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c04IncomeStatementAndRelatedInformation.indd Page 159 03/01/13 9:20 PM f-391 /208/WB00806/XXXXXXXXXXXXX/ch04/text_s CONCEPTUAL FOCUSbecause companies have different views as to what is funda- > See the Underlying Concepts onmental to their business. pages 161 and 179. In many ways, the pro forma reporting practices by compa- > Read the Evolving Issue on page 185 for anies like Groupon and Amazon represent implied criticisms of discussion of income reporting.certain financial reporting standards, including how the informa-tion is presented on the income statement. In response, the SEC INTERNATIONAL FOCUSissued Regulation G, which requires companies to reconcilenon-GAAP financial measures to GAAP. This regulation provides > See the International Perspectivesinvestors with a roadmap to analyze adjustments that compa- on pages 169, 174, and 183.nies make to their GAAP numbers to arrive at pro forma results.Regulation G helps investors compare one company’s pro forma > Read the IFRS Insights onmeasures with results reported by another company. pages 205–211 for a discussion of:The FASB (and IASB) are working on a joint project on finan- —Income reportingcial statement presentation to address users’ concerns about —Expense classificationsthese practices. Users believe too many alternatives exist forclassifying and reporting income statement information. Theynote that information is often highly aggregated and inconsistently presented. As a result, it is difficult to assess the financialperformance of the company and compare its results with other companies. This trend toward more transparent incomereporting is encouraging, but managers still like pro forma reporting, as indicated by a recent survey in response to the FASBfinancial statement presentation project. Over 55 percent polled indicated they would continue to practice pro forma reporting,even with a revised income statement format.Sources: A. Stuart, “A New Vision for Accounting: Robert Herz and FASB Are Preparing a Radical New Format for Financial Statements,” CFOMagazine (February 2008), pp. 49–53; SEC Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” Release No. 33-8176(March 28, 2003) and Compliance & Disclosure Interpretations: Non-GAAP Financial Measures (January 15, 2010), available at www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm; and R. Cyran, A. Currie, and R. Cox, “Fuzzy Accounting Enriches Groupon,” The New YorkTimes (June 12, 2011).PREVIEW OF CHAPTER 4 As indicated in the opening story, companies are attempting to provide income statement information they believe is useful for decision-making. Investors need complete and comparable infor-mation on income and its components to assess company profitability correctly. In this chapter, we examinethe many different types of revenues, expenses, gains, and losses that affect the income statement and relatedinformation, as follows. Income Statement and Related Information Income Statement Format of the Reporting Various Other Income Statement Income Items Reporting Issues• Usefulness• Limitations • Elements • Unusual gains and losses • Accounting changes• Quality of earnings • Intermediate components • Discontinued operations and errors • Condensed income • Extraordinary items • Noncontrolling interest • Retained earnings statement statements • Earnings per share • Comprehensive income • Single-step income statements 159Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

c04IncomeStatementAndRelatedInformation.indd Page 160 1/7/13 11:11 AM f-535 /Users/f-535/Desktop/Praveen/9654969236160 Chapter 4 Income Statement and Related Information INCOME STATEMENTLEARNING OBJECTIVE 1 The income statement is the report that measures the success of company opera-Understand the uses and limitations of tions for a given period of time. (It is also often called the statement of income oran income statement. statement of earnings.1) The business and investment community uses the income statement to determine profitability, investment value, and creditworthiness. It provides investors and creditors with information that helps them predict the amounts, timing, and uncertainty of future cash flows. Usefulness of the Income StatementFord Toyota The income statement helps users of financial statements predict future cash flows in a number of ways. For example, investors and creditors use the income statement Revenues < Revenues information to:– Expenses – Expenses 1. Evaluate the past performance of the company. Examining revenues and expenses $ Profits $ Profits indicates how the company performed and allows comparison of its performance to its competitors. For example, analysts use the income data provided by Ford toWhich company did better compare its performance to that of Toyota. last year? 2. Provide a basis for predicting future performance. Information about past perfor- GE Profits mance helps to determine important trends that, if continued, provide information about future performance. For example, General Electric at one time reportedHmmm... Where am I headed? consistent increases in revenues. Obviously, past success does not necessarily trans- late into future success. However, analysts can better predict future revenues, and IBM Recurring? hence earnings and cash flows, if a reasonable correlation exists between past andIncome for Year Ended future performance. Yes 12/31/14 No 3. Help assess the risk or uncertainty of achieving future cash flows. Information on the ? various components of income—revenues, expenses, gains, and losses—highlights Revenues the relationships among them. It also helps to assess the risk of not achieving a par-– Operating expenses ticular level of cash flows in the future. For example, investors and creditors often segregate IBM’s operating performance from other nonrecurring sources of income Operating income because IBM primarily generates revenues and cash through its operations. Thus, results from continuing operations usually have greater significance for predicting± Unusual or future performance than do results from nonrecurring activities and events. extraordinary items$ Net IncomeRecurring items are more certain in the future. In summary, information in the income statement—revenues, expenses, gains, and losses—helps users evaluate past performance. It also provides insights into the likeli- hood of achieving a particular level of cash flows in the future. Exp Exp Limitations of the Income StatementRev Rev Rev Because net income is an estimate and reflects a number of assumptions, income state- Profits ment users need to be aware of certain limitations associated with its information. Some of these limitations include:Unrealized Brand value earnings 1. Companies omit items from the income statement that they cannot measure reliably. Current practice prohibits recognition of certain items from the determination ofYou left something out! income even though the effects of these items can arguably affect the company’s 1We will use the term income statement except in situations where a company reports other comprehensive income (discussed later in the chapter). In that case, we will use the term statement of comprehensive income.Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

