Kế toán, kiểm toán - Chapter 12: Income and changes in retained earnings

Income and Changes in Retained EarningsChapter 12Information about net income can be divided into two major categoriesIncome from continuing operations.Reporting the Results of OperationsThis tax expense does not include effects of unusual, nonrecurring items.These unusual, nonrecurring items are each reported net of taxes.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 OperationsDiscontinued OperationsA segment must be a separate line of business activity or an operation that services a distinct category of customers.Discontinued OperationsWhen 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.Extraordinary ItemsMaterial in amount.Gains or losses that are both unusual in nature and not expected to recur in the foreseeable future.Reported net of related taxes.If preferred stock is present, subtract preferred dividends from net income prior to computing EPS.EPS is required to be reported in the income statement.Earnings Per Share (EPS)Declared by Board of Directors.Not legally required.Creates liability at declaration.Requires sufficient Retained Earnings and Cash.Cash DividendsDividend DatesDate of DeclarationBoard of Directors declares the dividend.Record a liability. On March 1, 2011, the Board of Directors of Matrix, Inc. declares a $1.00 per share cash dividend on its 500,000 common shares outstanding. The dividend is payable to stockholders of record on April 1, and paid on May 1.Dividend DatesEx-Dividend DateThe day which serves as the ownership cut-off point for the receipt of the most recently declared dividend.NO ENTRYDate of RecordStockholders holding shares on this date will receive the dividend. (No entry)Dividend DatesXApril 2011Date of PaymentRecord the payment of the dividend to stockholders.Dividend DatesAll stockholders retain same percentage ownership.No change in total stockholders’ equity.No change in par values.Stock DividendsDistribution of additional shares of stock to stockholders.Reasons for Stock DividendsManagement often finds stock dividends appealing because they allow management to distribute something of perceived value to stockholders while conserving cash which may be needed for other purposes.Stockholders like stock dividends because they receive more shares, often the stock price does not fall proportionately, and the dividend is not subject to income taxes (until the shares received are sold).Summary of Effects of Stock Dividends and Stock SplitsAdjust retained earnings retroactively.The adjustment should be disclosed net of any taxes.The correction of an error identified as affecting net income in a prior period.Prior Period AdjustmentsEnd of Chapter 12