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1、Chapter 3-1 Financial StatementsChapter 3Intermediate Accounting12th EditionKieso,Weygandt,and Warfield Prepared by Coby Harmon,University of California,Santa BarbaraChapter 3-21.Understand the purposes of the balance sheet.1.Understand the purposes of the balance sheet.2.Define the elements of a ba
2、lance sheet.2.Define the elements of a balance sheet.3.Explain how to measure the elements of a balance 3.Explain how to measure the elements of a balance sheet.sheet.4.Classify the assets of a balance sheet.4.Classify the assets of a balance sheet.5.Classify the liabilities of a balance sheet.5.Cla
3、ssify the liabilities of a balance sheet.6.Report the stockholders equity of a balance sheet.6.Report the stockholders equity of a balance sheet.7.Understand the concepts of income.7.Understand the concepts of income.8.Explain the conceptual guidelines for reporting 8.Explain the conceptual guidelin
4、es for reporting income.income.Learning ObjectivesLearning ObjectivesChapter 3-39.Define the elements of an income statement.9.Define the elements of an income statement.10.Describe the major components of an income 10.Describe the major components of an income statement.statement.11.Compute income
5、from continuing operations.11.Compute income from continuing operations.12.Compute results from discontinued operations.12.Compute results from discontinued operations.13.Identify extraordinary items.13.Identify extraordinary items.14.Prepare a statement of retained earnings.14.Prepare a statement o
6、f retained earnings.15.Report comprehensive income.15.Report comprehensive income.Learning ObjectivesLearning ObjectivesChapter 3-4Resources(Assets)Claims against resources(Liabilities)Remaining claims accruing to owners(Owners Equity)Balance SheetBalance SheetChapter 3-5A =L +OEBasic Accounting Ide
7、ntityBalance SheetBalance SheetChapter 3-6AssetsAssetsProbable future economic benefits Probable future economic benefits obtained or controlled by a obtained or controlled by a particular entity as a result of past particular entity as a result of past transactions or events.transactions or events.
8、Basic Definitions-SFAC No.6Balance SheetBalance SheetChapter 3-7Basic Definitions-SFAC No.6LiabilitiesLiabilitiesProbable future sacrifices of economic Probable future sacrifices of economic benefits arising from present benefits arising from present obligations of a particular entity to obligations
9、 of a particular entity to transfer assets or provide services transfer assets or provide services to other entities as a result of past to other entities as a result of past transactions or events.transactions or events.Balance SheetBalance SheetChapter 3-8Owners EquityOwners EquityThe residual int
10、erest in the assets of The residual interest in the assets of an entity that remains after its an entity that remains after its liabilities are deducted.liabilities are deducted.Basic Definitions-SFAC No.6Balance SheetBalance SheetChapter 3-9Asset ClassificationsCurrent AssetsCashInventoriesReceivab
11、lesPrepaymentsBalance Sheet FormatBalance Sheet FormatChapter 3-10Asset ClassificationsNoncurrent AssetsInvestments and fundsIntangiblesProperty,Plant,&EquipmentDeferred ChargesBalance Sheet FormatBalance Sheet FormatChapter 3-11Liability ClassificationsCurrent LiabilitiesAccounts PayableShort-term
12、Notes PayableCollections in advance of unearned revenueAccrued ExpensesBalance Sheet FormatBalance Sheet FormatChapter 3-12Current assetsCurrent assetsLess:Less:Current liabilitiesCurrent liabilitiesEquals:Equals:Working CapitalWorking CapitalCurrent assetsCurrent assetsCurrent liabilitiesCurrent li
13、abilities =Working Capital RatioWorking CapitalWorking CapitalChapter 3-13Liability ClassificationsNoncurrent LiabilitiesCapital LeasesLong-term Notes PayablePension LiabilitiesBonds PayableBalance Sheet FormatBalance Sheet FormatChapter 3-14Equity ClassificationsOwners EquityCapital StockOther Cont
14、ributed CapitalTreasury StockRetained EarningsBalance Sheet FormatBalance Sheet FormatChapter 3-15A corporation must disclose the changes in its stockholders equity account when issuing financial statements.This statement should show investments by and distributions to owners during the period,among
15、 other items.Statement of Changes in Stockholders EquityStatement of Changes in Stockholders EquityChapter 3-16FASB Statement of Concepts No.6 defined investments by owners and distributions to owners,as follows:vInvestments by owners are increases in the equity of a company resulting from transfers
16、 of something valuable to the company from other entities in order to obtain or increase ownership interests.vDistributions to owners are decreases in the equity of a company caused by transferring assets,rendering services,or incurring liabilities to owners.Statement of Changes in Stockholders Equi
17、tyStatement of Changes in Stockholders EquityChapter 3-17Balance,Jan.1,2007$65,000$143,400$64,900$10,000$283,300 Unrealized increase in value of available-for-sale securities2,0002,000 Net income62,500 62,500 Cash dividends paid(11,200)(11,200)Common stock issued 6,500 30,500 37,000 Balance,Dec.31,2