c04IncomeStatementAndRelatedInformation.indd Page 165 03/01/13 9:20 PM f-391 /208/WB00806/XXXXXXXXXXXXX/ch04/text_s Format of the Income Statement 165 Illustration 4-2 presents an income statement for Cabrera Company. Cabrera’s in-come statement includes all of the major items shown in Illustration 4-1, except for dis-continued operations, extraordinary items, and noncontrolling interest. In arriving atnet income, the statement presents the following subtotals and totals: gross profit,income from operations, income before income tax, and net income.8 CABRERA COMPANY ILLUSTRATION 4-2 INCOME STATEMENT Multiple-Step IncomeFOR THE YEAR ENDED DECEMBER 31, 2014 StatementSales $202,644 $ 24,241 $3,053,081 Sales revenue 59,200 56,427 80,668 Less: Sales discounts 48,940 Sales returns and allowances 38,315 453,028 2,972,413 41,209 1,982,541 Net sales 24,712 350,771Cost of goods sold 16,788 98,500 989,872 12,215 72,910 Gross profit 9,005 803,799 186,073Operating Expenses 186,000 171,410 Selling expenses 61,200 357,483 Sales salaries and commissions 23,721 126,060 Sales office salaries 23,275 231,423 Travel and entertainment 17,029 Advertising expense 18,059 66,934 Delivery expense 16,000 $ 164,489 Shipping supplies and expense 2,875 Postage and stationery 2,612 $1.74 Telephone and Internet expense Depreciation of sales equipment Administrative expenses Officers’ salaries Office salaries Legal and professional services Utilities expense Insurance expense Depreciation of building Depreciation of office equipment Stationery, supplies, and postage Miscellaneous office expenses Income from operationsOther Revenues and Gains Dividend revenue Rent revenueOther Expenses and Losses Interest on bonds and notesIncome before income tax Income taxNet income for the yearEarnings per common share The disclosure of net sales is useful because Cabrera reports regular revenues as aseparate item. It discloses irregular or incidental revenues elsewhere in the incomestatement. As a result, analysts can more easily understand and assess trends in revenuefrom continuing operations. Similarly, the reporting of gross profit provides a useful number for evaluating per-formance and predicting future earnings. Statement readers may study the trend in gross8Companies must include earnings per share or net loss per share on the face of the income statement.Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

c04IncomeStatementAndRelatedInformation.indd Page 169 03/01/13 9:20 PM f-391 /208/WB00806/XXXXXXXXXXXXX/ch04/text_s Reporting Various Income Items 169 So, what to do? The accounting profession has adopted a modified all- Internationalinclusive concept. In this approach, companies record most items, including Perspectiveunusual or irregular ones, as part of net income.12 In addition, companies arerequired to highlight these items in the financial statements so that users can In many countries, the “modifiedbetter determine the long-run earning power of the company. These income all-inclusive” income statementitems fall into four general categories, which we discuss in the following approach does not parallel that ofsections: the United States. For example, companies in these countries 1. Unusual gains and losses. take some gains and losses 2. Discontinued operations. directly to owners’ equity 3. Extraordinary items. accounts instead of reporting 4. Noncontrolling interest. them on the income statement.Unusual Gains and Losses See the FASB Codification sectionThe following items may need separate disclosure in the income statement to help users (page 188).predict the amounts, timing, and uncertainty of future cash flows. • Losses on the write-down or write-off of receivables; inventories; property, plant, and equipment; deferred research and development costs; or other intangible assets. • Gains or losses from exchange or translation of foreign currencies, including those relating to major devaluations and revaluations. • Restructuring charges. • Other gains or losses from sale or abandonment of property, plant, or equipment used in the business. • Effects of a strike, including those against competitors and major suppliers. • Adjustment of accruals on long-term contracts. [1] Illustration 4-6 identifies the most common types of unusual gains and lossesreported in a survey of 500 large companies. Note that more than 40 percent of thesurveyed firms reported restructuring charges, and nearly 60 percent of the companiesreported write-downs or gains or losses on asset sales. 500 ILLUSTRATION 4-6Number of Companies 289 Number of Unusual 250 Items Reported in a Recent Year by 500 Large 200 Companies 202 150 100 50 0 Restructuring Write-Downs, Gains/Losses Charges on Asset SalesCompanies sometimes show these unusual gains and losses with their normalrecurring revenues and expenses. For example, PepsiCo, Inc. presented an unusualcharge in its income statement, as Illustration 4-7 (page 170) shows.12The FASB issued a statement of concepts that offers some guidance on this topic: “Recognitionand Measurement in Financial Statements of Business Enterprises,” Statement of FinancialAccounting Concepts No. 5 (Stamford, Conn.: FASB, 1984).Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

