中级财务会计英文ch0课件3

1、 Financial StatementsChapter 3Intermediate Accounting12th EditionKieso, Weygandt, and Warfield Prepared by Coby Harmon, University of California, Santa Barbara1. Understand the purposes of the balance sheet.2. Define the elements of a balance sheet.3. Explain how to measure the elements of a balance

2、 sheet.4. Classify the assets of a balance sheet.5. Classify the liabilities of a balance sheet.6. Report the stockholders equity of a balance sheet.7. Understand the concepts of income.8. Explain the conceptual guidelines for reporting income.Learning Objectives9. Define the elements of an income s

3、tatement.10. Describe the major components of an income statement.11. Compute income from continuing operations.12. Compute results from discontinued operations.13. Identify extraordinary items.14. Prepare a statement of retained earnings.15. Report comprehensive income.Learning ObjectivesResources

4、(Assets)Claims against resources (Liabilities)Remaining claims accruing to owners (Owners Equity)Balance SheetA = L + OEBasic Accounting IdentityBalance SheetAssetsProbable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.Basic Definit

5、ions - SFAC No. 6Balance SheetBasic Definitions - SFAC No. 6LiabilitiesProbable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities as a result of past transactions or events.Balance SheetOwners Equit

6、yThe residual interest in the assets of an entity that remains after its liabilities are deducted.Basic Definitions - SFAC No. 6Balance SheetAsset ClassificationsCurrent AssetsCashInventoriesReceivablesPrepaymentsBalance Sheet FormatAsset ClassificationsNoncurrent AssetsInvestments and fundsIntangib

7、lesProperty, Plant, & EquipmentDeferred ChargesBalance Sheet FormatLiability ClassificationsCurrent LiabilitiesAccounts PayableShort-term Notes PayableCollections in advance of unearned revenueAccrued ExpensesBalance Sheet FormatCurrent assetsLess:Current liabilitiesEquals:Working CapitalCurrent ass

8、etsCurrent liabilities = Working Capital RatioWorking CapitalLiability ClassificationsNoncurrent LiabilitiesCapital LeasesLong-term Notes PayablePension LiabilitiesBonds PayableBalance Sheet FormatEquity ClassificationsOwners EquityCapital StockOther Contributed CapitalTreasury StockRetained Earning

9、sBalance Sheet FormatA corporation must disclose the changes in its stockholders equity account when issuing financial statements.This statement should show investments by and distributions to owners during the period, among other items.Statement of Changes in Stockholders EquityFASB Statement of Co

10、ncepts No. 6 defined investments by owners and distributions to owners, as follows:Investments by owners are increases in the equity of a company resulting from transfers of something valuable to the company from other entities in order to obtain or increase ownership interests.Distributions to owne

11、rs are decreases in the equity of a company caused by transferring assets, rendering services, or incurring liabilities to owners.Statement of Changes in Stockholders EquityBalance, Jan. 1, 2007$65,000$143,400$ 64,900 $10,000$283,300 Unrealized increase in value of available- for-sale securities2,00

12、02,000 Net income62,500 62,500 Cash dividends paid(11,200)(11,200)Common stock issued 6,500 30,500 37,000 Balance, Dec. 31, 2007$71,500$173,900$116,200 $12,000$373,600 SCHEDULE ACARON MANUFACTURING COMPANY Accumulated Common Additional Other Stock Paid-in Retained Comprehensive $5 par Capital Earnin

13、gs Income TotalStatement of Changes in Stockholders EquityFor Year Ended December 31, 2007Statement of Changes in Stockholders EquityOffsetting assets and liabilitiesLoss and gain contingenciesValuations reported in the Balance SheetTerminologyComparative StatementsAdditional Reporting IssuesLossPro

14、bable (?)Reasonably estimated (?)NoNoorDisclosureandYesYesReport amount in financial statementsReasonably possibleDisclose in notes to the financial statementsContingent Liabilities and AssetsCurrent value amounts generally are not shown on the Balance Sheet.Contains many estimates.Certain assets an

