Income-and-Changes-in-Re课件(PPT 84页)

1、Chapter 12Income and Changes in Retained Earnings第1页，共84页。Reporting the Results of Operations第2页，共84页。第3页，共84页。This tax expense does not include effects of unusual, nonrecurring items.第4页，共84页。These unusual, nonrecurring items are each reported net of taxes.第5页，共84页。Discontinued OperationsIncome/Los

2、s from operating the segment prior to disposal.Discontinued OperationsIncome/Loss on disposal of the segment.When management enters into a formal plan to sell or discontinue a segment of the business.第6页，共84页。Discontinued OperationsWhen management enters into a formal plan to sell or discontinue a s

3、egment of the business.A segment must be a separate line of business activity or an operation that services a distinct category of customers.第7页，共84页。During 2000, Apex Co. sold an unprofitable segment of the company. The segment had a net loss from operations during the period of $150,000 and its as

4、sets sold at a loss of $100,000. Apex reported income from continuing operations of $350,000. All items are taxed at 30%. How will this appear on the income statement?Discontinued Operations Example第8页，共84页。Discontinued Operations Example第9页，共84页。Income Statement Presentation:Discontinued Operations

5、 Example第10页，共84页。Material in amount.Gains or losses that are both unusual in nature and not expected to recur in the foreseeable future.Reported net of related taxes.Extraordinary Items第11页，共84页。During 2000, Apex Co. experienced a loss of $75,000 due to an earthquake at one of its manufacturing pla

6、nts in Nashville. This was considered an extraordinary item. The company reported income before extraordinary item of $175,000. All gains and losses are subject to a 30% tax rate.How would this item appear on the 2000 income statement?Extraordinary Items Example第12页，共84页。Extraordinary Items Example第

7、13页，共84页。Income Statement Presentation:Extraordinary Items Example第14页，共84页。Accounting Changes第15页，共84页。Change in Accounting PrincipleOccurs when changing from one GAAP method to another GAAP method.Make a catch-up adjustment known as the cumulative effect of a change in accounting principle.The cum

8、ulative effect is reported net of taxes and after extraordinary items.第16页，共84页。Change in Accounting Principle ExampleAlso in 2000, Apex Co. decided to change from the double-declining balance to the straight-line method for depreciation. The effect of this change is an increase in net income of $65

9、,000. Apex reported income before cumulative effect of an accounting change of $122,500 during the year. All items of income are subject to a 30% tax rate.How would this item appear on the income statement?第17页，共84页。Change in Accounting Principle ExampleComputation:第18页，共84页。Computation:Income State

10、ment Presentation:Change in Accounting Principle Example第19页，共84页。Change in EstimatesRevision of a previous accounting estimate.The new estimate should be used in the current and future periods.The prior accounting results should not be disturbed.第20页，共84页。Change in EstimatesExampleOn January 1, 199

11、7, we purchased equipment costing $30,000, with a useful life of 10 years and no salvage value. During 2000, we determine that the remaining useful is 5 years (8-year total life). We use straight-line depreciation.Compute the revised depreciation expense for 2000.第21页，共84页。Record depreciation expens

12、e of $4,200 for2000 and subsequent years.Change in EstimatesExample第22页，共84页。Lets move on to a few final topics.第23页，共84页。Price-earnings Ratio (P/E)Often, the Price-Earnings Ratio is used to evaluate the reasonableness of a company抯 stock price.Lets examine this further.第24页，共84页。Earnings Per Share

13、(EPS)A measure of the company抯 profitability and earning power for the period.Based on the number of shares issued and the length of time that number remained unchanged.第25页，共84页。Earnings Per Share (EPS) -Partial Income Statement Use the information from Apex Co. that was generated earlier. Assume t

14、hat Apex has weighted average shares outstanding of 156,250. Prepare a partial income statement showing the EPS for Income from Operations and for the other special items. 第26页，共84页。Earnings Per Share (EPS) -Partial Income Statement * Rounding error.第27页，共84页。Earnings Per Share (EPS)If preferred sto

15、ck is present, subtract preferred dividends from net income prior to computing EPS.EPS is required to be reported in the income statement.第28页，共84页。Accounting for Cash DividendsDeclared by board of directors.Not legally required.Creates liability at declaration.Requires sufficient Retained Earnings

16、and Cash.第29页，共84页。Dividend DatesDate of DeclarationBoard of directors declares the dividend.Record a liability. 第30页，共84页。Dividend DatesEx-Dividend DateThe day which serves as the ownership cut-off point for the receipt of the most recently declared dividend.第31页，共84页。Dividend DatesXDate of RecordS

17、tockholders holding shares on this date will receive the dividend. (No entry)第32页，共84页。Date of PaymentRecord the payment of the dividend to stockholders.Dividend Dates第33页，共84页。Dividend DatesQuestionOn June 1, 1999 a corporations board of directors declared a dividend for the 2,500 shares of its $10

18、0 par value, 8% preferred stock. The dividend will be paid on July 15. Which of the following will be included in the July 15 entry?a. Debit Retained Earnings $20,000.b. Debit Dividends Payable $20,000.c. Credit Dividends Payable $20,000.d. Credit Preferred Stock $20,000. 第34页，共84页。On June 1, 1999 a