c04IncomeStatementAndRelatedInformation.indd Page 177 1/4/13 8:47 AM f-535 /Users/f-535/Desktop/Praveen/9654969236 Reporting Various Income Items 177Type of Situation Criteria Examples Placement on Income StatementUnusual gains or Show in separate section above Material; character typical of the Write-downs of receivables, losses, not customary business activities; inventories; adjustments of income before extraordinary items. considered unusual or infrequent but not accrued contract prices; gains or Often reported in “Other revenues extraordinary both. losses from fluctuations of foreign and gains” or “Other expenses exchange; gains or losses from and losses” section. (Not shownDiscontinued sales of assets used in business. net of tax.) operations Show in separate section after Disposal of a component of a Sale by diversified company of continuing operations but beforeExtraordinary items business for which the company major division that represents only extraordinary items. (Shown net can clearly distinguish operations activities in electronics industry. of tax.)Noncontrolling and cash flows from the rest of Food distributor that sells interest the company’s operations. wholesale to supermarket chains Show in separate section entitled and through fast-food restaurants “Extraordinary items.” (Shown decides to discontinue the division net of tax.) that sells to one of two classes of customers. Report as a separate item below net income or loss as an Material, and both unusual and Gains or losses resulting from allocation of the net income or infrequent (nonrecurring). casualties, an expropriation, or loss (not as an item of income a prohibition under a new law. or expense). Allocation of net income or loss Net profit (loss) attributable to divided between two classes: (1) noncontrolling shareholders. the majority interest represented by the shareholders who own the controlling interest, and (2) the noncontrolling interest (often referred to as the minority interest).Earnings per Share ILLUSTRATION 4-17 Summary of Various Items in the Income StatementA company customarily sums up the results of its operations in one important 5 LEARNING OBJECTIVEfigure: net income. However, the financial world has widely accepted an evenmore distilled and compact figure as the most significant business indicator— Identify where to report earnings perearnings per share (EPS). share information.The computation of earnings per share is usually straightforward. Earnings pershare is net income minus preferred dividends (income available to common stock-holders), divided by the weighted average of common shares outstanding.18To illustrate, assume that Lancer, Inc. reports net income of $350,000. It declares andpays preferred dividends of $50,000 for the year. The weighted-average number of com-mon shares outstanding during the year is 100,000 shares. Lancer computes earningsper share of $3, as shown in Illustration 4-18. Net Income 2 Preferred Dividends 5 Earnings per Share ILLUSTRATION 4-18Weighted Average of Common Shares Outstanding Equation Illustrating Computation of Earnings $350,000 2 $50,000 5 $3 per Share 100,000Note that EPS measures the number of dollars earned by each share of common stock.It does not represent the dollar amount paid to stockholders in the form of dividends. Prospectuses, proxy material, and annual reports to stockholders commonly use the“net income per share” or “earnings per share” ratio. The financial press, statistical18In calculating earnings per share, companies deduct preferred dividends from net income ifthe dividends are declared or if they are cumulative though not declared. Only the net incomeattributable to the controlling interest should be used in computing earnings per share.Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

c04IncomeStatementAndRelatedInformation.indd Page 179 03/01/13 9:20 PM f-391 /208/WB00806/XXXXXXXXXXXXX/ch04/text_s Other Reporting Issues 179What do the numbers mean? DIFFERENT INCOME CONCEPTSAs mentioned in the opening story, the FASB and the IASB What Metrics Do Analysts Create from the Incomeare collaborating on a joint project related to presentation of Statement?financial statements. In 2008, these two groups issued anexposure draft that presented examples of what these new Net incomefinancial statements might look like. The Boards also con-ducted field tests on two groups: preparers and users. Pre- 6% 10% 7% EBITDAparers were asked to recast their financial statements and 6% Comprehensive incomethen comment on the results. Users examined the recast Operating incomestatements and commented on their usefulness. 13% EBIT Pretax income One part of the field test asked analysts to indicate which 31%primary performance metric they use or create from a com-pany’s income statement. They were provided with the fol- 27%lowing options: (a) Net income; (b) Pretax income; (c) Incomebefore interest and taxes (EBIT); (d) Income before interest, Othertaxes, depreciation, and amortization (EBITDA); (e) Operat-ing income; (f) Comprehensive income; and (g) Other. The respondents use or create from a company’s income state-adjacent chart highlights their responses. ment. A majority of the respondents identified a primary performance metric that uses net income as its foundation As indicated, Operating income (31%) and EBITDA (27%) (pretax income would be in this group). Clearly, users andwere identified as the two primary performance metrics that preparers look at more than just the bottom-line income number, which supports the common practice of providing subtotals within the income statement.Source: “FASB-IASB Report on Analyst Field Test Results,” Financial Statement Presentation Informational Board Meeting (September 21,2009).OTHER REPORTING ISSUESIn this section, we discuss reporting issues related to (1) accounting changes and 6 LEARNING OBJECTIVEerrors, (2) retained earnings statement, and (3) comprehensive income. Understand the reporting of accountingAccounting Changes and Errors changes and errors.Changes in accounting principle, change in estimates, and corrections of errors requireunique reporting provisions.Changes in Accounting PrincipleChanges in accounting occur frequently in practice because important events or Underlying Conceptsconditions may be in dispute or uncertain at the statement date. One type of ac- Companies can change princi-counting change results when a company adopts a different accounting principle. ples, but they must demonstrateChanges in accounting principle include a change in the method of inventory that the newly adopted principlepricing from FIFO to average-cost, or a change in accounting for construction con- is preferable to the old one. Suchtracts from the percentage-of-completion to the completed-contract method. [9]20 changes result in lost consistency from period to period. A company recognizes a change in accounting principle by making a retro-spective adjustment to the financial statements. Such an adjustment recasts theprior years’ statements on a basis consistent with the newly adopted principle. The com-pany records the cumulative effect of the change for prior periods as an adjustment tobeginning retained earnings of the earliest year presented.To illustrate, Gaubert Inc. decided in March 2014 to change from FIFO to weighted-average inventory pricing. Gaubert’s income before income tax, using the new weighted-average method in 2014, is $30,000. Illustration 4-20 (page 180) presents the pretaxincome data for 2012 and 2013 for this example.20In Chapter 22, we examine in greater detail the problems related to accounting changes, andchanges in estimates and errors.Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