15、d liabilities are not shown on the Balance Sheet, e.g., human resources.Limitations of Balance SheetEconomic IncomeAccounting Incomevs.Income StatementCapital Maintenance ConceptUnder this concept, corporate income for a period of time is the amount that may be paid to stockholders during that perio

16、d and still enable the corporation to be as well off at the end of the period as it was at the beginning.Concepts of IncomeAssume a corporation has net assets of $45,000 at the beginning and $80,000 at the end of the year, and that no additional investments or withdrawals were made.Ending net assets

17、$80,000 Less: Additional investment 0 Ending net assets excluding investment$80,000 Less: Beginning net assets(45,000)Total income for the year$35,000 Capital Maintenance ConceptThe corporation could pay out $35,000 to stockholders and still be as well off at year-end.Concepts of IncomeAssume a corp

18、oration has net assets of $45,000 at the beginning and $80,000 at the end of the year. Stockholders made additional capital investments of $10,000.Ending net assets$80,000 Less: Additional investment(10,000) Ending net assets excluding investment$70,000 Less: Beginning net assets(45,000)Total income

19、 for the year$25,000 Capital Maintenance ConceptConcepts of IncomeTransactional ApproachThe transactional approach to income measurement is used in accounting today.Concepts of IncomeTransactional ApproachUnder this concept, a company records its net assets at their historical cost, and it does not

20、record changes in the asset and liabilities unless a transaction, event, or circumstance has occurred that provides reliable evidence of a change in value.Concepts of IncomeTransactional ApproachA corporations net income for an accounting period currently is measured as follows:Net income = Revenues

21、 Expenses + Gains - LossesConcepts of IncomeRevenues are inflows (or increases) of assets of a company or settlement of its liabilities during a period from delivering or producing goods, rendering services, or other activities that are the companys ongoing major or central operations.RevenuesRecogn

22、ition is the process of formally recording and reporting an item in a companys financial statements when they are earned.Revenues RecognitionA company usually recognizes revenue at the time goods are sold or services are rendered.RevenuesExpenses are outflows of assets of a company or incurrences of

23、 liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that are the companys ongoing major or central operations.ExpensesCause and effect(cost of goods sold and commissions)Systematic and rational (depreciation)Immediate recognition (per

24、iod costs)Expenses should be matched or recognized in the same period as the revenues they help generate.Expense RecognitionGains and losses are reported net (not net of tax) in contrast to revenues and expenses, which are reported gross. They appear in the Other section of a multiple step income st

25、atement.Gains and LossesSales revenue (net)Cost of goods soldGross profitOperating expensesIncome from operationsOther itemsIncome from continuing operations before taxIncome tax expense related to continued operationsIncome from continuing operations1. Income from continuing operationsIncome Statem

26、ent ContentResults from discontinued operationsIncome (loss) from operations of discontinued significant components (net of income taxes).Gain (loss) from disposals of discontinued significant components (net of income taxes).Income Statement ContentExtraordinary items (net of income taxes)Net incom

27、eEarnings per shareThats it!Income Statement ContentProper HeadingIncome Statement (Single-Step)Expenses & LossesRevenues & GainsProper HeadingIncome Statement (Single-Step)LetS take a look at a Multi-Step Income Statement, next.Proper HeadingIncome Statement (Multiple-Step)BANNER CORPORATIONSchedul

28、e 1: Cost of Goods SoldFor Year Ended December 31, 2007Inventory, January 1, 2007$ 41,000 Purchases$80,300 Freight-in 5,500 Cost of purchases$85,800 Less: Purchases returns(2,800)Net purchases 83,000 Cost of goods available for sale$124,000 Less: Inventory, December 31, 2007(38,000)Cost of goods sol

29、d$ 86,000 Cost of Goods SoldProper HeadingGross MarginIncome Statement (Multiple-Step)Proper HeadingGross MarginOperating ExpensesIncome Statement (Multiple-Step)Operating expenses are those primary recurring costs (other than cost of goods sold) incurred to generate sales revenue.Operating Expenses

