experience a cash crunch because it has cash tied up in receivables and inventory Reporting of securities current vs non current a Trading current b Held to maturity c Available for sale d b c They depend on the circumstances Restrictions on cash and reporting of restricted cash a A company must disclose any restrictions or commitments related to the availability of cash b If a company restricts cash for purposes other than current obligations it excludes the cash from current assets c Reported under current assets under cash d Long term vs short term investment i Long term it has its own section under current assets 1 Cash for long term investment 2 Specific purpose 3 Ex Restricting cash for long term investments will be reported in the long term investment or other assets section ii Short term included in current assets under cash Given a set of accounts AR AP Depreciation Bonds Payable a Operating Activities i AR AP Depreciation b Investing Activities i Bonds Payable c Find cash flows from Operating financing investment activities i Operating ii Investing iii Financing iv Net Increase in Cash v Cash at beginning of year vi Cash at end of year Gain Loss from selling long term assets interest revenue and interest payments a Long term assets tangible fixed assets not used in operations land This also lists investments such as bonds common stock or long term notes It also sets aside in special funds pension fund or plant expansion fund this includes the cash surrender value of life insurance In nonconsolidated subsidiaries or affiliated companies b Interest revenue Accumulating revenue add s cash to end of the year Interest will also affect the amount of cash receivable and payable c Interest payments This can become costly d Long term debt financing activity i Depends on cash flow e Interest payments and interest revenue operating activity 9 On January 4 2014 Kiley