19、 corporation抯 board of directors declared a dividend for the 2,500 shares of its $100 par value, 8% preferred stock. The dividend will be paid on July 15. Which of the following will be included in the July 15 entry?a. Debit Retained Earnings $20,000.b. Debit Dividends Payable $20,000.c. Credit Divi

20、dends Payable $20,000.d. Credit Preferred Stock $20,000. Dividend DatesQuestion$100 ?8% = $8 dividend per share$8 ?2,500 = $20,000 total dividend第35页，共84页。Accounting for Stock DividendsNo change in total stockholders?equity.All stockholders retain same percentage ownership.No change in par values.Di

21、stribution of additional shares of stock to stockholders.第36页，共84页。Summary of Effects of Stock Dividends and Stock Splits第37页，共84页。Prior Period AdjustmentsAdjust retained earnings retroactively.The adjustment should be disclosed net of any taxes.The correction of an error identified as affecting net

22、 income in a prior period.第38页，共84页。Comprehensive Income第39页，共84页。Comprehensive IncomeGAAP excludes some unrealized items from income, such as the change in market value of available-for-sale debt and equity investments.第40页，共84页。Comprehensive Income第41页，共84页。Hang in there! We are coming down the ho

23、me stretch!Yeah, that is easy for you to say!第42页，共84页。Chapter 14Financial Statement Analysis第43页，共84页。Purpose of AnalysisInternal UsersExternal UsersFinancial statement analysis helps users make better decisions.ManagersOfficersInternal AuditorsShareholdersLendersCustomers第44页，共84页。Purpose of Analy

24、sis第45页，共84页。Financial Statements are Designed for Analysis第46页，共84页。Tools of AnalysisLiquidity and EfficiencySolvencyProfitabilityMarketAbility to meet short-term obligations and to efficiently generate revenuesAbility to generate future revenues and meet long-term obligationsAbility to generate po

25、sitive market expectationsAbility to provide financial rewards sufficient to attract and retain financing第47页，共84页。Dollar Change:Analysis Period AmountBase PeriodAmountDollarChange=Dollar and Percentage ChangesPercentage Change:Dollar ChangeBase PeriodAmountPercentChange=%第48页，共84页。Dollar and Percen

26、tage Changes第49页，共84页。 Let s look at the asset section of Clover Corporation s comparative balance sheet and income statement for 2001 and 2000.Compute the dollar change and the percentage for cash.Dollar and Percentage ChangesExample第50页，共84页。第51页，共84页。$12,000 ?$23,500 = $(11,500)第52页，共84页。($11,500

27、 ?$23,500) ?100% = 48.94%Complete the analysis for the other assets.第53页，共84页。第54页，共84页。Trend AnalysisTrend analysis is used to reveal patterns in data covering successive periods.TrendPercent Analysis Period Amount Base Period Amount100%=第55页，共84页。Trend AnalysisExample1997 is the base period so its

28、 amounts will equal 100%.Berry ProductsIncome InformationFor the Years Ended December 31, 第56页，共84页。Trend AnalysisExampleBerry ProductsIncome InformationFor the Years Ended December 31, 第57页，共84页。Trend AnalysisExampleBerry ProductsIncome InformationFor the Years Ended December 31, 第58页，共84页。Componen

29、t PercentagesExamine the relative size of each item in the financial statements by computing component (or common-sized) percentages.Component Percent100%Analysis AmountBase Amount=Financial StatementBase AmountBalance SheetTotal AssetsIncome StatementRevenues第59页，共84页。($12,000 ?$315,000) ?100% = 3.

30、8%($23,500 ?$289,700) ?100% = 8.1%第60页，共84页。第61页，共84页。第62页，共84页。第63页，共84页。第64页，共84页。第65页，共84页。Common-Size GraphicsExampleThis is a graphical analysis of Clover Corporation抯 common-size assets for 2001.第66页，共84页。Ratios第67页，共84页。 Use this information to calculate the liquidity ratios for Norton Corpor

31、ation.第68页，共84页。Working CapitalWorking capital is the excess of current assets over current liabilities.第69页，共84页。Current RatioCurrentRatio Current Assets Current Liabilities=CurrentRatio $65,000 $42,000=1.55 : 1This ratio measures the short-term debt-paying ability of the company.第70页，共84页。Quick Ra

32、tioQuick assets are cash, marketable securities, and receivables.This ratio is like the currentratio but excludes current assets such as inventories that may be difficult to quickly convert into cash. Quick Assets Current Liabilities=QuickRatio第71页，共84页。 Quick Assets Current Liabilities=QuickRatio $

33、50,000 $42,000=1.19 : 1=QuickRatioQuick RatioThis ratio is like the currentratio but excludes current assets such as inventories that may be difficult to quickly convert into cash. 第72页，共84页。Debt RatioA measure of creditor抯 long-term risk. The smaller the percentage of assets that are financed by debt, the smaller the risk for creditors.第73页，共84页。Debt RatioA measure of creditor抯 long-term risk. The smaller the percentage of assets that