18、007$71,500$173,900$116,200$12,000$373,600 SCHEDULE ACARON MANUFACTURING COMPANY Accumulated Common Additional Other Stock Paid-in Retained Comprehensive$5 par Capital Earnings Income TotalStatement of Changes in Stockholders EquityFor Year Ended December 31,2007Statement of Changes in Stockholders E
19、quityStatement of Changes in Stockholders EquityChapter 3-18l lOffsetting assets and liabilitiesOffsetting assets and liabilitiesl lLoss and gain contingenciesLoss and gain contingenciesl lValuations reported in the Balance SheetValuations reported in the Balance Sheetl lTerminologyTerminologyl lCom
20、parative StatementsComparative StatementsAdditional Reporting IssuesAdditional Reporting IssuesChapter 3-19LossProbable(?)Reasonably estimated(?)NoNoorDisclosureandYesYesReport amount in financial statementsReasonably possibleDisclose in notes to the financial statementsContingent Liabilities and As
21、setsContingent Liabilities and AssetsChapter 3-20l lCurrent value amounts generally are not Current value amounts generally are not shown on the Balance Sheet.shown on the Balance Sheet.l lContains many estimates.Contains many estimates.l lCertain assets and liabilities are not shown on Certain asse
22、ts and liabilities are not shown on the Balance Sheet,e.g.,human resources.the Balance Sheet,e.g.,human resources.Limitations of Balance SheetLimitations of Balance SheetChapter 3-21Economic IncomeAccounting Incomevs.Income StatementIncome StatementChapter 3-22Capital Maintenance ConceptUnder this c
23、oncept,corporate income for a period of time is the amount that may be paid to stockholders during that period and still enable the corporation to be as well off at the end of the period as it was at the beginning.Concepts of IncomeConcepts of IncomeChapter 3-23Assume a corporation has net assets of
24、$45,000 at the beginning and$80,000 at the end of the year,and that no additional investments or withdrawals were made.Ending net assets$80,000 Less:Additional investment 0 Ending net assets excluding investment$80,000 Less:Beginning net assets(45,000)Total income for the year$35,000 Capital Mainten
25、ance ConceptThe corporation could pay The corporation could pay out$35,000 to out$35,000 to stockholders and still be stockholders and still be as well off at year-endas well off at year-end.Concepts of IncomeConcepts of IncomeChapter 3-24Assume a corporation has net assets of$45,000 at the beginnin
26、g and$80,000 at the end of the year.Stockholders made additional capital investments of$10,000.Ending net assets$80,000 Less:Additional investment(10,000)Ending net assets excluding investment$70,000 Less:Beginning net assets(45,000)Total income for the year$25,000 Capital Maintenance ConceptConcept
27、s of IncomeConcepts of IncomeChapter 3-25Transactional ApproachTransactional ApproachThe transactional approach to income measurement is used in accounting today.Concepts of IncomeConcepts of IncomeChapter 3-26Transactional ApproachTransactional ApproachUnder this concept,a company records its net a
28、ssets at their historical cost,and it does not record changes in the asset and liabilities unless a transaction,event,or circumstance has occurred that provides reliable evidence of a change in value.Concepts of IncomeConcepts of IncomeChapter 3-27Transactional ApproachA corporations net income for
29、an accounting period currently is measured as follows:Net income=Revenues Expenses+Gains-LossesConcepts of IncomeConcepts of IncomeChapter 3-28Revenues are inflows(or increases)of assets of a company or settlement of its liabilities during a period from delivering or producing goods,rendering servic
30、es,or other activities that are the companys ongoing major or central operations.RevenuesRevenuesChapter 3-29Recognition is the process of formally recording and reporting an item in a companys financial statements when they are earned.Revenues RecognitionRevenues RecognitionChapter 3-30A company us
31、ually recognizes revenue at the time goods are sold or services are rendered.RevenuesRevenuesChapter 3-31Expenses are outflows of assets of a company or incurrences of liabilities during a period from delivering or producing goods,rendering services,or carrying out other activities that are the comp
32、anys ongoing major or central operations.ExpensesExpensesChapter 3-321.1.Cause and effectCause and effect2.2.(cost of goods sold and commissions)(cost of goods sold and commissions)2.2.Systematic and rational(depreciation)Systematic and rational(depreciation)3.3.Immediate recognition(period costs)Im
33、mediate recognition(period costs)Expenses should be matched or recognized in the same period as the revenues they help generate.Expense RecognitionExpense RecognitionChapter 3-33Gains and losses are reported net(not net of tax)in contrast to revenues and expenses,which are reported gross.They appear
