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FinancialStatementsChapter3IntermediateAccounting12thEditionKieso,Weygandt,andWarfield

PreparedbyCobyHarmon,UniversityofCalifornia,SantaBarbaraFinancialStatementsChapte1.Understandthepurposesofthebalancesheet.2.Definetheelementsofabalancesheet.3.Explainhowtomeasuretheelementsofabalancesheet.4.Classifytheassetsofabalancesheet.5.Classifytheliabilitiesofabalancesheet.6.Reportthestockholders’equityofabalancesheet.7.Understandtheconceptsofincome.8.Explaintheconceptualguidelinesforreportingincome.LearningObjectives1.Understandthepurposesof9.Definetheelementsofanincomestatement.10.Describethemajorcomponentsofanincomestatement.11.Computeincomefromcontinuingoperations.12.Computeresultsfromdiscontinuedoperations.13.Identifyextraordinaryitems.14.Prepareastatementofretainedearnings.15.Reportcomprehensiveincome.LearningObjectives9.DefinetheelementsofanResources(Assets)Claimsagainstresources(Liabilities)Remainingclaimsaccruingtoowners(Owner’sEquity)BalanceSheetResources(Assets)ClaimsagainA=L+OEBasicAccountingIdentityBalanceSheetA=L+OEBasicAccountingAssetsProbablefutureeconomicbenefitsobtainedorcontrolledbyaparticularentityasaresultofpasttransactionsorevents.BasicDefinitions-SFACNo.6BalanceSheetAssetsBasicDefinitions-SFACBasicDefinitions-SFACNo.6LiabilitiesProbablefuturesacrificesofeconomicbenefitsarisingfrompresentobligationsofaparticularentitytotransferassetsorprovideservicestootherentitiesasaresultofpasttransactionsorevents.BalanceSheetBasicDefinitions-SFACNo.6Owners’EquityTheresidualinterestintheassetsofanentitythatremainsafteritsliabilitiesarededucted.BasicDefinitions-SFACNo.6BalanceSheetOwners’EquityBasicDefinitionAssetClassificationsCurrentAssetsCashInventoriesReceivablesPrepaymentsBalanceSheetFormatAssetClassificationsCurrentAAssetClassificationsNoncurrentAssetsInvestmentsandfundsIntangiblesProperty,Plant,&EquipmentDeferredChargesBalanceSheetFormatAssetClassificationsNoncurrenLiabilityClassificationsCurrentLiabilitiesAccountsPayableShort-termNotesPayableCollectionsinadvanceofunearnedrevenueAccruedExpensesBalanceSheetFormatLiabilityClassificationsCurre

CurrentassetsLess: CurrentliabilitiesEquals: WorkingCapitalCurrentassetsCurrentliabilities

=WorkingCapitalRatioWorkingCapital Currentassets=WorkingLiabilityClassificationsNoncurrentLiabilitiesCapitalLeasesLong-termNotesPayablePensionLiabilitiesBondsPayableBalanceSheetFormatLiabilityClassificationsNoncuEquityClassificationsOwners’EquityCapitalStockOtherContributedCapitalTreasuryStockRetainedEarningsBalanceSheetFormatEquityClassificationsOwners’Acorporationmustdisclosethechangesinitsstockholders’equityaccountwhenissuingfinancialstatements.Thisstatementshouldshowinvestmentsbyanddistributionstoownersduringtheperiod,amongotheritems.StatementofChangesinStockholders’EquityAcorporationmustdisclosethFASBStatementofConceptsNo.6definedinvestmentsbyownersanddistributionstoowners,asfollows:Investmentsbyownersareincreasesintheequityofacompanyresultingfromtransfersofsomethingvaluabletothecompanyfromotherentitiesinordertoobtainorincreaseownershipinterests.Distributionstoownersaredecreasesintheequityofacompanycausedbytransferringassets,renderingservices,orincurringliabilitiestoowners.StatementofChangesinStockholders’EquityFASBStatementofConceptsNo.Balance,Jan.1,2007 $65,000 $143,400 $64,900 $10,000 $283,300Unrealizedincreaseinvalueofavailable-for-salesecurities 2,000 2,000Netincome 62,500 62,500Cashdividendspaid (11,200) (11,200)Commonstockissued 6,500

