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Lecture Financial Accounting (15e): Chapter 12

After studying chapter 12 you will be able to understand: Identify characteristics of partnerships and similar organizations, compute partner return on equity and use it to evaluate partnership performance, prepare entries for partnership formation, allocate and record income and loss among partners, account for the admission and withdrawal of partners, prepare entries for partnership liquidation. | Income and Changes in Retained Earnings Chapter 12 Chapter 12: Income and Changes in Retained Earnings Information about net income can be divided into two major categories Income from continuing operations. Reporting the Results of Operations When a company’s income-related activities include events not part of its normal continuing operations, it must disclose this information. Reporting this information separately provides users with more information about what to expect in the future. Unusual items are reported in the order of discontinued operations and extraordinary. Let’s look at an income statement with continuing operations, discontinued operations, extraordinary items. This tax expense does not include effects of unusual, nonrecurring items. These unusual, nonrecurring items are each reported net of taxes. Income from continuing operations is the net effect of revenues earned and expenses incurred from recurring items in the normal course of business. The income tax expense subtracted from revenues is only the tax expense for the recurring items. The unusual items, such as discontinued operations and extraordinary items, are reported net of taxes. Let’s look in more detail at discontinued operations and extraordinary items. When management enters into a formal plan to sell or discontinue a segment of the business, the related gains and losses must be disclosed on the income statement. Discontinued Operations Discontinued Operations When a company has a discontinued operation, it must report two items: the income or loss from operating a segment that has been discontinued, and the gain or loss on the sale of the segment. The income tax expense relating to discontinued operations are shown separately from the income tax expense relating to continuing operations. Let’s look at what qualifies as a segment. A segment must be a separate line of business activity or an operation that services a distinct category of customers. Discontinued Operations When . | Income and Changes in Retained Earnings Chapter 12 Chapter 12: Income and Changes in Retained Earnings Information about net income can be divided into two major categories Income from continuing operations. Reporting the Results of Operations When a company’s income-related activities include events not part of its normal continuing operations, it must disclose this information. Reporting this information separately provides users with more information about what to expect in the future. Unusual items are reported in the order of discontinued operations and extraordinary. Let’s look at an income statement with continuing operations, discontinued operations, extraordinary items. This tax expense does not include effects of unusual, nonrecurring items. These unusual, nonrecurring items are each reported net of taxes. Income from continuing operations is the net effect of revenues earned and expenses incurred from recurring items in the normal course of business. The income tax .