Gibson_Ch04_SM_13e

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1、Chapter4IncomeStatementQUESTIONS41.Extraordinaryitemsareeventsortransactionsthataredistinguishedbytheirunusualnatureandinfrequencyofoccurrence.Theymightincludecasualtylossesorlossesfromexpropriationorprohibition.Theymustbeshownseparately,netoftax,inorderthattrendanalysiscanbemadeofincomebef

2、oreextraordinaryitems.42.d,f43.Examplesincludesalesofsecurities,writedownofinventories,disposalofaproductlinenotqualifyingasasegment,gainorlossfromalawsuit,etc.Theyareshownseparatelybecauseoftheirmaterialityandthedesiretoachievefulldisclosure.Theyarenotgivennetoftaxtreatmentbecausetheya

3、reincludedinincomebeforetheincometaxisdeducted.Also,netoftaxtreatmentwouldinferthattheseitemsareextraordinary.44.Undertheequitymethod,equityinearningsofnonconsolidatedsubsidiariesisaprobleminprofitabilityanalysisbecausetheincomerecognizedisnotacashinflow.Thecashinflowisonlytheamountofthei

4、nvestorshareofdividendsdeclaredandpaid.Further,equityearningsdonotcomedirectlyfromtheoperationsofthebusinessinquestion,butratherfromasubsidiary.45.Itwouldappearthatthisisthedisposalofaproductlinethatisspecificallyseparatefromthedairyproductsline.Thedisposalofthevitaminlineshouldbeidentified

5、asdiscontinuedoperationsandbepresentednet-of-taxafterincomefromcontinuingoperationsontheincomestatement.46.Unusualorinfrequentitemsrelatetooperations.Examplesarewrite-downsofreceivablesandwrite-downsofinventory.47.AnewFASBissuedinMay,2005requiresretrospectiveapplicationtopriorperiodicalfin

6、ancialstatementsofavoluntarychangeinaccountingprincipleunlessitisimpracticable.4-8.Thedeclarationofacashdividendreducesretainedearningsandincreasescurrentliabilities.Thepaymentofacashdividendreducescurrentliabilitiesandcash.49.First,astocksplitisusuallyforalargernumberofshares.Secondly,asto

7、ckdividendreducesretainedearningsandincreasespaidincapital.Astocksplitmerelyincreasesthesharesandreducestheparvalue,leavingthecapitalstockaccountintact.Bothrequirerestatementofanypershareitems.95410.Ifafirmconsolidatessubsidiariesthatarenotwholly