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

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

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

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

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.

Unusual Gains and Losses

unusual or infrequent but not both

report in “Other Gains and Losses”

before income tax

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.

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