Académique Documents
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A
AAssume
corporation
Assume that
that amakes
corporation corporation
amakes four
corporation
four
income
estimates
income tax
tax installment
estimates its
its taxes
taxespayments
installment for
for the
payments
the
throughout
year
year toto be
throughout bethe
$84,000.
the year.
$84,000.
year.
Corporate
Corporate Income
Income Taxes
Taxes
On
On April
April 15,
15, the
the first
first of
of four
four estimated
estimated
annual
annual tax
tax payments
payments of of $21,000
$21,000 isis made.
made.
Total
s
ar ar ar ar ar ar
e
Y 1 e
Y 2 Ye
3
e
Y 4 Ye
5 Ye
-5
1
Temporary
Temporary Differences
Differences
Temporary Differences in Reporting Revenues
Financial Tax
Revenue
Reporting Reporting
Reporting
Report Now Taxable Later
The
The entry
entry to
to record
record income
income taxes
taxes on
on April
April 15
15
reflects
reflects the
the deferred
deferred amount
amount of
of $80,000.
$80,000.
IfIf$48,000
$48,000of ofthe
thedeferred
deferredtax
taxreverses
reversesand
andbecomes
becomesdue due
in
inthe
thesecond
secondyear,
year,the
theentry
entrywill
willreflect
reflectthis
thisfact.
fact.
On
On March
March 1, 1, Jones
Jones Company
Company consolidates
consolidates
operations
operations by by closing
closing aa factory.
factory. As
As aa
result
result of
of thethe closing,
closing, plant
plant and
and equipment
equipment
isis impaired
impaired byby $750,000.
$750,000.
Unusual
Unusual Items
Items Affecting
Affecting the
the
Income
Income Statement
Statement
Fixed
Fixed Asset
Asset Impairments
Impairments
The
The management
management of of Jones
Jones Company
Company
communicate
communicate aa plan
plan to
to terminate
terminate 200
200
employees
employees from
from the
the closed
closed manufacturing
manufacturing
plant
plant on
on March
March 1.1. The
The plan
plan calls
calls for
for aa
termination
termination benefit
benefit of
of $5,000
$5,000 per
per employee.
employee.
Unusual
Unusual Items
Items Affecting
Affecting the
the
Income
Income Statement
Statement
Restructuring
Restructuring Charges
Charges
Closed
Discontinued
Discontinued Operations
Operations
AA gain
gain or
or loss
loss from
from disposing
disposing of
of aa
business
business segment
segment isis reported
reported as
as aa gain
gain
or
or loss
loss from
from discontinued
discontinued operations.
operations.
Jones Corporation
Income Statement
For the Year Ended December 31, 2006
Net sales $12,350,000
Accounting
Accounting changes
changes occur
occur when
when aa
business
business voluntarily
voluntarily change
change from
from one
one
generally
generally accepted
accepted accounting
accounting
principle
principle to
to another.
another.
Accounting
Accounting Changes
Changes
Another
Another type
type of
of accounting
accounting change
change occurs
occurs
when
when businesses
businesses areare required
required to
to change
change the
the
way
way they
they treat
treat an
an accounting
accounting situation
situation when
when
the
the FASB
FASB issues
issues aa new
new accounting
accounting standard.
standard.
Jones Corporation
Income Statement
For the Year Ended December 31, 2006
Net sales $12,350,000
However,
However, comprehensive
comprehensive income income
Comprehensive
Comprehensive
does not include income
income
changes isis defined
defined
caused by
does not include changes caused by
as all changes
asissuing
all changes in
in stockholders’
stockholders’
issuing dividends or
dividends or from
from
equity
equity during
stockholders’during a
a period.
period.
stockholders’ investments.
investments.
Stockholders’
Stockholders’ Equity
Equity Section
Section
$89.75
June x 2,000Securities
1 Marketable shares + $500 180 000 00
Cash 180 000 00
Purchased 2,000 shares of Inis
Corporation common stock.
Short-Term
Short-Term Investments
Investments in
in Stocks
Stocks
On
On October
October 1,
1, Inis
Inis declared
declared aa $0.90
$0.90 per
per
share
share dividend
dividend payable
payable on
on November
November 30.30.
Net
Netincome
income $720,000
$720,000
Other
Othercomprehensive
comprehensiveincome:
income:
Unrealized
Unrealizedgain
gainonontemporary
temporaryinvestments
investments
in
inmarketable
marketablesecurities
securities(net
(netof
of
applicable
applicabletax
taxof
of$18,000)
$18,000) 42,000
42,000
Comprehensive
Comprehensiveincome
income $762,000
$762,000
Long-Term
Long-Term Investments
Investments in
in Stocks
Stocks
Long-term
Long-term investments
investments areare
those
those investments
investments mademade by
by aa
firm
firm that
that are
are not
not intended
intended as
as aa
source
source ofof cash
cash in
in the
the normal
normal
operations
operations ofof the
the business.
business.
