| What is meant by the term intraperiod tax allocation? | Intraperiod tax allocation is the process of associating income tax effects with the income statement components that create those effects.
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| What are extraordinary items? | Extraordinary items are material gains and loss that are both unusual in nature and infrequent in occurrence.
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| What is the purpose of the income statement? | The purpose of the income statement, sometimes called the statement of operations or statement of earnings, is to summarize the profit-generating activities that occurred during a particular reporting period.
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| How is the income effect of discontinued operations reported on the income statement? | The income effect of discontinued operations is divided into two components: income (loss) from operations and gain (loss) on disposal. The first component, income (loss) from operations, represents the net-of-tax effects of revenues, expenses, gains, and losses of the discontinued operation from the beginning of the fiscal year through the measurement date. The measurement date is the date the company adopts a formal plan to dispose of the business segment. The second component, gain (loss) on disposal, includes (a) the net-of-tax income or loss (revenues, expenses, gains, and losses) from the measurement date to the actual disposal date, and (b) the net-of-tax effects of the sale of the assets of the segment.
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| How is a normal change in accounting principle reported on the income statement? | The general accounting treatment for a normal change in accounting principle is to show the net-of-tax cumulative effect of the change on the income statement below extraordinary items. The net-of-tax cumulative effect of the change is the difference between retained earnings at the beginning of the year and what retained earnings would have been if the new accounting principle had been used in all prior years.
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| What are the three types of events that, if they have a material effect on the income statement, require separate reporting and disclosure? | The three types of events that, if they have a material effect on the income statement, require separate reporting and disclosure are: 1) Discontinued operations. 2) Extraordinary items. 3) The cumulative effect of a change in accounting principle.
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| What is the required accounting treatment for the correction of a material error discovered in a year subsequent to the year the error occurs? | A material error discovered in a subsequent year is considered a prior period adjustment. Prior years' financial statements are restated and the beginning balance in retained earnings is adjusted as needed.
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2001 McGraw-Hill Higher Education