1. 11-115-1 Financial Statement Analysis 15

2. 11-215-2 Learning Objective 1 3-1 Describe the nature of the adjusting process. Learning Objective 1 3-1 Describe the nature of the adjusting process. Insert Chapter Objectives Financial Statement Analysis 1 Describe basic financial statement analytical methods. 2 Use financial statement analysis to assess the solvency of a business. After studying this chapter, you should be able to: 3 Use financial statement analysis to assess the profitability of a business. 4 Describe the contents of corporate annual reports. 15-2

3. 11-315-3 1 Describe basic financial statement analytical methods. 15-3

4. 11-415-4 Basic Analytical Methods Users analyze a company’s financial statements using a variety of analytical methods. Three such methods are as follows: 1.Horizontal analysis 2.Vertical analysis 3.Common-sized statements 1

5. 11-515-5 Horizontal Analysis The percentage analysis of increases and decreases in related items using comparative financial statements is called horizontal analysis. 1

6. 11-615-6 Comparative Balance Sheet— Horizontal Analysis 1 Exhibit 1

7. 11-715-7 1 Horizontal Analysis: Horizontal Analysis: Difference $17,000 Base year (2009) $533,000 = 3.2% Exhibit 1 Comparative Balance Sheet— Horizontal Analysis

8. 11-815-8 Comparative Schedule of Current Assets—Horizontal Analysis 1 Exhibit 2

9. 11-915-9 Horizontal Analysis: Horizontal Analysis: Difference $25,800 Base year (2009) $64,700 = 39.9% 1 Comparative Schedule of Current Assets—Horizontal Analysis Exhibit 2

10. 11-1015-10 Comparative Income Statement— Horizontal Analysis 1 Exhibit 3

11. 11-1115-11 Horizontal Analysis: Horizontal Analysis: Increase amount$296,500 Base year (2009) $1,234,000 = 24.0% 1 Comparative Income Statement— Horizontal Analysis Exhibit 3

12. 11-1215-12 Comparative Retained Earnings Statement—Horizontal Analysis Horizontal Analysis: Horizontal Analysis: Increase amount$37,500 Base year (2009) $100,000 = 37.5% 1 Exhibit 4

13. 11-1315-13 1 Example Exercise 15-1 Horizontal Analysis The comparative cash and accounts receivable balances for a company are provided below. 2010 2009 Cash$62,500$50,000 Accounts receivable (net)74,40080,000 Based on this information, what is the amount and percentage of increase or decrease that would be shown in a balance sheet with horizontal analysis? 15-13 For Practice: PE 15-1A, PE 15-1B Follow My Example 6-1 Follow My Example 15-1 Cash$12,500 increase ($62,500 – $50,000), or 25% Accounts receivable$5,600 decrease ($74,400 – $80,000), or –7%

14. 11-1415-14 Vertical Analysis A percentage analysis used to show the relationship of each component to the total within a single statement is called vertical analysis. 1

15. 11-1515-15 In a vertical analysis of the balance sheet, each asset item is stated as a percent of the total assets. Each liability and stockholders’ equity item is stated as a percent of the total liabilities and stockholders’ equity. Vertical Analysis of Balance Sheet 1

16. 11-1615-16 Compar- ative Balance Sheet— Vertical Analysis 1 Exhibit 5

17. 11-1715-17 Compar- ative Balance Sheet— Vertical Analysis Vertical Analysis: Vertical Analysis: Current assets $550,000 Total assets $1,139,500 = 48.3% 1 Exhibit 5

18. 11-1815-18 In a vertical analysis of the income statement, each item is stated as a percent of net sales. Vertical Analysis of the Income Statement 1

19. 11-1915-19 Comparative Income Statement—Vertical Analysis 1 Exhibit 6

20. 11-2015-20 Vertical Analysis: Vertical Analysis: Selling expenses $191,000 Net sales $1,498,000 = 12.8% 1 Comparative Income Statement—Vertical Analysis Exhibit 6

21. 11-2115-21 Common-Size Statements In a common-sized statements, all items are expressed as a percentage. Common-sized statements are useful in comparing the current period with prior periods, individual businesses, or one business with with industry percentages. 1

22. 11-2215-22 Common-Sized Income Statement 1 Exhibit 7

23. 11-2315-23 Example Exercise 15-2 Common-Sized Financial Statements 1 Income statement information for Lee Corporation is provided below: Sales$100,000 Cost of goods sold 65,000 Gross profit$ 35,000 Prepare a common-sized analysis of the income statement for Lee Corporation. 15-23

24. 11-2415-24 Example Exercise 15-2 (continued) 1 Sales$100,000100%($100,000 ÷ $100,000) Cost of goods sold 65,000 65($65,000 ÷ $100,000) Gross profit35,00035%($35,000 ÷ $100,000) Amount Percentage 15-24 For Practice: PE 15-2A, PE 15-2B Follow My Example 15-2

25. 11-2515-25 2 Use financial statement analysis to assess the solvency of a business.