c04IncomeStatementAndRelatedInformation.indd Page 187 03/01/13 9:20 PM f-391 /208/WB00806/XXXXXXXXXXXXX/ch04/text_s Demonstration Problem 1875 Identify where to report earnings per share information. Because of theinherent dangers of focusing attention solely on earnings per share, the profession con-cluded that companies must disclose earnings per share on the face of the income state-ment. A company that reports a discontinued operation or an extraordinary item mustreport per share amounts for these line items either on the face of the income statementor in the notes to the financial statements.6 Understand the reporting of accounting changes and errors. Changesin accounting principle and corrections of errors are adjusted through retained earnings.Changes in estimates are a normal part of the accounting process. The effects of thesechanges are handled prospectively, with the effects recorded in income in the period ofchange and in future periods without adjustment to retained earnings.7 Prepare a retained earnings statement. The retained earnings statementshould disclose net income (loss), dividends, adjustments due to changes in accountingprinciples, error corrections, and restrictions of retained earnings.8 Explain how to report other comprehensive income. Companies reportthe components of other comprehensive income in one of two ways: (1) a single state-ment of comprehensive income (one statement format) or (2) in a second statement (twostatement format). DEMONSTRATION PROBLEMPresented below are 11 income statement items from Braun Company for the year ended December 31, 2014. Sales revenue $2,700,000 Cost of goods sold 1,150,000 Interest revenue 15,000 Loss from abandonment of plant assets 45,000 Gain from extinguishment of debt 28,000 Unrealized holding loss on an available-for-sale investment, net of tax 12,000 Selling expenses 290,000 Administrative expenses 190,000 Effect of change in estimated useful lives of fixed assets 35,000 Loss from earthquake (unusual and infrequent) 30,000 Gain on disposal of a component of Braun’s business 50,000Instructions (a) Using the information above, prepare a condensed multiple-step income statement. Assume a tax rate of 30% and 100,000 shares of common stock outstanding during 2014. (b) Compute comprehensive income for Braun in 2014.Solution BRAUN COMPANY(a) INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014 Sales revenue $290,000 $2,700,000 Cost of goods sold 190,000 1,150,000 1,550,000 Gross profit 15,000 Selling expenses 28,000 480,000 Administrative expenses 1,070,000 Income from operations 43,000 Other revenues and gains Interest revenue Gain on debt extinguishmentPlease purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

c04IncomeStatementAndRelatedInformation.indd Page 188 03/01/13 9:20 PM f-391 /208/WB00806/XXXXXXXXXXXXX/ch04/text_s188 Chapter 4 Income Statement and Related InformationOther expenses and losses 50,000 (45,000) Loss from plant abandonment 15,000 1,068,000Income before income taxes 30,000 320,400Income taxes (30%) 9,000 747,600Income from continuing operations 35,000Discontinued operations 782,600 Gain from disposal of component of business (21,000) Less: Applicable income tax $ 761,600Income before extraordinary items $ 7.48Extraordinary items 0.35 7.83 Loss from earthquake (0.21) Less: Applicable income tax $ 7.61Net income Per share of common stock Income from continuing operations Discontinued operations Income before extraordinary item Extraordinary item, net of tax Net income(b) Net income $761,600 12,000 Unrealized holding loss on available-for-sale investment, net of tax $749,600 Comprehensive income FASB CODIFICATIONFASB Codification References [1] FASB ASC 225-20-45-4. [Predecessor literature: “Reporting the Results of Operations,” Opinions of the Accounting Principles Board No. 30 (New York: AICPA, 1973), par. 23, as amended by “Accounting for the Impairment or Disposal of Long-lived Assets,” Statement of Financial Accounting Standards No. 144 (Norwalk, Conn.: FASB, 2001).] [2] FASB ASC 224-20-45-2. [Predecessor literature: “Reporting the Results of Operations,” Opinions of the Accounting Principles Board No. 30 (New York: AICPA, 1973), par. 20.] [3] FASB ASC 205-20-45. [Predecessor literature: “Accounting for the Impairment or Disposal of Long-lived Assets,” Statement of Financial Accounting Standards No. 144 (Norwalk, Conn.: FASB, 2001), par. 4.] [4] FASB ASC 225-20-45-2. [Predecessor literature: “Reporting the Results of Operations,” Opinions of the Accounting Principles Board No. 30 (New York: AICPA, 1973), par. 20.] [5] FASB ASC 225-20-45-3. [Predecessor literature: “Reporting the Results of Operations,” Opinions of the Accounting Principles Board No. 30 (New York: AICPA, 1973), par. 24, as amended by “Accounting for the Impairment or Disposal of Long-lived Assets,” Statement of Financial Accounting Standards No. 144 (Norwalk, Conn.: FASB, 2001).] [6] FASB ASC 810-10-45. [Predecessor literature: “Consolidated Financial Statements,” Accounting Research Bulletin No. 51 (August 1959).] [7] FASB ASC 260. [Predecessor literature: “Earnings Per Share,” Statement of Financial Accounting Standards No. 128 (Norwalk, Conn.: FASB, 1996).] [8] FASB ASC 260-10-10-2. [Predecessor literature: “Earnings Per Share,” Statement of Financial Accounting Standards No. 128 (Norwalk, Conn.: FASB, 1996), par. 11.] [9] FASB ASC 250. [Predecessor literature: “Accounting Changes and Error Corrections,” Statement of Financial Accounting Standards No. 154 (Norwalk, Conn.: FASB, 2005).][10] FASB ASC 220. [Predecessor literature: “Reporting Comprehensive Income,” Statement of Financial Accounting Standards No. 130 (Norwalk, Conn.: FASB, 1997).]ExercisesIf your school has a subscription to the FASB Codification, go to http://aahq.org/asclogin.cfm to log in and prepare responses to thefollowing. Provide Codification references for your responses.Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

