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CE4-4(Continued)；InterpretiveResponse:Inc；(FN1)Ifaregistrantelects；(FN2)Theassessmentofmate；4-6Copyright?2011JohnWil；ANSWERSTOQUESTIONS；1.Theincomestatementisim；thathelpsthempredic
CE4-4 (Continued) Interpretive Response: Income or loss applicable to common stock should be reported on the face of the income statement (FN1) when it is materially different in quantitative terms from reported net income or loss (FN2) or when it is indicative of significant trends or other qualitative considerations. The amount to be reported should be computed for each period as net income
or loss less: (a) dividends on preferred stock, including undeclared or unpaid div and (b) periodic increases in the carrying amounts of instruments reported as redeemable preferred stock (as discussed in Topic 3.C) or increasing rate preferred stock (as discussed in Topic 5.Q). (FN1) If a registrant elects to follow the encouraged disclosure discussed in paragraph 23 of Statement 130, and displays the components of other comprehensive income and the total for comprehensive income using a one-statement approach, the registrant must continue to follow the guidance set forth in the SAB Topic. One approach may be to provide a separate reconciliation of net income to income available to common stock below comprehensive income reported on a statement of income and comprehensive income. (FN2) The assessment of materiality is the responsibility of each registrant. However, absent concerns about trends or other qualitative considerations, the staff generally will not insist on the reporting of income or loss applicable to common stock if the amount differs from net income or loss by less than ten percent. 4-6
Copyright ? 2011 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 14/e, Solutions Manual
(For Instructor Use Only)ANSWERS TO QUESTIONS 1. The income statement is important because it provides investors and creditors with informationthat helps them predict the amount, timing, and uncertainty of future cash flows. It helps investors and creditors predict future cash flows in a number of different ways. First, investors and creditors can use the information on the income statement to evaluate the past performance of the enterprise. Second, the income statement helps users of the financial statements to determine the risk (level of uncertainty) of income―revenues, expenses, gains, and losses―and highlights the relationship among these various components. It should be emphasized that the income statement is used by parties other than investors and creditors. For example, customers can use the income statement to determine a company’s ability to provide needed goods or services, unions examine earnings closely as a basis for salary dis-cussions, and the government uses the income statements of companies as a basis for formulating tax and economic policy. 2. Information on past transactions can be used to identify important trends that, if continued, provideinformation about future performance. If a reasonable correlation exists between past and future performance, predictions about future earnings and cash flows can be made. For example, a loan analyst can develop a prediction of future performance by estimating the rate of growth of past income over the past several periods and project this into the next period. Additional information about current economic and industry factors can be used to adjust the trend rate based on historical information. 3. Some situations in which changes in value are not recorded in income are:(a) Unrealized gains or losses on available-for-sale investments,(b) Changes in the market values of long-term liabilities, such as bonds payable,(c) Changes (increases) in value of property, plant and equipment, such as land, natural resources,or equipment,(d) Changes (increases) in the values of intangible assets such as customer goodwill, brand value,or intellectual capital. Note that some of these omissions arise because the items (e.g., brand value) are not recognized in financial statements, while others (value of land) are recorded in financial statements but meas-urement is at historical cost. 4. Some situations in which application of different accounting methods or estimates lead to comparisonproblems include:(a) Inventory methods―LIFO vs. FIFO,(b) Depreciation Methods―straight-line vs. accelerated,(c) Accounting for long-term contracts―percentage-of-completion vs. completed-contract,(d) Estimates of useful lives or salvage values for depreciable assets,(e) Estimates of bad debts,(f) Estimates of warranty costs. 5. The transaction approach focuses on the activities that have occurred during a given period andinstead of presenting only a net change, a description of the components that comprise the change is included. In the capital maintenance approach, only the net change (income) is reflected whereas the transaction approach not only provides the net change (income) but the components of income (revenues and expenses). The final net income figure should be the same under either approach given the same valuation base.Copyright ? 2011 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 14/e, Solutions Manual
(For Instructor Use Only)