26. 11-2615-26 Solvency Analysis All users of financial statements are interested in the ability of a company to do the following: 1.Meet its financial obligations (debts), called solvency. 2.Earn income, called profitability. 2

27. 11-2715-27 Current Position Analysis Using measures to assess a business’s ability to pay its current liabilities is called current position analysis. Such analysis is of special interest to short-term creditors. 2

28. 11-2815-28 Working Capital The excess of current assets of a business over its current liabilities is called working capital. The working capital is often used in evaluating a company’s ability to pay current liabilities. 2

29. 11-2915-29 Working Capital = Current Assets – Current Liabilities 2010 2009 Current assets$550,000$533,000 Current liabilities –210,000 –243,000 Working capital$340,000$290,000 2

30. 11-3015-30 Current Ratio The current ratio, sometimes called the working capital ratio or bankers’ ratio measures a company’s ability to pay its current liabilities. 2

31. 11-3115-31 2010 2009 Current assets$550,000$533,000 Current liabilities$210,000$243,000 Current ratio2.62.2 $550,000 $210,000 $533,000 $243,000 2 Current Ratio = Current Assets Current Liabilities

32. 11-3215-32 Quick Ratio A ratio that measures the “instant” debt-paying ability of a company is called the quick ratio or acid- test ratio. 2

33. 11-3315-33 20102009 Quick ratio (a ÷ b) 1.3 1.0 Quick assets: Cash$ 90,500$ 64,700 Temporary Investments 75,00060,000 Accounts receivable (net)115,000120,000 a. Total quick assets$280,500$244,700 b. Current liabilities$210,000$243,000 Quick assets are cash and other current assets that can be quickly converted to cash. 2

34. 11-3415-34 Example Exercise 15-3 Current Position Analysis 2 The following items are reported on a company’s balance sheet: Cash$300,000 Temporary investments100,000 Accounts receivable (net)200,000 Inventory200,000 Accounts payable400,000 Determine (a) the current ratio and (b) the quick ratio. 15-34

35. 11-3515-35 Example Exercise 15-3 (continued) 2 15-35 For Practice: PE 15-3A, PE 15-3B b.Quick Ratio = Quick Assets ÷ Current Liabilities Quick Ratio = ($300,000 + $100,000 + $200,000) ÷ $400,000 Quick Ratio = 1.5 a.Current Ratio = Current Assets/Current Liabilities Current Ratio = ($300,000 + $100,000 + $200,000 + $200,000) ÷ $400,000 Current Ratio = 2.0 Follow My Example 15-3

36. 11-3615-36 Accounts Receivable Turnover The relationship between sales and accounts receivable may be stated as the accounts receivable turnover. Collecting accounts receivable as quickly as possible improves a company’s solvency. 2

37. 11-3715-37 Accounts receivable turnover (a ÷ b) 12.7 9.2 a. Net sales $1,498,000$1,200,000 Accounts receivable (net): Beginning of year$ 120,000$ 140,000 End of year 115,500 120,000 Total$ 235,000$ 260,000 b.Average (Total ÷ 2)$ 117,500$ 130,000 20102009 Accounts Receivable Turnover = Net Sales Average Accounts Receivable 2

38. 11-3815-38 Number of Days’ Sales in Receivables The number of days’ sales in receivables is an estimate of the length of time (in days) the accounts receivable have been outstanding. Number of Days’ Sales in Receivables Average Accounts Receivable Average Daily Sales = Net Sales 365 2

39. 11-3915-39 Number of days’ sales in receivables (a ÷ b) 28.6 39.5 a.Average accounts receivable (Total accounts receivable ÷ 2)$ 117,500$ 130,000 Net sales$1,498,000$1,200,000 b.Average daily sales (Sales ÷ 365)$ 4,104$ 3,288 20102009 2

40. 11-4015-40 Example Exercise 15-4 Accounts Receivable Analysis 2 A company reports the following: Net sales$960,000 Average accounts receivable (net) 48,000 Determine (a) the accounts receivable turnover and (b) the number of days’ sales in receivables. Round to one decimal place. 15-40