c04IncomeStatementAndRelatedInformation.indd Page 193 03/01/13 9:20 PM f-391 /208/WB00806/XXXXXXXXXXXXX/ch04/text_s Exercises 1931. The beginning merchandise inventory was $92,000 and decreased 20% during the current year.2. Sales discounts amount to $17,000.3. 20,000 shares of common stock were outstanding for the entire year.4. Interest expense was $20,000.5. The income tax rate is 30%.6. Cost of goods sold amounts to $500,000.7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales.8. Four-fifths of the operating expenses relate to sales activities.InstructionsFrom the foregoing information prepare an income statement for the year 2014 in single-step form.2 3 E4-5 (Multiple-Step and Single-Step) Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2014 information related to P. Bride Company ($000 omitted).Administrative expense $ 4,900 Officers’ salaries 3,960 Depreciation of office furniture and equipment 60,570Cost of goods sold 17,230Rent revenueSelling expense 2,690 7,980 Delivery expense 6,480 Sales commissions 96,500 Depreciation of sales equipment 9,070Sales revenue 1,860Income taxInterest expenseInstructions (a) Prepare an income statement for the year 2014 using the multiple-step form. Common shares out- standing for 2014 total 40,550 (000 omitted). (b) Prepare an income statement for the year 2014 using the single-step form. (c) Which one do you prefer? Discuss.2 3 E4-6 (Multiple-Step and Extraordinary Items) The following balances were taken from the books of 5 Maria Conchita Alonzo Corp. on December 31, 2014.Interest revenue $ 86,000 Accumulated depreciation—equipment $ 40,000Cash 51,000 Accumulated depreciation—buildings 28,000Sales revenue Notes receivableAccounts receivable 1,380,000 Selling expenses 155,000Prepaid insurance 150,000 Accounts payable 194,000Sales returns and allowances 20,000 Bonds payable 170,000Allowance for doubtful accounts 150,000 Administrative and general expenses 100,000Sales discounts 7,000 Accrued liabilitiesLand 45,000 Interest expense 97,000Equipment 100,000 Notes payable 32,000Buildings 200,000 Loss from earthquake damage 60,000Cost of goods sold 140,000 100,000 621,000 (extraordinary item) Common stock 150,000 Retained earnings 500,000 21,000Assume the total effective tax rate on all items is 34%.InstructionsPrepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.2 3 E4-7 (Multiple-Step and Single-Step) The accountant of Latifa Shoe Co. has compiled the following 5 information from the company’s records as a basis for an income statement for the year ended December 31, 2014.Rent revenue $ 29,000Interest expense 18,000Market appreciation on land above cost 31,000Salaries and wages expense (selling)Supplies (selling) 114,800Income tax 17,600Salaries and wages expense (administrative) 37,400 135,900Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

c04IncomeStatementAndRelatedInformation.indd Page 203 1/7/13 10:48 AM f-535 /Users/f-535/Desktop/Praveen/9654969236 Using Your Judgment 203InstructionsRefer to P&G’s financial statements and the accompanying notes to answer the following questions.(a) What type of income statement format does P&G use? Indicate why this format might be used to present income statement information.(b) What are P&G’s primary revenue sources?(c) Compute P&G’s gross profit for each of the years 2009–2011. Explain why gross profit decreased in 2011.(d) Why does P&G make a distinction between operating and nonoperating revenue?(e) What financial ratios did P&G choose to report in its “Financial Summary” section covering the years 2001–2011?Comparative Analysis CaseThe Coca-Cola Company and PepsiCo, Inc.InstructionsGo to the book’s companion website and use information found there to answer the following questionsrelated to The Coca-Cola Company and PepsiCo, Inc.(a) What type of income format(s) is used by these two companies? Identify any differences in income statement format between these two companies.(b) What are the gross profits, operating profits, and net incomes for these two companies over the 3-year period 2009–2011? Which company has had better financial results over this period of time?(c) Identify the irregular items reported by these two companies in their income statements over the 3-year period 2009–2011. Do these irregular items appear to be significant?Financial Statement Analysis CasesCase 1 Bankruptcy PredictionThe Z-score bankruptcy prediction model uses balance sheet and income information to arrive at a Z-Score,which can be used to predict financial distress:Working capital Retained earnings 3 1.4 1 EBIT 3 3.3 1 Sales MV equity 3 0.6Z 5 3 1.2 1 3 .99 1Total assets Total assets Total assets Total assets Total liabilitiesEBIT is earnings before interest and taxes. MV equity is the market value of common equity, which can bedetermined by multiplying stock price by shares outstanding. Following extensive testing, it has been shown that companies with Z-scores above 3.0 are unlikelyto fail; those with Z-scores below 1.81 are very likely to fail. While the original model was developed forpublicly held manufacturing companies, the model has been modified to apply to companies in variousindustries, emerging companies, and companies not traded in public markets.Instructions(a) Use information in the financial statements of a company like Walgreens or Deere & Co. to compute the Z-score for the past 2 years.(b) Interpret your result. Where does the company fall in the financial distress range?(c) The Z-score uses EBIT as one of its elements. Why do you think this income measure is used?Case 2 Dresser IndustriesDresser Industries provides products and services to oil and natural gas exploration, production, trans-mission, and processing companies. The following is taken from a recent income statement. (Dollaramounts are in millions.) Sales revenue $2,697.0 Service revenue 1,933.9 Share of earnings of unconsolidated affiliates 92.4 Total revenues 4,723.3 Cost of sales 1,722.7 Cost of services 1,799.9 Total costs of sales and services 3,522.6Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

4 Historical Background, Current Relevance and Perspectives Figure 1.3 Bioinorganic chemistry as a highly interdisciplinary research field. through studies of the reactivity of model systems, low-molecular-weight complexes or tailored metalloproteins (Section 2.4). 3. The rapid progress in bioinorganic chemistry, an interdisciplinary field of research (Figure 1.3), has been made possible through contributions from: ◦ physics (→ techniques for detection and characterization); ◦ various areas of biology (→ supply of material and specific modifications based on site-directed mutagenesis); ◦ agricultural and nutritional sciences (→ effects of inorganic elements and their mutual interdependence); ◦ pharmacology (→ interaction between drugs and endogeneous or exogeneous inor- ganic substances); ◦ medicine (→ imaging and other diagnostic aids, chemotherapy); ◦ toxicology and the environmental sciences (→ potential toxicity of inorganic com- pounds, depending on the concentration). A list of examples illustrating the application potential of bioinorganic chemistry could include the following: r Industrial sector: ◦ anaerobic bacterial degradation in sewage plants or in sediments: Fe, Ni, Co; ◦ biomining (bacterial leaching; ≈ 15% of the global copper production): Cu, Au, Fe, U. r Environmental sector: ◦ agricultural trace element problems: nitrogen fixation (Fe, Mo, V); Mo/Cu antagonism; Se content of soil; ◦ pollution through metal species: Pb, Cd, Hg, As, Al, Cr; ◦ detoxification, for example via peroxidases: Fe, Mn, V.