4-7Questions Chapter 4 (Continued) 6. Earnings management is often defined as the planned timing of revenues, expenses, gains andlosses to smooth out bumps in earnings. In most cases, earnings management is used to increase income in the current year at the expense of income in future years. For example, companies prematurely recognize sales before they are complete in order to boost earnings. Earnings management can also be used to decrease current earnings in order to increase income in the future. The classic case is the use of Dcookie jar‖ reserves, which are established by using unrealistic assumptions to estimate liabilities for such items as sales returns, loan losses, and warranty costs.7. Earnings management has a negative effect on the quality of earnings if it distorts the informationin a way that is less useful for predicting future cash flows. Within the Conceptual Framework, useful information is both relevant and representationally faithful. However, earnings management reduces the reliability of income, because the income measure is biased (up or down) and/or the reported income is not representationally faithful to that which it is supposed to report (e.g., volatile earnings are made to look more smooth). 8. Caution should be exercised because many assumptions and estimates are made in accountingand the net income figure is a reflection of these assumptions. If for any reason the assumptions are not well-founded, distortions will appear in the income reported. The objectives of the application of generally accepted accounting principles to the income statement are to measure and report the results of operations as they occur for a specified period without recognizing any artificial exclusions or modifications. 9. The term Dquality of earnings‖ refers to the credibility of the earnings number reported. Companiesthat use aggressive accounting policies report higher income numbers in the short-run. In such cases, we say that the quality of earnings is low. Similarly, if higher expenses are recorded in the current period, in order to report higher income in the future, then the quality of earnings is also considered low. 10. The major distinction between revenues and gains (or expenses and losses) depends on thetypical activities of the enterprise. Revenues can occur from a variety of different sources, but these sources constitute the entity’s ongoing major or central operations. Gains also can arise from many different sources, but these sources occur from peripheral or incidental transactions of an entity. The same type of distinction is made between expenses and losses. 11. The advantages of the single-step income statement are: (1) simplicity and conciseness, (2) probablybetter understood by the layperson, (3) emphasis on total costs and expenses, and net income, and (4) does not imply priority of one revenue or expense over another. The disadvantages are that it does not show the relationship between sales and cost of goods sold and it does not show other important relationships and information, such as income from operations, income before taxes, etc.12. Operating items are the expenses and revenues which relate directly to the principal activity of the 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. 13. The current operating performance income statement contains only the revenues and usualexpenses of the current year, with all unusual gains or losses or material corrections of prior periods’ revenues and expenses appearing in the retained earnings statement. The modified all-inclusive income statement includes most items including irregular ones, as part of net income. The retained earnings statement then would include only the beginning balance (adjusted for the effects of errors and changes in accounting principles), the net amount transferred from income summary, dividends, and transfers to and from appropriated retained earnings.4-8
Copyright ? 2011 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 14/e, Solutions Manual
(For Instructor Use Only)Questions Chapter 4 (Continued) GAAP recommends a modified all-inclusive income statement, excluding from the income statement only those items, few in number, which meet the criteria for prior period adjustments and which would thus appear as adjustments to the beginning balance in the retained earnings statement. Sub-sequently a number of pronouncements have reinforced this position. Recently, changes in accounting principle are also adjusted through the beginning retained earnings balance.14. Items considered corrections of errors should be charged or credited to the opening balance ofretained earnings.
15. (a) This might be shown in the income statement as an extraordinary item if it is a material,unusual, and infrequent gain realized during the year. However, in general and in accordance with FASB ASC 225-20 this transaction would normally not be considered extraordinary, but would be shown in the nonoperating section of a multiple-step income statement. If unusual or infrequent but not both, it should be separately disclosed in the income statement.(b) The bonus should be shown as an operating expense in the income statement. Although thebasis of computation is a percentage of net income, it is an ordinary operating expense to the company and represents a cost of the service received from employees.(c) If the amount is immaterial, it may be combined with the depreciation expense for the yearand included as a part of the depreciation expense appearing in the income statement. If the amount is material, it should be shown in the retained earnings statement as an adjustment to the beginning balance of retained earnings.(d) This should be shown in the income statement. One treatment would be to show it in thestatement as a deduction from the rent expense, as it reduces an operating expense and therefore is directly related to operations. Another treatment is to show it in the other revenues and gains section of the income statement.(e) Assuming that a provision for the loss had not been made at the time the patent infringementsuit was instituted, the loss should be recognized in the current period in computing net
income. It may be reported as an unusual loss.(f) This should be reported in the income statement, but not as an extraordinary item because itrelates to usual business operations of the firm.
16. (a) The remaining book value of the equipment should be depreciated over the remainder of the five-year period. The additional depreciation ($425,000) is not a correction of an error and is not shown as an adjustment to retained earnings. The change is considered a change in estimate.(b) The loss should be shown as an extraordinary item, assuming that it is unusual and infrequent. (c) The write-off should be shown either as other expenses or losses or in a separate section,appropriately labeled as an unusual item, if unusual or infrequent but not both. It should not be shown as an extraordinary item.(d) Assuming that a receivable had not been recorded in the previous period, the gain should berecognized in the current period in computing net income, but not as an extraordinary item.(e) A correction of an error should be considered a prior period adjustment and the beginningbalance of Retained Earnings should be restated, if material.(f) The cumulative effect of the change is reported as an adjustment to beginning retained earnings. Prior years’ statements are recast on a basis consistent with the new standard.
17. (a) Other expenses or losses section or in a separate section, appropriately labeled as an unusualitem, if unusual or infrequent but not both.(b) 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. FASB ASC 225-20 specifically states that the effect of a strike does not constitute an extraordinary item.(c) Operating expense section, as a selling expense, but sometimes reflected as an administrativeexpense.(d) Separate section after income from continuing operations, entitled discontinued operations. Copyright ? 2011 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 14/e, Solutions Manual
(For Instructor Use Only)
4-9Questions Chapter 4 (Continued) (e) Other revenues and gains section or in a separate section, appropriately labeled as anunusual item, if unusual or infrequent but not both.(f) Other revenues and gains section.(g) Operating expense section, normally administrative. If a manufacturing concern, may be includedin cost of goods sold.(h) Other expenses or losses section or in separate section, appropriately labeled as an unusualitem, if unusual or infrequent but not both.
18. Perlman and Sheehan should not report the sales in a similar manner. This type of transaction appears to be typical of Perlman’s central operations. Therefore, Perlman should report revenues of $160,000 and expenses of $100,000 ($70,000 + $30,000). However, Sheehan’s transaction appears to be a peripheral or incidental activity not related to its central operations. Thus, Sheehan should report a gain of $60,000 ($160,000 C $100,000). Note that although the classification is different, the effect on net income is the same ($60,000 increase).
19. You should tell Greg that a company’s reported net income is the same whether the single-step or multiple-step format is used. Either way, the company has the same revenues, gains, expenses, they are simply organized in a different format.
20. Both formats are acceptable. The amount of detail reported in the income statement is left to the judgment of the company, whose goal in making this decision should be to present financial statements which are most useful to decision makers. We want to present a simple, understand-able statement so that a reader can easily discover the therefore, a single amount for selling expenses might be preferable. However, we also want to fully disclose the resul thus, a separate listing of expenses may be preferred. Note that if the condensed version is used, it should be accompanied by a supporting schedule of the eight components in the notes to the financial statements.
21. Intraperiod tax allocation should not affect the reporting of an unusual gain. The FASB specifically prohibits a Dnet-of-tax‖ treatment for such items to insure that users of financial statements can easily differentiate extraordinary items from material items that are unusual or infrequent, but not both. DNet-of-tax‖ treatment is reserved for discontinued operations, extraordinary items, and prior period adjustments.
22. Intraperiod tax allocation has no effect on reported net income, although it does affect the amounts reported for various components of income. The effects on these components offset each other so net income remains the same. Intraperiod tax allocation merely takes the total tax expense and allocates it to the various items which affect the tax amount.
23. If Neumann has preferred stock outstanding, the numerator in its computation may be incorrect.
A better description of Dearnings per share‖ is Dearnings per common share.‖ The numerator should include only the earnings available to common shareholders. Therefore, the numerator should be: net income less preferred dividends.
The denominator is also incorrect if Neumann had any common stock transactions during the year. Since the numerator represents the results for the entire year, the denominator should reflect the weighted-average number of common shares outstanding during the year, not the shares outstanding at one point in time (year-end).
24. The earnings per share trend is not favorable. Extraordinary items are one-time occurrences which are not expected to be reported in the future. Therefore, earnings per share on income before extraordinary items is more useful because it represents the results of ordinary business activity. Considering this EPS amount, EPS has decreased from $7.21 to $6.40. 4-10
Copyright ? 2011 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 14/e, Solutions Manual
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载入中......
感谢LZ，真是雪中送炭啊
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以上为Intermediate Accounting 7th 的答案
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感谢LZ，真是雪中送炭啊
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坑爹啊!这是第6版的答案..
楼主还我钱吧!
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skyb 发表于
坑爹啊!这是第6版的答案..
楼主还我钱吧!请说话摸着良心，明明就是第七版的。
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soonfcuk 发表于
感谢LZ，真是雪中送炭啊客气了，合作愉快
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很有用的资料，谢谢分享！
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第7版的&&谢了！
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