41. 11-4115-41 Example Exercise 15-4 (continued) 2 15-41 For Practice: PE 15-4A, PE 15-4B a.Accounts Receivable Turnover = Sales ÷ Average Accounts Receivable Accounts Receivable Turnover = $960,000 ÷ $48,000 Accounts Receivable Turnover = 20.0 b.Number of Days’ Sales in Receivables = Average Accounts Receivable ÷ Average Daily Sales Number of Days’ Sales in Receivables = $48,000 ÷ ($960,000/365) $48,000 ÷ $2,630 Number of Days’ Sales in Receivables = 18.3 days = Follow My Example 15-4

42. 11-4215-42 Inventory Turnover The relationship between the volume of goods (merchandise) sold and inventory may be stated as the inventory turnover. The purpose of this ratio is to assess the efficiency of the firm in managing its inventory. 2

43. 11-4315-43 Inventory Turnover = Cost of Goods Sold Average Inventory Inventory turnover (a ÷ b) 3.8 2.8 20102009 a.Cost of goods sold$1,043,000$ 820,000 Inventories: Beginning of year$ 283,000$ 311,000 End of year 264,000 283,000 Total$ 547,000$ 594,000 b.Average (Total ÷ 2)$ 273,500$ 297,000 2

44. 11-4415-44 Number of Days’ Sales in Inventory The number of days’ sales in inventory is a rough measure of the length of time it takes to purchase, sell, and replace the inventory. 2

45. 11-4515-45 Number of Days’ Sales in Inventory Average Inventory Average Daily Cost of Goods Sold = Cost of Goods Sold 365 Number of days’ sales in inventory (a ÷ b) 95.7 132.2 a.Average inventory (Total ÷ 2)$ 273,500$ 297,000 Cost of goods sold$1,043,000$ 820,000 b.Average daily cost of goods sold (COGS ÷ 365 days)$2,858$2,247 20102009 2

46. 11-4615-46 Example Exercise 15-5 Inventory Analysis 2 A company reports the following: Cost of goods sold$560,000 Average inventory112,000 Determine (a) the inventory turnover and (b) the number of days’ sales in inventory. Round to one decimal place. 15-46

47. 11-4715-47 Example Exercise 15-5 (continued) 2 a.Inventory Turnover = Cost of Goods Sold ÷ Average Inventory Inventory Turnover = $560,000 ÷ $112,000 Inventory Turnover = 5.0 b.Number of Days’ Sales in Inventory = Average Inventory ÷ Average Daily Cost of Goods Sold Number of Days’ Sales in Inventory = $112,000 ÷ ($560,000/365) Number of Days’ Sales in Inventory =$112,000 ÷ $1,534 Number of Days’ Sales in Inventory = 73.0 days 15-47 For Practice: PE 15-5A, PE 15-5B Follow My Example 15-5

48. 11-4815-48 Ratio of Fixed Assets to Long-Term Liabilities The ratio of fixed assets to long-term liabilities is a solvency measure that indicates the margin of safety of the noteholders or bondholders. It also indicates the ability of the business to borrow additional funds on a long- term basis. 2

49. 11-4915-49 Ratio of Fixed Assets to Long-Term Liabilities Fixed Assets (net) Long-Term Liabilities = 20102009 Ratio of fixed assets to long-term liabilities (a ÷ b) 4.4 2.4 a. Fixed assets (net)$444,500$470,000 b.Long-term liabilities$100,000$200,000 2

50. 11-5015-50 Ratio of Liabilities to Stockholders’ Equity The relationship between the total claims of the creditors and owners—the ratio of liabilities to stockholders’ equity—is a solvency measure that indicates the margin of safety for creditors. 2

51. 11-5115-51 Ratio of Liabilities to Stockholders’ Equity Total Liabilities Total Stockholders’ Equity = Ratio of liabilities to stockholders’ equity ( a÷ b) 0.4 0.6 a.Total liabilities$310,000$443,000 b.Total stockholders’ equity$829,500$787,500 20102009 2

52. 11-5215-52 Example Exercise 15-6 Long-Term Solvency Analysis 2 The following information was taken from Acme Company’s balance sheet: Fixed assets (net)$1,400,000 Long-term liabilities 400,000 Total liabilities 560,000 Total stockholders’ equity1,400,000 Determine the company’s (a) ratio of fixed assets to long-term liabilities and (b) ratio of liabilities to stockholders’ equity. 15-52