H Be B C N O F He(7.4) 16.2 (9) (11.2) (5) 15 Ne(9.3) 18.3 (12.2) (11.3) 16.6 Ar Li Al Cl Kr19.5 17.7 (13.4) 18.2 Na Mg 17.6 Si P S Br Xe13 4.2,13 15 (14.1) (7.1) 16.5 14.1,15 16.3 (15) 18.2 I 18.3 K Ca Sc Ti V Cr Mn Fe Co Ni Cu Zn Ga Ge As Se 16.7 Rn13, 4.3,13 19.3 11.3,11.4 11.5 4.3,6.3 5-8, 15 3, 12 1, 9 10, 18 10.4 2.3.2 16.4 1814.1,18 14.2,15 13.4,14.1 17.8 10.5,14.1 10.5,12 18.3 19.1 16.8 18.2 Ru Rh Pd Ag At Rb Sr Y Zr Nb Mo Tc Cd In Sn Sb Te 18.2 Ir Pt Au18.2 15 18.3 Ta 11.1 18.3 18.3 17.3 18.3 18.218.3 18.2 11.2 19.2 19.4 Re Os Hg Tl Po Cs Ba La Hf W Pb Bi 18.3 17.5 17.4 18.218.2 15 14.2 11.1 18.3,19.1 18.3 17.2 19.118.3 18.2 17 18.3Fr Ra Ac 18.2 Ce Pr Nd Pm Sm Eu Gd Tb Dy Ho Er Tm Yb Lu 18.2 18.2 Th Pa U Np Pu Am Cm Bk Cf Es Fm Md No Lr 18.2 18.2 18.2Figure 1.4Periodic table of the elements. Indicated are the chapters and sections in which each element is discussed in this book. essential element;presumably essential element for human beings.

Occurrence and Availability of Inorganic Elements in Organisms 13Table 2.4 Chelate ligands for detoxification after metal poisoning. Detailed description inLigand (2.1) Trade or trivial Preferably Chapter/Section name coordinated 17 metal ions 10, 17(a) 2,3-dimercapto-1-propanol dimercaprol, Hg2+, As3+, Sb3+, 8.2, 17.6 BAL Ni3+ 18.1.3.3(b) D-2-amino-3-mercapto-3- D-penicillamine methylbutyric acid Cu2+, Hg2+ (D-␤,␤-dimethylcysteine)a EDTA Ca2+, Pb2+(c) ethylenediaminetetraacetate DFO, desferal Fe2+, AI3+(d) deferrioxamine B Pu4+(e) 3,4,3-LICAMCaThe L-enantiomer is toxic.chelate ligands must (iii) form kinetically and thermodynamically stable complexes and (iv)facilitate rapid renal excretion, for example by containing hydrophilic hydroxyl groups.(a) (b) H HS +NH2 HS SH H2C CH CH2OH (CH3)2C CH COO−(c) −OOC CH2 CH2 COO− N CH2 CH2 N −OOC CH2 CH2 COO−(d) OH OH NH2 (CH2)5 N C (CH2)2 C NH (CH2)5 N C CH3 2 OO O(e) COO− COO− COO− COO− OH OH OH OH OH OH OH OH CO CO CO CO N N NH HN (CH2)4 (CH2)3 (CH2)3H: acidic protons which may be substituted by chelated metal ions (2.1)

16 Some General Principles r the reversible uptake, transport, storage and conversion (Fe, Cu), or, conversely, the generation (Mn), of the paramagnetic dioxygen molecule, 3O2 (Chapters 4–6 and 10); 0 −I −II (2.3) O2 H2O 2 2 H2Or the nitrogen cycle, including the fixation of molecular nitrogen, N2 (Sections 11.2 and 11.3), and its conversion to ammonia (Fe, Mo, V); +V 0 –III (2.4)2 NO3– N2 2 NH3r the reduction of CO2 with hydrogen to yield methane (“C1 chemistry”; Ni, Fe; Section 9.5 and Figure 1.2). +IV +II 0 −II −IV CO2 CO H2CO CH3OH CH4 or (2.5) HCOOH6. Typical “organometallic” reactivity, such as reductive alkylation or the facile genera- tion of radicals for rapid rearrangement of substrate molecules is found for cobalamin coenzymes that contain a ␴ bond between the transition metal cobalt and the primary alkyl groups (Chapter 3).2.3 Biological Ligands for Metal Ions The major part of bioinorganic chemistry is concerned with compounds of the metallic elements; nonmetallic inorganic “bio”elements will be discussed in Chapter 16. Within the biological context, metals mainly appear in oxidized form as formally ionized cen- ters, which are therefore surrounded by electron-pair-donating ligands. Since the inorganic chemical elements cannot experience a biological evolution by themselves, it is their of- ten highly complex coordination chemistry that is biologically relevant. What kinds of organic-biological material can serve as “natural” coordination partners for metal centers, in addition to simple or complex phosphates, XPO32−, purely inorganic carbonate, CO32− and sulfide, S2−, or water, H2O, together with its deprotonated forms, OH− and O2−? Relatively little is known about the relevance of metal coordination to lipids and carbo- hydrates, although the potentially negatively charged oxygen functions can bind cations electrostatically and even undergo chelate coordination via polyhydroxy groups [10,11]. Likewise, few molecular details are known about the in vivo interaction of low-molecular- weight coenzymes (vitamins; see (3.12)), hormones or metabolic products such as citrate with metal ions. The complexes formed are frequently labile, which makes their detection, isolation and structural characterization very difficult. Even so, it has long been known that the physiological function of ascorbate (vitamin C; see (3.12); [12]), for example, is

