Reporting Irregular Items on the Multi-Step Income Statement

1. Reporting Irregular Items on the Multi-Step Income Statement Georgia CTAE Resource Network Curriculum Office, June 2009 To accompany curriculum for the Georgia Peach State Career Pathways June 2009, Dr. Marilynn Skinner

2. REPORTING IRREGULAR ITEMS ALL-INCLUSIVE APPROACH most items are recorded in current period income CURRENT OPERATING APPROACH income from regular and recurrent items is reported MODIFIED ALL-INCLUSIVE APPROACH irregular items are highlighted

3. Discontinued Operations Assets Operating Results Activities of the segment Clearly distinguishable • Not “discontinued operations” • disposal of a part of a business line • shifting production locations • phasing out a product line

4. Income from continuing operations $20,000,000 Discontinued operations Loss from operation of discontinued division (net of tax) $300,000 Loss from disposal of division (net of tax) 500,000 800,000 Net Income $19,200,000

5. Extraordinary Items • Unusual (unrelated to ordinary activities) • Infrequent • Not “extraordinary” • write-down of receivables, inventories, etc. • gains or losses from sale of PP&E • effects of a strike Question 27, p. 151 $450,000 gain on forced condemnation sale of facility.

6. Unusual Gains and Losses • unusual or infrequent but not both • report in “Other Gains and Losses” • before income tax

7. Changes in Accounting Principle • e.g. change in inventory or depreciation method • report the retroactive impact as of the beginning of the year • report as an adjustment to beginning R/E; not on the income statement Brief Exercise 4-7, p. 153 Change in estimate of bad debt expense.

8. Changes in Estimates • e.g. change in estimate of the useful life of an asset or bad debts expense • do not handle retroactively • include in ordinary income Prior Period Adjustments • record as an adjustment to the beginning balance of retained earnings • does not affect net income