30,500

37,000

Balance,Dec.31,2007 $71,500 $173,900 $116,200 $12,000 $373,600

SCHEDULEACARONMANUFACTURINGCOMPANY

AccumulatedCommonAdditionalOtherStockPaid-inRetainedComprehensive$5parCapitalEarningsIncomeTotalStatementofChangesinStockholders’EquityForYearEndedDecember31,2007StatementofChangesinStockholders’EquityBalance,Jan.1,2007 $65,000 OffsettingassetsandliabilitiesLossandgaincontingenciesValuationsreportedintheBalanceSheetTerminologyComparativeStatementsAdditionalReportingIssuesAdditionalReportingIssuesLossProbable(?)Reasonablyestimated(?)NoNoorDisclosureandYesYesReportamountinfinancialstatementsReasonablypossibleDiscloseinnotestothefinancialstatementsContingentLiabilitiesandAssetsLossProbable(?)ReasonablyestCurrentvalueamountsgenerallyarenotshownontheBalanceSheet.Containsmanyestimates.CertainassetsandliabilitiesarenotshownontheBalanceSheet,e.g.,humanresources.LimitationsofBalanceSheetCurrentvalueamountsgenerallEconomicIncomeAccountingIncomevs.IncomeStatementEconomicIncomeAccountingIncoCapitalMaintenanceConceptUnderthisconcept,corporateincomeforaperiodoftimeistheamountthatmaybepaidtostockholdersduringthatperiodandstillenablethecorporationtobeaswelloffattheendoftheperiodasitwasatthebeginning.ConceptsofIncomeCapitalMaintenanceConceptUndAssumeacorporationhasnetassetsof$45,000atthebeginningand$80,000attheendoftheyear,andthatnoadditionalinvestmentsorwithdrawalsweremade.Endingnetassets $80,000Less:Additionalinvestment 0

Endingnetassetsexcludinginvestment $80,000Less:Beginningnetassets (45,000 )Totalincomefortheyear $35,000

CapitalMaintenanceConceptThecorporationcouldpayout$35,000tostockholdersandstillbeaswelloffatyear-end.ConceptsofIncomeAssumeacorporationhasnetaAssumeacorporationhasnetassetsof$45,000atthebeginningand$80,000attheendoftheyear.Stockholdersmadeadditionalcapitalinvestmentsof$10,000.Endingnetassets $80,000Less:Additionalinvestment (10,000 )Endingnetassetsexcludinginvestment $70,000Less:Beginningnetassets (45,000 )Totalincomefortheyear $25,000

CapitalMaintenanceConceptConceptsofIncomeAssumeacorporationhasnetaTransactionalApproachThetransactionalapproachtoincomemeasurementisusedinaccountingtoday.ConceptsofIncomeTransactionalApproachThetranTransactionalApproachUnderthisconcept,acompanyrecordsitsnetassetsattheirhistoricalcost,anditdoesnotrecordchangesintheassetandliabilitiesunlessatransaction,event,orcircumstancehasoccurredthatprovidesreliableevidenceofachangeinvalue.ConceptsofIncomeTransactionalApproachUnderthTransactionalApproachAcorporation’snetincomeforanaccountingperiodcurrentlyismeasuredasfollows:Netincome=Revenues–Expenses+Gains-LossesConceptsofIncomeTransactionalApproachAcorporRevenuesareinflows(orincreases)ofassetsofacompanyorsettlementofitsliabilitiesduringaperiodfromdeliveringorproducinggoods,renderingservices,orotheractivitiesthatarethecompany’songoingmajororcentraloperations.RevenuesRevenuesareinflows(orincreRecognition

