Chapter 14 Lecture. Income Taxes, Unusual Income Items, and Investments in Stocks. P.H. Corporate Income Taxes. Corporations are legal entities that must pay federal income taxes depending on the state, they may also be required to pay state and local income taxes
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Income Taxes, Unusual Income Items, and Investments in Stocks
These items are all reported separately in the income statement.
both conditions must be true
*It is possible to have a gain from an extraordinary item
Number of common shares outstanding*
Net income – Preferred stock dividends
Number of common shares outstanding
*When the number of common shares outstanding has changed during a period, a weighted number of shares outstanding is used.
or, if a company has preferred stock outstanding:
The retained earnings statement resembles the statement of owner’s equity from Accounting 1.
unrealized gains and losses on investments is covered under short-term investments in stock later in the chapter
*The gain or loss is unrealized because the securities must be sold in order for there to be a realized gain or loss.
*This entry does not exist under the cost method of accounting for long-term investments in stock.
*Under the cost method, the credit would be to Dividend Revenue.
Accounting for Investments in StocksPurchase of InvestmentOn Feb. 27, Gourmet Corp. acquired 3,000 shares of the 50,000 shares (less than 20%) of Goulash Co. common stock at 58 plus a commission charge of $420.
No entry for stock dividends; carrying amount per share is now $57 ($174,240 / (3,000 shares + 60 shares from the stock dividend)
*1,000 shares x $57 carrying value per share
P/E ratio =
Market price per share
Earnings per share