30、Proper HeadingGross MarginOperating ExpensesNon- operating ItemsIncome Statement (Multiple-Step)Proper HeadingGross MarginOperating ExpensesNon- operating ItemsTaxesIncome Statement (Multiple-Step) Extraordinary gains and losses and discontinued operations are . . .Reported separately on the income

31、statement.2. Shown net of any related taxes.Other ItemsIncome from continuing operationsIncome (loss) from the operations of a discontinued componentGain (loss) from the disposal of a discontinued componentExtraordinary itemsAny prior period adjustmentsAny items of other comprehensive incomeIncome t

32、ax expense is matched against the following:Income Tax ExpenseInterperiod tax allocation involves allocating a corporations income tax obligation as an expense to various accounting periods because of temporary (timing) differences between its taxable income and pretax financial income.Income Tax Ex

33、penseIntraperiod tax allocation involves allocating a corporations total income tax expense for a period to the various components of its net income, retained earnings, and other comprehensive income.Income Tax ExpenseAn extraordinary item is an event or transaction that is both unusual in nature an

34、d infrequent in occurrence.Unusual nature-the underlying event or transaction possesses a high degree of abnormality and is of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the company.Infrequency of occurrence-the underlying event or transactio

35、n is of a type that is not reasonably expected to recur in the foreseeable future.Extraordinary ItemsUnusual?NoReport Gain (Loss) AsIncome from Continuing Operation (Other Items section)Infrequent?NoorIncome from Continuing Operation (Other Items section)EventExtraordinary ItemsEventUnusual?NoReport

36、 Gain (Loss) AsInfrequent?NoorYesYesandExtraordinary ItemExtraordinary ItemsSpecific extraordinary items identified in the pronouncementThe direct result of a major casualty (such as an earthquake).An expropriation.A prohibition under a newly enacted law or regulation that clearly meets both criteri

37、a.Extraordinary ItemsThe write-down or write-off of receivables, inventories, equipment leased to others, or intangible assets.Gains or losses from exchanges or transactions of foreign currency.Gains or losses from the disposals of a business component.Events that the APB Opinion No. 30 identified a

38、s not qualifying as extraordinary:ContinuedExtraordinary ItemsOther gains or losses from the sale or abandonment of property, plant, or equipment.The effects of a strike.The adjustment of accruals on long-term contracts.The effect of a terrorist attack.Events that the APB Opinion No. 30 identified a

39、s not qualifying as extraordinary:Extraordinary ItemsOne other item is required to be reported as an extraordinary item. As prescribed by FASB Statement No. 141, when a company purchases another company and pays less than the fair value of the other company, it reports the difference as an extraordi

40、nary gain.Extraordinary ItemsDuring 19X8, Apex Co. experienced a loss of $75,000 due to an earthquake at one of its manufacturing plants in Nashville. This was considered an extraordinary item. The company reported income from continuing operations of $128,387. All gains and losses are subject to a

41、30% tax rate.How would this item appear on the 19X8 income statement?Extraordinary Items ExampleExtraordinary Items ExampleIncome Statement Presentation:Extraordinary Items ExampleSome events are unusual or infrequent, but not both. For example:restructuring charges.gain or loss from the sale of ass

42、ets.I wonder how I should report these items.Reporting Unusual or Infrequent ItemsI wonder how I should report these items.Psst! Why dont you try reporting them in Income from Operations?Reporting Unusual or Infrequent ItemsA company may decide to “discontinue” some of its operations and sell a comp

43、onent of these operations.What is a component?Discontinued OperationsA component of a company involves operations and cash flows that can be clearly distinguished, operationally and for financial purposes, from the rest of the company.A component may be a subsidiary, an operating segment or an asset

44、 group.Discontinued OperationsIf a component of an entity has either been disposed of or classified as held for sale,we report the results of its operations separately in discontinued operations if two conditions are met:The operations and cash flows of the component have been(or will be) eliminated

45、 from the ongoing operation.The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.FASB Statement No. 144 requires that all of the following criteria be met to qualify for “held for sale”:Management has committed to a plan to

46、 sell the component.The component is available for immediate sale in its present condition.Management has begun an active program to locate a buyer.The sale is probable within one year.The component is being marketed for sale at a price that is reasonable in relation to components fair market value.