istheprocessofformallyrecordingandreportinganiteminacompany’sfinancialstatementswhentheyareearned.RevenuesRecognitionRecognitionistheprocessofAcompanyusuallyrecognizesrevenueatthetimegoodsaresoldorservicesarerendered.RevenuesAcompanyusuallyrecognizesrExpensesareoutflowsofassetsofacompanyorincurrencesofliabilitiesduringaperiodfromdeliveringorproducinggoods,renderingservices,orcarryingoutotheractivitiesthatarethecompany’songoingmajororcentraloperations.ExpensesExpensesareoutflowsofassetCauseandeffect (costofgoodssoldandcommissions)Systematicandrational(depreciation)Immediaterecognition(periodcosts)Expensesshouldbematchedorrecognizedinthesameperiodastherevenuestheyhelpgenerate.ExpenseRecognitionCauseandeffectExpensesshoulGainsandlosses

arereportednet(notnetoftax)incontrasttorevenuesandexpenses,whicharereportedgross.TheyappearintheOther

sectionofamultiplestepincomestatement.GainsandLossesGainsandlossesarereportedSalesrevenue(net)CostofgoodssoldGrossprofitOperatingexpensesIncomefromoperationsOtheritemsIncomefromcontinuingoperationsbeforetaxIncometaxexpenserelatedtocontinuedoperationsIncomefromcontinuingoperations1.

IncomefromcontinuingoperationsIncomeStatementContentSalesrevenue(net)1.IncomeResultsfromdiscontinuedoperationsIncome(loss)fromoperationsofdiscontinuedsignificantcomponents(netofincometaxes).Gain(loss)fromdisposalsofdiscontinuedsignificantcomponents(netofincometaxes).IncomeStatementContentResultsfromdiscontinuedoperExtraordinaryitems(netofincometaxes)NetincomeEarningspershare That’sit!IncomeStatementContentExtraordinaryitems(netofinProperHeading{IncomeStatement(Single-Step)ProperHeading{IncomeStatemenExpenses&Losses{Revenues&Gains{ProperHeading{IncomeStatement(Single-Step)Expenses&Losses{Revenues&GLet’StakealookataMulti-StepIncomeStatement,next.Let’StakealookataMulti-SProperHeading{IncomeStatement(Multiple-Step)ProperHeading{IncomeStatemenBANNERCORPORATIONSchedule1:CostofGoodsSoldForYearEndedDecember31,2007Inventory,January1,2007 $41,000Purchases $80,300Freight-in 5,500

Costofpurchases $85,800Less:Purchasesreturns (2,800)Netpurchases 83,000

Costofgoodsavailableforsale $124,000Less:Inventory,December31,2007 (38,000)Costofgoodssold $86,000

CostofGoodsSoldBANNERCORPORATIONSchedule1:ProperHeading{GrossMargin{IncomeStatement(Multiple-Step)ProperHeading{GrossMargin{InProperHeading{GrossMargin{OperatingExpenses{IncomeStatement(Multiple-Step)ProperHeading{GrossMargin{OpOperatingexpensesarethoseprimaryrecurringcosts(otherthancostofgoodssold)incurredtogeneratesalesrevenue.OperatingExpensesOperatingexpensesarethosepProperHeading{GrossMargin{OperatingExpenses{{Non-operatingItemsIncomeStatement(Multiple-Step)ProperHeading{GrossMargin{OpProperHeading{GrossMargin{OperatingExpenses{{Non-operatingItems{TaxesIncomeStatement(Multiple-Step)ProperHeading{GrossMargin{Op

Extraordinarygainsandlossesanddiscontinuedoperationsare...Reportedseparatelyontheincomestatement.2.Shown