34、 in the Other section of a multiple step income statement.Gains and LossesGains and LossesChapter 3-34l lSales revenue(net)Sales revenue(net)l lCost of goods soldCost of goods soldl lGross profitGross profitl lOperating expensesOperating expensesl lIncome from operationsIncome from operationsl lOthe
35、r itemsOther itemsl lIncome from continuing operations before taxIncome from continuing operations before taxl lIncome tax expense related to continued Income tax expense related to continued operationsoperationsl lIncome from continuing operationsIncome from continuing operations1.Income from conti
36、nuing operationsIncome Statement ContentIncome Statement ContentChapter 3-352.Results from discontinued operationsa.a.Income(loss)from operations of Income(loss)from operations of discontinued significant components discontinued significant components(net of income taxes).(net of income taxes).b.b.G
37、ain(loss)from disposals of Gain(loss)from disposals of discontinued significant components discontinued significant components(net of income taxes).(net of income taxes).Income Statement ContentIncome Statement ContentChapter 3-363.3.Extraordinary items(net of income Extraordinary items(net of incom
38、e taxes)taxes)4.4.Net incomeNet income5.5.Earnings per shareEarnings per shareThats it!Income Statement ContentIncome Statement ContentChapter 3-37Proper HeadingIncome Statement(Single-Step)Income Statement(Single-Step)Chapter 3-38Expenses&LossesRevenues&GainsProper HeadingIncome Statement(Single-St
39、ep)Income Statement(Single-Step)Chapter 3-39LetS take a look at a Multi-Step Income Statement,next.Chapter 3-40Proper HeadingIncome Statement(Multiple-Step)Income Statement(Multiple-Step)Chapter 3-41BANNER CORPORATIONSchedule 1:Cost of Goods SoldFor Year Ended December 31,2007Inventory,January 1,200
40、7$41,000 Purchases$80,300 Freight-in 5,500 Cost of purchases$85,800 Less:Purchases returns(2,800)Net purchases 83,000 Cost of goods available for sale$124,000 Less:Inventory,December 31,2007(38,000)Cost of goods sold$86,000 Cost of Goods SoldCost of Goods SoldChapter 3-42Proper HeadingGross MarginIn
41、come Statement(Multiple-Step)Income Statement(Multiple-Step)Chapter 3-43Proper HeadingGross MarginOperating ExpensesIncome Statement(Multiple-Step)Income Statement(Multiple-Step)Chapter 3-44Operating expenses are those primary recurring costs(other than cost of goods sold)incurred to generate sales
42、revenue.Operating ExpensesOperating ExpensesChapter 3-45Proper HeadingGross MarginOperating ExpensesNon-operating ItemsIncome Statement(Multiple-Step)Income Statement(Multiple-Step)Chapter 3-46Proper HeadingGross MarginOperating ExpensesNon-operating ItemsTaxesIncome Statement(Multiple-Step)Income S
43、tatement(Multiple-Step)Chapter 3-47 Extraordinary gains and losses and discontinued Extraordinary gains and losses and discontinued operations are.operations are.1.Reported separately on the income statement.2.Shown net of any related taxes.Other ItemsOther ItemsChapter 3-481.1.Income from continuin
44、g operationsIncome from continuing operations2.2.Income(loss)from the operations of a Income(loss)from the operations of a discontinued componentdiscontinued component3.3.Gain(loss)from the disposal of a Gain(loss)from the disposal of a discontinued componentdiscontinued component4.4.Extraordinary i
45、temsExtraordinary items5.5.Any prior period adjustmentsAny prior period adjustments6.6.Any items of other comprehensive incomeAny items of other comprehensive incomeIncome tax expense is matched against the following:Income Tax ExpenseIncome Tax ExpenseChapter 3-49Interperiod tax allocation involves
46、 allocating a corporations income tax obligation as an expense to various accounting periods because of temporary(timing)differences between its taxable income and pretax financial income.Income Tax ExpenseIncome Tax ExpenseChapter 3-50Intraperiod tax allocation involves allocating a corporations to
47、tal income tax expense for a period to the various components of its net income,retained earnings,and other comprehensive income.Income Tax ExpenseIncome Tax ExpenseChapter 3-51An extraordinary item is an event or transaction that is both unusual in nature and infrequent in occurrence.Unusual nature
48、-the underlying event or transaction possesses a high degree of abnormality and is of a type clearly unrelated to,or only incidentally related to,the ordinary and typical activities of the company.Infrequency of occurrence-the underlying event or transaction is of a type that is not reasonably expec
49、ted to recur in the foreseeable future.Extraordinary ItemsExtraordinary ItemsChapter 3-52Unusual?NoNoReport Gain(Loss)AsIncome from Continuing Operation(Other Items section)Infrequent?NoNoorIncome from Continuing Operation(Other Items section)EventExtraordinary ItemsExtraordinary ItemsChapter 3-53Ev
50、entUnusual?NoNoReport Gain(Loss)AsInfrequent?NoNoorYesYesYesYesandExtraordinary ItemExtraordinary ItemsExtraordinary ItemsChapter 3-54l lSpecific extraordinary items identified Specific extraordinary items identified in the pronouncementin the pronouncementl lThe direct result of a major casualty(su