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SMU ACCT 3311 - Lecture Notes

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Wacky Warning Labels (from www.wackywarnings.com)Slide 2Special Reporting IssuesExample of Intraperiod Tax AllocationSlide 5E4-6BDiscussion QuestionDiscussion QuestionReporting Irregular ItemsEarnings Per Share DisclosureP&G’s Income StatementSpecial Reporting IssuesSpecial Reporting IssuesDiscussion QuestionDiscussion QuestionDiscussion QuestionSpecial Reporting IssuesSpecial Reporting IssuesUnderstanding EquityComprehensive IncomeComprehensive IncomeAccumulated Other Comprehensive IncomeSpecial Reporting IssuesSpecial Reporting IssuesP&G’s Statement of Comprehensive IncomeSpecial Reporting IssuesSpecial Reporting IssuesSpecial Reporting IssuesExample 1Example 1Slide 31Slide 32Slide 33E4-17BE4-17BE4-17BWacky Warning Labels (from www.wackywarnings.com) •A label on a baby stroller warns: “Remove child before folding”•A brass fishing lure with a three-pronged hook on the end warns: “Harmful if swallowed”•A popular scooter for children warns: “This product moves when used”•A nine- by three-inch bag of air used as packing material cautions: “Do not use this product as a toy, pillow, or flotation device”•The label on an electric hand blender promoted for use in “blending, whipping, chopping and dicing,” warns: “Never remove food or other items from the blades while the product is operating”•A household iron warns users: “Never iron clothes while they are being worn”CHAPTER 4: CONTINUED INCOME STATEMENT AND RELATED INFORMATIONSommers – ACCT 3311Relates the income tax expense to the specific items that give rise to the amount of the tax expense.Income tax is allocated to the following items:(1) Income from continuing operations before tax.(2) Discontinued operations.(3) Extraordinary items.Intraperiod Tax AllocationSpecial Reporting IssuesCalculation of Total Tax$24,000(135)(61)(231)$23,573Note: losses reduce the total taxExample of Intraperiod Tax AllocationThe following balances were taken from the books of Schimank Corp. on December 31, 2014. Assume the total effective tax rate on all items is 34%. Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.Interest revenue $ 120,400Cash 71,400Sales 1,932,000Accounts receivable210,000Prepaid insurance 28,000Sales returns & allowances 210,000Allowance for bad debts 9,800Sales discounts 63,000Land 140,000Equipment 280,000Building196,000Cost of goods sold 869,400Accum deprec—equipment $ 56,000Accum deprec—building 39,200Notes receivable 217,000Selling expenses 271,600Accounts payable 238,000Bonds payable 140,000Admin & general expenses 135,800Accrued liabilities 44,800Interest expense 84,000Notes payable 140,000Loss from earthquake damage (extraordinary item)210,000Common stock 700,000Retained earnings 29,400E4-6BE4-6BDiscussion QuestionQ4-12 What is the basis for distinguishing between operating and nonoperating items?Operating items are the expenses and revenues which relate directly to the principal activity of the concern; they are revenues realized from, or expenses which contribute to, the sale of goods or services for which the company was organized. The nonoperating items result from secondary activities of the company. They are not directly related to the principal activity of the company but arise from incidental activities.Discussion QuestionQ4-30 On January 30, 2013, a suit was filed against Frazier Corp. under the EPA. On August 6, 2014, Fraizer agreed to settle the action and pay $920,000 in damages to certain current and former employees. How should this settlement be reported in the 2014 financial statements?The damages would probably be reported in Frazier Corporation’s financial statements in the other expenses or losses section. If the damages are unusual in nature, the damage settlement might be reported as an unusual item. The damages would not be reported as a correction of an error (prior period adjustment).Changes in Accounting PrinciplesChanges in EstimateCorrections of ErrorsReporting Irregular ItemsEarnings Per Share DisclosureOne of the most widely used ratios is earnings per share (EPS), which shows the amount of income earned by a company expressed on a per share basis.Basic EPSNet income less preferred dividendsWeighted-average number of common shares outstanding for the periodDiluted EPSReflects the potential dilution that could occur for companies that have certain securities outstanding that are convertible into common shares or stock options that could create additional common shares if the options were exercised.P&G’s Income StatementEarnings Per Share (BE4-8): In 2014, Hollis Corporation reported net income of $1,000,000. It declared and paid preferred stock dividends of $250,000. During 2014, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2014 earnings per share.- $250,000$1,000,000190,000=$3.95 per share Net income - Preferred dividends Weighted average number of shares outstandingSpecial Reporting IssuesEPSDivide by weighted-average shares outstanding Illustration 4-19Special Reporting IssuesDiscussion QuestionQ4-17 Indicate the section of a multiple-step income statement in which each of the following is shown.a. Loss on inventory write-down.Other expenses or losses section or in a separate section, appropriately labeled as an unusual item, if unusual or infrequent but not both.b. Loss from strike.Operating expense section or other expenses and losses section or in a separate section, appropriately labeled as an unusual item, if unusual or infrequent but not both.Discussion QuestionQ4-17 Indicate the section of a multiple-step income statement in which each of the following is shown.c. Bad debt expense.Operating expense section, as a selling expense, but sometimes reflected as an administrative expense.d. Loss on disposal of a component of the business.Separate section after income from continuing operations, entitled discontinued operations. e. Gain on sale of machinery.Other revenues and gains section or in a separate section, appropriately labeled as an unusual item, if unusual or infrequent but not both.Discussion QuestionQ4-17 Indicate the section of a multiple-step income statement in which each of the following is shown.f. Interest revenue.Other revenues and gains section.g. Depreciation Expense.Operating expense section, normally administrative. If a manufacturing concern, may be included in cost of goods sold.h. Material write-offs of


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SMU ACCT 3311 - Lecture Notes

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