Regular and irregular items on an income statement
#1 Irregular vs. Regular Items (Professor)
What are the differences between regular and irregular items on an income statement? What are the requirements for items to qualify as irregular? What are some examples of irregular items? What is the effect of irregular items on an investor’s analysis of a company?
#2 : Irregular vs. Regular Items (Professor follow-up response/question)
A question for you and the class –> would a company’s investment gains and/or losses be considered as irregular in your interpretation?
What are different criteria for recognizing revenue? Why are there so many revenue recognition methods? Why are the methods subjective, and what are the implications on income statement quality?
#4 Discontinued Operations (Student Post)
Discontinued operations occurs when the following two things happen:
1) Company eliminates the results of operations of a component of the business. Component compromises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes.
2) Elimination of a component that represents a strategic gift, has a major effect on company’s operations and financial results. Shift includes disposal of 1. major line of business and 2. major geographical area or 3. major equity method investment.
A discontinued product should not be eliminated, it should be reported on a separate income statement as the gain and loss of this operation.
#5 Discontinued Operations (Professor follow-up response/question)
#6 Earnings per Share (Student Post)
Company sums up operations in one important figure: net income. But in the financial world they call it Earnings per share (EPS). This share can be calculated by getting the net income-preferred dividends and divide this by the weighted average common shares outstanding this will equal to your EPS total share dollar amount. This only shows dollars earned by each share of common stock, it does not show amount paid to stockholders in form of dividends. Company’s must show their EPS on their income statement. Discontinued operation must also report per share amounts either on the line of product or in the notes of the financial statements.
#7 New Revenue Recognition Standard(Student Post)
According to our textbook it states that the new standard, Revenue from Contracts with Customers, adopts an asset-liability approach as the basis for revenue recognition. The asset-liability approach recognizes and measures revenue based on changes in assets and liabilities. The Boards decided that focusing on (a) the recognition and measurement of assets and liabilities and (b) changes in those assets or liabilities over the life of the contract brings more discipline to the measurement of revenue, compared to the “earned and realized” criteria in prior standards.
Under the asset-liability approach, companies account for revenue based on the asset or liability arising from contracts with customers. Companies analyze contracts with customers because contracts initiate revenue transactions. Contracts indicate the terms of the transaction, provide the measurement of the consideration, and specify the promises that must be met by each party.
The asset-liability approach is consistent with the conceptual framework approach to recognition.
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