47、It is unlikely that management will make significant changes to the plan.Held for SaleTwo components are accounted for: Results of operations for the discontinued operations before the disposal decision. Gain or loss from disposal of a segment.Discontinued OperationsIncome from continuing operations

48、$93,000 Results from discontinued operations:Income from operations of discontinued Division X (net of $2,880 income taxes)$ 6,720 Loss on disposal of Division X (net of $6,000 income tax credit)(14,000) (7,280)Income before extraordinary items$85,720 Reported net of taxesReported net of taxesIncome

49、 Statement: Results from Discontinued OperationsNote that discontinued operations are reported on the income statement after the continuing operations, but before extraordinary items.Income Statement: Results from Discontinued OperationsIncome from continuing operations$93,000 Results from discontin

50、ued operations:Income from operations of discontinued Division X (net of $2,880 income taxes)$ 6,720 Income before extraordinary items$85,720Element 1: operating income (loss)Income Statement: Results from Discontinued OperationsIncome from continuing operations$93,000 Results from discontinued oper

51、ations:Income from operations of discontinued Division X (net of $2,880 income taxes)$ 6,720 Loss on disposal of Division X (net of $6,000 income tax credit)(14,000) (7,280)Income before extraordinary items$85,720Element 2: gain or loss on disposalIncome Statement: Results from Discontinued Operatio

52、nsOn September 30, 2007, Duvall Company sells Division C (a component of its operations) for $102,000 and incurs $2,000 of legal fees and closing costs. At the time of the sale, the book values of Division Cs assets and liabilities are $150,000 and $80,000, respectively. Duvall Company is subject to

53、 a 30% income tax rate.Sale IllustrationContinuedIncome Statement: Results from Discontinued OperationsNet cash received ($102,000 $2,000)$100,000Book value of net assets of Division C:Assets$150,000Liabilities (80,000)Net book value (70,000)Pretax gain$ 30,000Income tax (30%) (9,000)After-tax gain$

54、 21,000Sale IllustrationWhen a company classifies a significant component as held for sale, it records and reports the component at the lower of (1) its book value (book value of assets minus book value of liabilities) or (2) its fair value (the amount at which the assets and liabilities as a whole

55、could be sold in a current single transaction) less any cost to sell.Sale in a Later Accounting PeriodElmo Company classifies Division M (a significant component of its operations) as “held for sale” at the end of 2007. Elmo Company expects to sell Division M in 2008 at its fair value of $200,0000 (

56、consisting of assets with a fair value of $300,000 and liabilities with a fair value of $100,000). At the end of 2007, the book value of Division M is $240,000 (assets book value, $330,000; liabilities book value, $90,000). The company is subject to a 30% income tax rate.ContinuedSale in a Later Acc

57、ounting PeriodFair value of Division M$200,000Book value of net assets of Division M:Assets$330,000Liabilities (90,000)Net book value (240,000)Pretax loss$ (40,000)End of 2007Loss on Write-Down of Held-For-SaleDivision M (pretax)40,000Liabilities of Division M10,000Assets of Division M30,000Disclosu

58、res Required by FASB Statement No. 144A description of the facts and circumstances leading up to the sale, and, if held-for-sale, the expected manner and timing of the sale.The revenues and pretax income (loss) of the component included in its operating income (loss) reported in the results of disco

59、ntinued operations section of the companys income statement.ContinuedIncome Statement: Results from Discontinued OperationsDisclosures Required by FASB Statement No. 144If not reported separately on its income statement, the gain (loss) on the sale and the caption on the income statement that includ

60、es the gain (loss).If not separately reported on its balance sheet, the book value of the major classes of assets and liabilities.Income Statement: Results from Discontinued OperationsChange in estimatesChange in accounting principleChange in reporting entityReporting Accounting ChangescRevision of