Notes Chapter 4 Essay

Chapter 4 Vocab accumulated other comprehensive income - An entry in the stockholders' equity section of the balance sheet that reports the cumulative amounts of Other Comprehensive Income. Other Comprehensive Income measures the amounts of all gains and losses in a period that bypass the income statement but affect stockholders' equity. These amounts arise from such items as unrealized gains or losses on certain investments and unrealized gains and losses on certain hedging transactions. (p. 183).
Appropriated Retained Earnings - A retained earnings account that is restricted for a specific use, usually to comply with contractual requirements, board of directors' policy, or current necessity. (p. 180). capital maintenance approach - An income measurement approach in which a company determines income for the period based on the change in equity, after adjusting for capital contributions or distributions (dividends). An alternative to the transaction approach for income measurement. (p. 162) (n). changes in estimates - Adjustments or changes that companies must make because financial circumstances did not turn out as expected. Companies account for changes in estimates in the period of change if they affect only that period, or in the period of change and future periods if the change affects both. They do not carry back such changes to prior years. Changes in estimate are not considered errors or extraordinary items. (p. 175). comprehensive income - Income measure that includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income includes all revenues and gains, expenses and losses reported in net income, and all gains and losses that bypass net income but affect stockholders' equity. These latter amounts arise from such items as unrealized gains or losses on certain investments and unrealized gains and losses on certain hedging transactions. (p. 182). current operating performance approach - Income reporting approach that advocates reporting only regular and recurring revenue and expense elements, but not irregular items, in income. (p. 168). discontinued operation - Occurs for a company when two things happen: (1) a company eliminates the results of operations and cash flows of a component from its ongoing operations, and (2) there is no significant continuing involvement in that component after the disposal transaction. Companies report a discontinued operation (in a separate income statement category), indicating the gain or loss from disposal of a business. In addition, companies report separately from continuing operations the results of operations of a component that has been, or will be, disposed of. (p. 169). earnings management - The planned timing of revenues, expenses, gains, and losses to smooth out bumps in earnings. (p. 161). earnings per share (EPS) - A distilled and important income figure, calculated as net income minus preferred dividends (income available to common stockholders), divided by the weighted average of common shares outstanding. Companies must disclose earnings per share on the face of the income statement. (p. 178). extraordinary items - Nonrecurring material items that differ significantly from a company's typical business activities. They are distinguished by their unusual nature and by the infrequency of their occurrence. (p. 170). income statement - The financial report that measures the success of company operations for a given period of time. It is also often called the statement of income or statement of earnings. (p. 160). intraperiod tax allocation - Reporting of irregular items within an accounting period on the income statement or statement of retained earnings net of tax. Such allocation relates the income tax expense of the fiscal period to the specific items that give rise to the amount of the tax provision. It helps financial statement users better understand the impact of income

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