Section 2 Client Relationship Management 85 2.10. Lifelong Excellence in Healthcare Miniature Schnauzer Adoption Questionnaire INFORMATION TO BE PROVIDED BY SELLER Name of Business Telephone Address Name of Dog Date of Birth Weight kg lb Color Identification: Microchip implant__________ Tattoo ___________ Collar/Tag_______ Registration (e.g., AKC, UKC, CKC) Purpose: Show Quality Pet Quality Breeding Non-breedingQUESTION Yes No Don’t Documents Know ProvidedAny evidence of problem behaviors in this animal?Is there a history of problem behaviors in the family?Any evidence of allergies in this animal?Is there a history of allergies in the family?Any evidence of urolithiasis in this animal?Is there a history of urolithiasis in the family?Any evidence of hypothyroidism in this animal?Is there a history of hypothyroidism in the family?Any evidence of comedo syndrome in this animal?Is there a history of comedo syndrome in the family?Any evidence of hyperlipidemia in this animal?Is there a history of hyperlipidemia in the family?Any evidence of pancreatitis in this animal?Is there a history of pancreatitis in the family?Is this animal free of orthopedic diseases?Are parents registered with appropriate orthopedic registry?Is this animal free of congenital heart disease?Are both parents free of heart disease?Is this animal free of heritable eye diseases?Are parents registered with appropriate eye registry?Is this animal free of von Willebrand disease?Are both parents free of von Willebrand disease?Is this animal DNA tested clear of myotonia congenita?Are both parents DNA tested clear of myotonia congenita?Is this animal DNA tested clear of Mucopolysaccharidosis VI?Are both parents DNA tested clear of Mucopolysaccharidosis VI?Is this animal DNA tested clear of PRA Type A?Are both parents DNA tested clear of PRA Type A?Has this animal received regular veterinary evaluations?Any irregularities determined by veterinary evaluation?Are all vaccinations current?Did the veterinarian perform fecal evaluation for parasites?Is this animal now free of parasites?Is this animal on comprehensive parasite control?Medical/behavioral money-back guarantee provided?Signature Date Fig. 2-10-2.Miniature schnauzer adoption questionnaire.

Section 4 Financial Management 1834.7. Data You Should Be Reviewing Regularlyreasonable limits), it is important to review income by category, using Table 4-7-1. Key Performance Indicator Template.other operational metrics in order to best understand the changes. Thisinformation is easily obtainable from the practice’s PIMS and will be Total Revenue 2012 2013 $ Change % Changediscussed further in the Key Performance Indicators section. January $ 91,526 $ 93,211 $ 1,685 1.84%Kr EKYPIPs EinRaFvOeRteMrinAaNryCpEraIcNtiDceICaAreTfiOnRanSci(aKl aPnIds)operational metrics February $ 84,297 $ 82,915 ($1,382) −1.64% March $ 109,944 $ 115,238 $ 5,294that are used to measure performance within a practice, expand upon April $ 109,128 $ 116,734 $ 7,606 4.82%the information seen in the financial statements, explain changes seen May $ 119,410 $ 120,233 $ 823 6.97%from one period to another, and compare a practice to other practices. June $ 129,031 $ 134,000 $ 4,969 0.69%They should be reviewed on a monthly basis. July $ 113,915 $ 118,579 $ 4,664 3.85%r Many KPIs offer more detail about the revenue generated by the August $ 114,413 $ 115,989 $ 1,576 4.09%practice; for example, is an increase in revenue due to an increase in the September $ 94,371 $ 97,065 $ 2,694 1.38%number of clients seen or an increase in the average amount each client October $ 99,724 $ 98,234 ($1,490) 2.85%spends at the practice? Other KPIs are used to measure client activity, November $ 95,567 $ 95,123 ($ 444) −1.49%the collectability of accounts receivable, and doctor performance. December $ 86,968 $ 88,354 $ 1,386 −0.46%r KPI information is readily available from the PIMS but usually needs 1.59%to be input into a spreadsheet program to be most useful. This datainput should not take more than an hour or so each month. Total $1,248,294 $1,275,675r Each month’s totals should be compared to the prior month and thesame month in the prior year in order to understand the trends within # of FTE doctors 33the practice. For example, is revenue increasing at a steady pace eachmonth? If there is a decline, is this something normally seen at this Revenue per doctor $ 416,098 $ 425,225time of year? Remember that the number of days the practice is openfor business may vary each month and will impact this analysis. CAUTIONSr Common KPIs that should be reviewed monthly include: r All practices are different, and comparison to outside data must be ˜ Total practice revenue done carefully. Differences between your practice and the outside ˜ Total practice transactions benchmarks can indicate an area that should be investigated, but they ˜ Average transaction charge (ATC) for the practice don’t necessarily mean there is a problem in your practice. ˜ New clients r Tracking changes isn’t enough. Significant changes must be ˜ Lost clients investigated in order to understand why they occurred and if corrective ˜ Revenue, transactions, and ATC per individual doctor action is necessary. ˜ Revenue by category (immunization, laboratory, etc.) ˜ Accounts receivable by aging category MISCELLANEOUSr Other KPIs can be very useful to individual practices depending onwhere their attention is focused. For example, a practice that wants to ABBREVIATIONSincrease the number of dentals done will track this statistic eachmonth, both for the practice as a whole and by doctor. AAHA: American Animal Hospital Associationr A chart such as Table 4-7-1 will help a practice easily review the ATC: Average Transaction Chargeinformation discussed as well as show how these figures stack up on a KPI: Key Performance Indicatorper-full-time-equivalent doctor basis. Because practices are of different PIMS: Practice Information Management Systemsizes, calculating this information on a per doctor basis will let apractice compare their operations to others. Comparative data are Referencesreadily available in several veterinary publications. One chart would beprepared for each key performance indicator (see Table 4-7-1). N/Ar As with balance sheet and income statement information, large orunusual changes should be investigated to determine if there is a Recommended Readingproblem that needs to be resolved or an opportunity to be furthercapitalized on. Chamblee, J., Reiboldt, M. Financial Management of the Veterinary Practice. AAHA Press, Lakewood, CO, 2010 EXAMPLES AAHA Chart of Accounts. 2nd Edition. AAHA Press, Lakewood, CO,N/A 2002 Financial & Productivity Pulsepoints. 7th Edition. AAHA Press, Lakewood, CO, 2012 Benchmarks 2011: A Study of Well-Managed Practices. Advanstar Communications, Duluth, MN, 2011 AUTHOR Karen E. Felsted, CPA, MS, DVM, CVPM. PantheraT Veterinary Consulting, Dallas, TX. www.PantheraT.com.