netofanyrelatedtaxes.OtherItemsExtraordinarygainsandlosIncomefromcontinuingoperationsIncome(loss)fromtheoperationsofadiscontinuedcomponentGain(loss)fromthedisposalofadiscontinuedcomponentExtraordinaryitemsAnypriorperiodadjustmentsAnyitemsofothercomprehensiveincomeIncometaxexpenseismatchedagainstthefollowing:IncomeTaxExpenseIncomefromcontinuingoperatiInterperiodtaxallocationinvolvesallocatingacorporation’sincometaxobligationasanexpensetovariousaccountingperiodsbecauseoftemporary(timing)differencesbetweenitstaxableincomeandpretaxfinancialincome.IncomeTaxExpenseInterperiodtaxallocationinvIntraperiodtaxallocationinvolvesallocatingacorporation’stotalincometaxexpenseforaperiodtothevariouscomponentsofitsnetincome,retainedearnings,andothercomprehensiveincome.IncomeTaxExpenseIntraperiodtaxallocationinvAnextraordinaryitemisaneventortransactionthatisbothunusualinnatureandinfrequentinoccurrence.Unusualnature--theunderlyingeventortransactionpossessesahighdegreeofabnormalityandisofatypeclearlyunrelatedto,oronlyincidentallyrelatedto,theordinaryandtypicalactivitiesofthecompany.Infrequencyofoccurrence--theunderlyingeventortransactionisofatypethatisnotreasonablyexpectedtorecurintheforeseeablefuture.ExtraordinaryItemsAnextraordinaryitemisanevUnusual?NoReportGain(Loss)AsIncomefromContinuingOperation(OtherItemssection)Infrequent?NoorIncomefromContinuingOperation(OtherItemssection)EventExtraordinaryItemsUnusual?NoReportGain(Loss)AEventUnusual?NoReportGain(Loss)AsInfrequent?NoorYesYesandExtraordinaryItemExtraordinaryItemsEventUnusual?NoReportGain(LoSpecificextraordinaryitemsidentifiedinthepronouncementThedirectresultofamajorcasualty(suchasanearthquake).Anexpropriation.Aprohibitionunderanewlyenactedlaworregulationthatclearlymeetsbothcriteria.ExtraordinaryItemsSpecificextraordinaryitemsiThewrite-downorwrite-offofreceivables,inventories,equipmentleasedtoothers,orintangibleassets.Gainsorlossesfromexchangesortransactionsofforeigncurrency.Gainsorlossesfromthedisposalsofabusinesscomponent.EventsthattheAPBOpinionNo.30identifiedasnotqualifyingasextraordinary:ContinuedExtraordinaryItemsThewrite-downorwrite-offofOthergainsorlossesfromthesaleorabandonmentofproperty,plant,orequipment.Theeffectsofastrike.Theadjustmentofaccrualsonlong-termcontracts.Theeffectofaterroristattack.EventsthattheAPBOpinionNo.30identifiedasnotqualifyingasextraordinary:ExtraordinaryItemsOthergainsorlossesfromtheOneotheritemisrequiredtobereportedasanextraordinaryitem.AsprescribedbyFASBStatementNo.141,whenacompanypurchasesanothercompanyandpayslessthanthefairvalueoftheothercompany,itreportsthedifferenceasanextraordinarygain.ExtraordinaryItemsOneotheritemisrequiredtoDuring19X8,ApexCo.experiencedalossof$75,000duetoanearthquakeatoneofitsmanufacturingplantsinNashville.Thiswasconsideredanextraordinaryitem.Thecompanyreportedincomefromcontinuingoperationsof$128,387.Allgainsandlossesaresubjecttoa30%taxrate.Howwouldthisitemappearonthe19X8incomestatement?ExtraordinaryItemsExampleDuring19X8,ApexCo.experienExtraordinaryItemsExampleExtraordinaryItemsExampleIncomeStatementPresentation:ExtraordinaryItemsExampleIncomeStatementPresentation:Someeventsareunusualor