Long-Term
Long-Term Investments
Investments in
in Stocks
Stocks
Ownership
%
100%
Controlling
With Interest
With less
Equity less than
than 20%
20% ownership
ownership the the buyer
buyer
does 50%
Methoddoes not usually
not usually have
have significant
significant
influence.
influence. The
The buyer
buyer uses the
the cost
Significant
uses cost method
method
to
to account
account for
for the investment.
theinfluence
investment.
20%
Cost Not significant
Method influence
0%
Long-Term
Long-Term Investments
Investments in
in Stocks
Stocks
Ownership
%
100%
Ownership
Ownership over
Controlling over 20%20%
usually
usually indicates
indicates significant
Interest significant
Equity influence.
influence. The
The buyer
buyer uses
uses
50%
Method the
the equity
equity method
method to to
Significant
account
account for
forthe
the investment.
investment.
influence
20%
Cost No significant
Method influence
0%
Long-Term
Long-Term Investments
Investments in
in Stocks
Stocks
On
On January
January 2,
2, Hally
Hally Inc.
Inc. pays
pays cash
cash of
of $350,000
$350,000
for
for 40%
40% of
of Brock
Brock Corporation’s
Corporation’s common
common stock.
stock.
Jan. 2 Investment in Brock Corp. Stock 350 000 00
Cash 350 000 00
Purchased 40% of Brock Corp.
common stock.
Long-Term
Long-Term Investments
Investments in
in Stocks
Stocks
For
For the
the year
year ending
ending December
December 31,
31, Brock
Brock
Corporation
Corporation reports
reports net
net income
income of
of $105,000.
$105,000.
Dec. 31 Investment in Brock Corp. Stock 42 000 00
Income of Brock Corp. 42 000 00
Recorded share (40%) of Brock
Corp. net income of $105,000.
Long-Term
Long-Term Investments
Investments in
in Stocks
Stocks
On
On December
December 31,
31, Brock
Brock Corporation
Corporation declared
declared aa
$45,000
$45,000 dividend,
dividend, payable
payable on
on December
December 31.
31.
Dec. 31 Cash 18 000 00
Investment in Brock Crop. Stock 18 000 00
Recorded share (40%) of
dividends of $45,000 paid by
Brock Corp.
Long-Term
Long-Term Investments
Investments in
in Stocks
Stocks
On
On March
March 1,1, an
an investment
investment inin Drey
Drey Inc.
Inc.
stock
stock that
that had
had aa carrying
carrying amount
amount of
of
$15,700
$15,700 isis sold
sold for
for $17,500.
$17,500.
Mar. 1 Cash 17 500 00
Investment in Drey Inc. Stock 15 700 00
Gain on Sale of Investments 1 800 00
Sold investment in Drey Inc.
stock.
Business
Business Combinations
Combinations
Ownership
%
100%
Controlling
Interest
Equity
50%
Method
Significant
The
The corporation
corporation owning owning all
all or
or aa majority
majority ofof the
the voting
voting
influence
stock
stock isis called
called the the parent
parent company.
company. The
The controlled
controlled
20%
corporation
corporationCost isis the
thesubsidiary
subsidiary company.
company. Consolidated
Consolidated
No significant
financial
financial statements
statements are
are prepared
prepared which
which combines
combines the
the
Method influence
operating
operating results
results
0%
of
of the
the two
two entities.
entities.
Business
Business Combinations
Combinations
A merger combines two corporations by one
acquiring the properties of another that is then
dissolved.
Many businesses combine in order to produce
more efficiently or to diversify product lines.
A consolidation is the creation of a new
corporation, to which the combined assets and
liabilities of the old corporations are transferred
to the new corporation.
Business
Business Combinations
Combinations
Mergers Consolidations
A A
C
B B
Mergers: Company A acquires company B. The assets
and liabilities of B are transferred to A and B is then
dissolved.
Consolidations: Company A acquires company B. The assets and liabilities of both A and B
are transferred to a new company C and A and B are then dissolved.
FINANCIAL
ANALYSIS AND
INTERPRETATION
A
A firm’s
firm’s growth
growth potential
potential and
and future
future
earnings
earnings prospects
prospects areare indicated
indicated by
by how
how
much
much the
the market
market isis willing
willing to
to pay
pay per
per
dollar
dollar of
of aa company’s
company’s earnings.
earnings.
Accounting: Earnings Per Share
Earnings per
Net Income
= Share of Common
Common Shares Stock
The
The End
End