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Income and Changes in Retained Earnings. Chapter 12. Normal, recurring revenue and expense transactions. Unusual, nonrecurring events that affect net income. 1. Results of discontinued operations. 2. Impact of extraordinary items. Reporting the Results of Operations.
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Income and Changes in Retained Earnings Chapter 12
Normal, recurring revenue and expense transactions. Unusual, nonrecurring events that affect net income. 1. Results of discontinued operations. 2. Impact of extraordinary items. Reporting the Results of Operations Information about net income can be divided into two major categories Income from continuing operations.
This tax expense does not include effects of unusual, nonrecurring items. These unusual, nonrecurring items are each reported net of taxes.
Income/Loss from operating the segment prior to disposal. Income/Loss on disposal of the segment. Discontinued Operations When management enters into a formal plan to sell or discontinue a segmentof the business, the related gains and losses must be disclosed on the income statement. Discontinued Operations
Discontinued Operations When management enters into a formal plan to sell or discontinue a segmentof the business, the related gains and losses must be disclosed on the income statement. A segment must be a separate line of business activity or an operation that services a distinct category of customers.
Material 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. Extraordinary Items
Earnings Net Income - Preferred Dividends = Weighted Average Number of Per Share Common Shares Outstanding Earnings Per Share (EPS) 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.
Cash Dividends Declared by Board of Directors. Not legally required. Requires sufficient Retained Earnings and Cash. Creates liability at declaration.
Date of Declaration Board of Directors declares the dividend. Record a liability. Dividend Dates 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.
Ex-DividendDate The day which serves as the ownership cut-off point for the receipt of the most recently declared dividend. Dividend Dates NO ENTRY
April 2011 X Dividend Dates • Date ofRecord • Stockholders holding shares on this date will receive the dividend.(No entry)
Dividend Dates • Date of Payment • Record the payment of the dividend to stockholders.
No change in total stockholders’ equity. No change in par values. Stock Dividends Distribution of additional shares of stock to stockholders. All stockholders retain same percentage ownership.
Reasons for Stock Dividends Management 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).
The adjustment should be disclosed net of any taxes. Adjust retained earnings retroactively. Prior Period Adjustments The correction of an error identified as affecting net income in a prior period.