infrequent,butnotboth.Forexample:restructuringcharges.gainorlossfromthesaleofassets.IwonderhowIshouldreporttheseitems.ReportingUnusualorInfrequentItemsSomeeventsareunusualorinfIwonderhowIshouldreporttheseitems.Psst!Whydon’tyoutryreportingtheminIncomefromOperations?ReportingUnusualorInfrequentItemsIwonderhowIshouldreporttAcompanymaydecideto“discontinue”someofitsoperationsandsellacomponentoftheseoperations.Whatisacomponent?DiscontinuedOperationsAcompanymaydecideto“discoAcomponentofacompanyinvolvesoperationsandcashflowsthatcanbeclearlydistinguished,operationallyandforfinancialpurposes,fromtherestofthecompany.Acomponentmaybeasubsidiary,anoperatingsegmentoranassetgroup.DiscontinuedOperationsAcomponentofacompanyinvolIfacomponentofanentityhaseitherbeendisposedoforclassifiedasheldforsale,wereporttheresultsofitsoperationsseparatelyindiscontinuedoperationsiftwoconditionsaremet:Theoperationsandcashflowsofthecomponenthavebeen(orwillbe)eliminatedfromtheongoingoperation.Theentitywillnothaveanysignificantcontinuinginvolvementintheoperationsofthecomponentafterthedisposaltransaction..IfacomponentofanentityhaFASBStatementNo.144requiresthatall

ofthefollowingcriteriabemettoqualifyfor“heldforsale”:Managementhascommittedtoaplantosellthecomponent.Thecomponentisavailableforimmediatesaleinitspresentcondition.Managementhasbegunanactiveprogramtolocateabuyer.Thesaleisprobablewithinoneyear.Thecomponentisbeingmarketedforsaleatapricethatisreasonableinrelationtocomponent’sfairmarketvalue.Itisunlikelythatmanagementwillmakesignificantchangestotheplan.HeldforSaleFASBStatementNo.144requireTwocomponentsareaccountedfor:Resultsofoperationsforthediscontinuedoperationsbeforethedisposaldecision.Gainorlossfromdisposalofasegment.DiscontinuedOperationsTwocomponentsareaccountedfIncomefromcontinuingoperations $93,000Resultsfromdiscontinuedoperations: Incomefromoperationsof discontinuedDivisionX(net of$2,880incometaxes) $6,720 LossondisposalofDivisionX (netof$6,000incometaxcredit) (14,000 ) (7,280 )Incomebeforeextraordinaryitems $85,720

ReportednetoftaxesReportednetoftaxesIncomeStatement:ResultsfromDiscontinuedOperationsIncomefromcontinuingoperatiNotethatdiscontinuedoperationsarereportedontheincomestatementafter

thecontinuingoperations,butbefore

extraordinaryitems.IncomeStatement:ResultsfromDiscontinuedOperationsNotethatdiscontinuedoperatiIncomefromcontinuingoperations $93,000Resultsfromdiscontinuedoperations:

Incomefromoperationsof discontinuedDivisionX(net of$2,880incometaxes) $6,720

Incomebeforeextraordinaryitems $85,720Element1:operatingincome(loss)IncomeStatement:ResultsfromDiscontinuedOperationsIncomefromcontinuingoperatiIncomefromcontinuingoperations $93,000Resultsfromdiscontinuedoperations: Incomefromoperationsof discontinuedDivisionX(net of$2,880incometaxes) $6,720

LossondisposalofDivisionX (netof$6,000incometaxcredit) (14,000 ) (7,280 )Incomebeforeextraordinaryitems $85,720Element2:gainorlossondisposalIncomeStatement:ResultsfromDiscontinuedOperationsIncomefromcontinuingoperatiOnSeptember30,2007,DuvallCompanysellsDivisionC(acomponentofitsoperations)for$102,000andincurs$2,000oflegalfeesandclosingcosts.Atthetimeofthesale,thebookvaluesofDivisionC’sassetsandliabilitiesare$150,000and$80,000,respectively.DuvallCompanyissubjecttoa30%incometaxrate.SaleIllustrationContinuedIncomeStatement:ResultsfromDiscontinuedOperationsOnSeptember30,2007,DuvallNetcashreceived($102,000–$2,000) $100,000BookvalueofnetassetsofDivisionC: Assets $150,000 Liabilities (80,000 ) Netbookvalue (70,000 )Pretaxgain $30,000Incometax(30%) (9,000 )After-taxgain $21,000

SaleIllustrationNetcashreceived($102,000–Whenacompanyclassifiesasignificantcomponentasheldforsale,itrecordsandreportsthecomponentatthelowerof(1)itsbookvalue(bookvalueofassetsminusbookvalueofliabilities)or(2)itsfairvalue(theamountatwhichtheassetsandliabilitiesasawholecouldbesoldinacurrentsingletransaction)lessanycosttosell.SaleinaLaterAccountingPeriodWhenacompanyclassifiesasiElmoCompanyclassifiesDivisionM(asignificantcomponentofitsoperations)as“heldforsale”attheendof2007.ElmoCompanyexpectstosellDivisionMin2008atitsfairvalueof$200,0000

(consistingofassetswithafairvalueof$300,000andliabilitieswithafairvalueof$100,000).