30 Analytical and Numerical Methods for Vibration Analyseswhere Ar is an arbitrary constant. In other words, each mode shape of a vibrating systemdenotes the ratios between modal displacements of the associated points rather than the actualdisplacements during free vibrations. From Equations (2.53) and (2.54) one sees that if r ¼ 0, then b0 ¼ v0 ¼ 0 and U0ðxÞ ¼A0 ¼ constant. This represents a rigid-body translation of the uniform rod in the x direction.On the contrary, the vibration modes corresponding to r 6¼ 0 (and vr ¼6 0) are called theelastic-vibration modes. If the normal mode shape takes the form U~ rðxÞ ¼ A~r cosðbrxÞ ¼ A~r cosðrpx=LÞ ðr ¼ 0; 1; 2; 3; . . . ; 1Þ (2.55)then ðL (2.56) U~ rðxÞrAU~ rðxÞdx ¼ 1:0 0For the rigid-body mode, one has r ¼ 0. Thus, substitution of Equation (2.55) intoEquation (2.56) leads to ðL or A~0 ¼ pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi ðr ¼ 0Þ (2.57) rAA~02dx ¼ 1:0 1=ðrALÞ 0However, for the elastic-vibration modes, one has r ¼6 0. Thus, substitution of Equation (2.55)into Equation (2.56) leads to ðL or A~r ¼ pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi ðr ¼ 1; 2; 3; . . . ; 1ÞrAA~2r cos2ðrpx=LÞdx ¼ 21rAA~r2L ¼ 1:0 2=ðrALÞ 0 (2.58)The respective substitutions of Equations (2.57) and (2.58) into Equation (2.55) yield thenormal mode shapes U~ 0ðxÞ ¼ pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi ðr ¼ 0Þ (2.59) 1=ðrALÞ U~ rðxÞ ¼ pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi cosðrpx=LÞ ðr ¼ 1; 2; 3; . . . ; 1Þ (2.60) 2=ðrALÞIt is evident that the normal mode shapes given by Equations (2.59) and (2.60) satisfy theorthonormality conditions defined by Equation (2.30), that is, ðL & 1:0; if r ¼ s 0; if r 6¼ s 0 rAU~ rðxÞU~ sðxÞdx ¼ drs ¼ ðr ¼ 0; 1; 2; 3; . . . ; 1Þ (2.61)In other words, both the rigid-body mode shape U~ 0ðxÞ and the elastic-vibration mode shapesU~ rðxÞ (r ¼ 1; 2; 3; . . . ; 1) are orthonormal.Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.

34 Analytical and Numerical Methods for Vibration Analyses2.4 Torsional Vibration of a Continuous Shaft2.4.1 Equation of MotionFigure 2.5(a) shows a non-uniform circular shaft with its neutral axis coincident with the xaxis and subjected to the external torque mtðx; tÞ per unit length, and Figure 2.5(b) shows thefree-body diagram of the shaft segment dx with warping torsion effect neglected. Based onNewton’s second law, the equation of motion for the torsional vibration of the continuousshaft system can be obtained fromX ¼ ½Mtðx; tÞ þ d M t ðx; tފ þ mtðx; tÞd x À Mtðx; tÞ ¼ rI p ðxÞd x @2uðx; tÞ (2.77) Mx @t2where r is mass density of the shaft material, IpðxÞ is the polar moment of inertia of the cross-sectional area AðxÞ at position x, uðx; tÞ is the torsional angle of the cross-section at position xand time t, @2uðx; tÞ=@t2 is the torsional acceleration, mtðx; tÞ is the external torque, andMtðx; tÞ is the internal twisting moment due to deformation given by Mtðx; tÞ ¼ GIpðxÞ @uðx; tÞ (2.78) @xIn the last equation, G is the shear modulus and GIpðxÞ is the torsional rigidity of the shaft atposition x.Since @Mtðx; tÞ @ @ uðx; tÞ ! @x @x @x d M t ðx; tÞ ¼ dx ¼ GI pðxÞ dx (2.79)from Equations (2.77) and (2.79), one obtains the equation of motion of the shaft system as @ GIpðxÞ @uðx; ! À rIpðxÞ @2uðx; tÞ þ mtðx; tÞ ¼ 0 (2.80) @x @x tÞ @t2 y (a) 0 mt (x,t ) x dx x L θ (x,t ) θ (x,t ) +d θ (x,t) mt (x,t ) (b) M t (x,t ) M t (x,t ) + dMt (x,t ) ρI p (x)θ (x,t )dx dxFigure 2.5 (a) A non-uniform circular shaft subjected to the external torque mtðx; tÞ per unit length.(b) The free-body diagram of the shaft segment dx.Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark.