Income Statement Quality of Earnings Companies have incentives to manage income to meet or beat Wall Street expectations,so that the market price of stock increases and the value of stock options increase. Quality of earnings is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows. Chapter 4-6 LO 1 Understand the uses and limitations of an income statement
Chapter 4-6 Companies have incentives to manage income to meet or beat Wall Street expectations, so that the market price of stock increases and the value of stock options increase. Quality of earnings is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows. Quality of Earnings
Elements of the Income Statement Revenues -Inflows or other enhancements of assets or settlements of its liabilities that constitute the entity's ongoing major or central operations. Examples of Revenue Accounts Sales Fee revenue Interest revenue Dividend revenue Rent revenue Chapter 4-7 LO 1 Understand the uses and limitations of an income statement
Chapter 4-7 Revenues Examples of Revenue Accounts
Elements of the Income Statement Expenses Outflows or other using-up of assets or incurrences of liabilities that constitute the entity's ongoing major or central operations. Examples of Expense Accounts 0 Cost of goods sold Depreciation expense Interest expense Rent expense Salary expense Chapter 4-8 LO 1 Understand the uses and limitations of an income statement
Chapter 4-8 Expenses Examples of Expense Accounts
Elements of the Income Statement Gains Increases in equity(net assets)from peripheral or incidental transactions. Losses -Decreases in equity (net assets)from peripheral or incidental transactions. Gains and losses can result from 0 sale of investments or plant assets, settlement of liabilities, write-offs of assets. Chapter 4-9 LO 1 Understand the uses and limitations of an income statement
Chapter 4-9 Gains Losses
Single-Step Income Statement The single-step statement Income Statement (in thousands) consists of just two Revenues: Sales $285,000 groupings: Interest revenue 17,000 Total revenue 302,000 Revenues Expenses: Single- Cost of goods sold 149000 Expenses Step Advertising expense 10,000 Depreciation expense 43,000 Net Income Interest expense 21,000 Income tax expense 24,000 Total expenses 247,000 No distinction between Net income $ 55,000 Operating and Non-operating $ 0.75 categories. Earnings per share Chapter 4-10 LO 2 Prepare a single-step income statement
Chapter 4-10 I n c o m e S t a t e m e n t (in t h o u s a n d s ) R e v e n u e s : S ale s $ 2 8 5 , 0 0 0 I n t e r e s t r e v e n u e 1 7 , 0 0 0 T o t al r e v e n u e 3 0 2 , 0 0 0 E x p e n s e s : C o s t o f g o o d s s old 1 4 9 , 0 0 0 A d v e r tisin g e x p e n s e 1 0 , 0 0 0 D e p r e cia tio n e x p e n s e 4 3 , 0 0 0 I n t e r e s t e x p e n s e 2 1 , 0 0 0 I n c o m e t a x e x p e n s e 2 4 , 0 0 0 T o t al e x p e n s e s 2 4 7 , 0 0 0 N e t i n c o m e $ 5 5 , 0 0 0 E a r n i n g s p e r s h a r e $ 0.7 5