Attheendof2007,thebookvalueofDivisionMis$240,000

(assetsbookvalue,$330,000;liabilitiesbookvalue,$90,000).

Thecompanyissubjecttoa30%incometaxrate.ContinuedSaleinaLaterAccountingPeriodElmoCompanyclassifiesDivisiFairvalueofDivisionM $200,000BookvalueofnetassetsofDivisionM: Assets $330,000 Liabilities (90,000 ) Netbookvalue (240,000 )Pretaxloss $(40,000 )Endof2007LossonWrite-DownofHeld-For-Sale DivisionM(pretax) 40,000 LiabilitiesofDivisionM 10,000 AssetsofDivisionM 30,000FairvalueofDivisionM $20DisclosuresRequiredbyFASBStatementNo.144Adescriptionofthefactsandcircumstancesleadinguptothesale,and,ifheld-for-sale,theexpectedmannerandtimingofthesale.Therevenuesandpretaxincome(loss)ofthecomponentincludedinitsoperatingincome(loss)reportedintheresultsofdiscontinuedoperationssectionofthecompany’sincomestatement.ContinuedIncomeStatement:ResultsfromDiscontinuedOperationsDisclosuresRequiredbyFASBSDisclosuresRequiredbyFASBStatementNo.144Ifnotreportedseparatelyonitsincomestatement,thegain(loss)onthesaleandthecaptionontheincomestatementthatincludesthegain(loss).Ifnotseparatelyreportedonitsbalancesheet,thebookvalueofthemajorclassesofassetsandliabilities.IncomeStatement:ResultsfromDiscontinuedOperationsDisclosuresRequiredbyFASBSChangeinestimates

Changeinaccountingprinciple

ChangeinreportingentityReportingAccountingChangescChangeinestimates

ReportingRevisionofapreviousaccountingestimate.Thenewestimateshouldbeusedinthecurrentandfutureperiods.Theprioraccountingresultsshouldnotbedisturbed–FASBStatementNo.154.ChangeinEstimatesRevisionofapreviousaccountOnJanuary1,19X5,wepurchasedequipmentcosting$30,000,withausefullifeof10yearsandnosalvagevalue.During19X8,wedeterminethattheremainingusefullifeis5years(8-yeartotallife).Weusestraight-linedepreciation.

Calculatedepreciationexpensefor19X8baseduponthisnewestimate.ChangeinEstimates

ExampleOnJanuary1,19X5,wepurchasRecorddepreciationexpenseof$4,200for19X8andsubsequentyears.ChangeinEstimates

ExampleRecorddepreciationexpenseofOccurswhenchangingfromoneGAAPmethodtoanotherGAAPmethod.Makeacatch-upadjustmentknownasthecumulativeeffectofachangeinaccountingprinciple.Thecumulativeeffectisreportednetoftaxesanddirectlyafterthebeginningretainedearningsamountonthecompany’sretainedearningsstatement.ChangeinAccountingPrincipleOccurswhenchangingfromoneLet’smoveontoafewfinaltopics.Let’smoveontoafewfinaltEarningsPerShare.StatementofRetainedEarnings.PriorPeriodAdjustments.ComprehensiveIncomeOtherTopicsEarningsPerShare.OtherTopicGenerallycomputedasfollows:EarningsPerShare

Generallycomputedasfollows:Retainedearningsisthelinkbetweenacorporation’sbalancesheetanditsincomestatement.StatementofRetainedEarningsRetainedearningsisthelink

Beginningretainedearnings $59,200 Plus(minus):Priorperiodadjustment (netof$2,400incometaxes) 5,600

