General Course QuestionsReview Discuss Income Statemen：一般课程questionsreview及讨论收入报表.pptVIP

* * May present net of tax or before tax with a single line reporting taxes on comprehensive income Do E4-14, E4-15 * * Why do companies invest in debt and equity securities? 20% interest assume little or no influence over investee Report debt intending to hold at “held to maturity” Record investment at amortized cost Record interest as income Report equity other debt investment using fair value method Mark investment to “market” on B/S. Recognize unrealized gain or loss. Where depends upon classification Trading ? Income Statement Available-for-Sale ? Other comprehensive income Other issues Can calculate gain or loss at the portfolio level Potential for earnings management here? Unrealized Holding Gains/Losses on Securities * * Reporting Comprehensive Income Companies are required to report total comprehensive income in one of three ways: On the face of its Income Statement (combined statements) In a separate Statement of Comprehensive Income, or 3. In the Statement of Stockholders’ Equity (most companies choose this option) Reporting Comprehensive Income on the Income Statement Regular Income Statement “Other Comprehensive Income” * Reporting Comprehensive Income on a second Statement * Reporting Comprehensive Income in a Statement of Stockholders’ Equity * Example: on 1/1/09 Big bought shares of Little for $100,000. The shares were 20% of the total outstanding stock of Little Company. On 12/31/09 the shares had a fair value of $125,000. Little paid dividends of $1000 to Big. How is this accounted for at 1/1/09 and 12/31/09? If classified as Trading Securities? If classified as Available for Sale Securities? Unrealized Gains/Losses * Managers timing reporting of revenues, expenses, gains and losses to meet their incentives Generally increase current NI which decreases future NI Can also be used to decrease current NI in order to increase future NI (Smoothing, Cookie Jar Reserves) * * * * * * page 12 * * * * * 100 x 3/1