Adjustedbeginningretainedearnings $64,800 Plus(minus):Netincome(loss) 22,300

$87,100

Minus:Dividends(specificallyidentified,

includingpershareamounts) (9,400)

Endingretainedearnings

$77,700StatementofRetainedEarnings Beginningretainedearnings $Correctionsoferrorsfromapreviousperiod.AppearontheStatementofRetainedEarnings

asanadjustmenttobeginningretainedearnings.Mustshowtheadjustmentnetofincometaxes.PriorPeriodAdjustmentsCorrectionsoferrorsfromapRecallthattheFASBnowrequirescompaniestoreporttheircomprehensiveincome(orloss)fortheaccountingperiod.Acompany’scomprehensiveincomeconsistsoftwoparts:netincomeandothercomprehensivenetincome.Currently,therearefouritemsofacompany’sothercomprehensiveincome:ContinuedComprehensiveIncomeRecallthattheFASBnowrequiAnyunrealizedincreases(gains)ordecreases(losses)inthemarketvalueofinvestmentsinavailable-for-salesecurities.Anychangeintheexcessofitsadditional

pensionliabilityoverunrecognizedpriorservicecosts.Certaingainsandlosseson“derivative”financialinstruments.Anytransactionadjustmentfromconvertingthefinancialstatementsofacompany’sforeignoperationsintoU.S.dollars.ComprehensiveIncomeAnyunrealizedincreases(gainInaseparatestatementofcomprehensiveincome.Onthefaceofitsincomestatement.Initsstatementofchangesinstockholders’equity.TheFASBallowsacompanytoreportitscomprehensiveincomeunderthreealternatives:Thecompanymustdisplaythestatementcontainingthecomprehensiveincomeasa

majorfinancialstatementinitsannualreport.ComprehensiveIncomeTheFASBallowsacompanytorYOURS...OHNO!WhoseIdeawasthis?YOURS...OHNO!WhoseIdeawastChapter3TheEndTaskForceImageGalleryclipartincludedinthiselectronicpresentationisusedwiththepermissionofNVTechInc.Chapter3TheEndTaskForceImag

FinancialStatementsChapter3IntermediateAccounting12thEditionKieso,Weygandt,andWarfield

PreparedbyCobyHarmon,UniversityofCalifornia,SantaBarbaraFinancialStatementsChapte1.Understandthepurposesofthebalancesheet.2.Definetheelementsofabalancesheet.3.Explainhowtomeasuretheelementsofabalancesheet.4.Classifytheassetsofabalancesheet.5.Classifytheliabilitiesofabalancesheet.6.Reportthestockholders’equityofabalancesheet.7.Understandtheconceptsofincome.8.Explaintheconceptualguidelinesforreportingincome.LearningObjectives1.Understandthepurposesof9.Definetheelementsofanincomestatement.10.Describethemajorcomponentsofanincomestatement.11.Computeincomefromcontinuingoperations.12.Computeresultsfromdiscontinuedoperations.13.Identifyextraordinaryitems.14.Prepareastatementofretainedearnings.15.Reportcomprehensiveincome.LearningObjectives9.DefinetheelementsofanResources(Assets)Claimsagainstresources(Liabilities)Remainingclaimsaccruingtoowners(Owner’sEquity)BalanceSheetResources(Assets)ClaimsagainA=L+OEBasicAccountingIdentityBalanceSheetA=L+OEBasicAccountingAssetsProbablefutureeconomicbenefitsobtainedorcontrolledbyaparticularentityasaresultofpasttransactionsorevents.BasicDefinitions-SFACNo.6BalanceSheetAssetsBasicDefinitions-SFACBasicDefinitions-SFACNo.6LiabilitiesProbablefuturesacrificesofeconomicbenefitsarisingfrompresentobligationsofaparticularentitytotransferassetsorprovideservicestootherentitiesasaresultofpasttransactionsorevents.BalanceSheetBasicDefinitions-SFACNo.6Owners’EquityTheresidualinterestintheassetsofanentitythatremai