53. 11-5315-53 Example Exercise 15-6 (continued) 2 a.Ratio of Fixed Assets to Long-Term Liabilities = Fixed Assets ÷ Long- Term Liabilities Ratio of Fixed Assets to Long-Term Liabilities = $1,400,000 ÷ $400,000 Ratio of Fixed Assets to Long-Term Liabilities = 3.5 b.Ratio of Liabilities to Total Stockholders’ Equity = Total Liabilities ÷ Total Stockholders’ Equity Ratio of Liabilities to Total Stockholders’ Equity = $560,000 ÷ $1,400,000 Ratio of Liabilities to Total Stockholders’ Equity = 0.4 15-53 For Practice: PE 15-6A, PE 15-6B Follow My Example 15-6

54. 11-5415-54 Number of Times Interest Charges Earned Corporations in some industries normally have high ratios of debt to stockholders’ equity. For such corporations, the relative risk of the debtholders is normally measured as the number of times interest charges are earned (during the year), sometimes called the fixed charge coverage ratio. 2

55. 11-5515-55 Number of Times Interest Charges Earned Income Before Income Tax + Interest Expense Interest Expense = 2010 2009 Income before income tax$162,500$134,600 a.Add interest expense 6,000 12,000 b.Amount available to meet interest charges$168,500$146,600 Number of times interest charges earned (b ÷ a) 28.1 12.2 2

56. 11-5615-56 Number of Times Preferred Dividends Are Earned The number of times interest charges are earned can be adapted for use with dividends on preferred stock. Number of Times Preferred Dividends Are Earned Net Income Preferred Dividends = 2

57. 11-5715-57 2 Example Exercise 15-7 For Practice: PE 15-7A, PE 15-7B Times Interest Charges are Earned A company reports the following: Income before income tax$250,000 Interest expense100,000 Determine the number of times interest charges are earned. Follow My Example 15-7 Number of Times Interest Charges are Earned = (Income Before Income Tax + Interest Expense) ÷ Interest Expense Number of Times Interest Charges are Earned = ($250,000 + $100,000) ÷ $100,000 Number of Times Interest Charges are Earned = 3.5

58. 11-5815-58 3 Use financial statement analysis to assess the profitability of a business. 15-58

59. 11-5915-59 Profitability Analysis Profitability analysis focuses primarily on the relationship between operating results and the resources available to a business. 3

60. 11-6015-60 Ratio of Net Sales to Assets The ratio of net sales to assets is a profitability measure that shows how effectively a company utilizes its assets. 3

61. 11-6115-61 Ratio of Net Sales to Assets Net Sales Average Total Assets = 20102009 a.Net sales $1,498,000$1,200,000 Total assets: Beginning of year$1,053,000$1,010,000 End of year 1,044,500 1,053,000 Total$2,097,500$2,063,000 b.Average (Total ÷ 2)$1,048,750$1,031,500 Excludes long-term investments 3

62. 11-6215-62 Ratio of Net Sales to Assets Net Sales Average Total Assets = 20102009 a.Net sales $1,498,000$1,200,000 Total assets: Beginning of year$1,053,000$1,010,000 End of year 1,044,500 1,053,000 Total$2,097,500$2,063,000 b.Average (Total ÷ 2)$1,048,750$1,031,500 Ratio of net sales to assets (a ÷ b) 1.4 1.2 3

63. 11-6315-63 3 Example Exercise 15-8 For Practice: PE 15-8A, PE 15-8B Net Sales to Assets A company reports the following: Net sales$2,250,000 Average total assets1,500,000 Determine the ratio of net sales to assets. Follow My Example 15-8 Ratio of Net Sales to Total Assets = Net Sales ÷ Average Total Assets Ratio of Net Sales to Total Assets = $2,250,000 ÷ $1,500,000 Ratio of Net Sales to Total Assets = 1.5

64. 11-6415-64 Rate Earned on Total Assets The rate earned on total assets measures the profitability of total assets, without considering how the assets are financed. 3

65. 11-6515-65 Rate Earned on Total Assets Net Income + Interest Expense Average Total Assets = Rate earned on total assets (a ÷ b) 8.2% 7.3% 20102009 Net income$ 91,000$ 76,500 Plus interest expense 6,000 12,000 a.Total$ 97,000$ 88,500 Total assets: Beginning of year$1,230,500$1,187,500 End of year 1,139,500 1,230,500 Total$2,370,000$2,418,000 b.Average (Total ÷ 2)$1,185,000$1,209,000 3

66. 11-6615-66 3 Example Exercise 15-9 For Practice: PE 15-9A, PE 15-9B Rate Earned on Total Assets A company reports the following income statement and balance sheet information for the current year: Net income$ 125,000 Interest expense 25,000 Average total assets2,000,000 Follow My Example 15-9 Rate Earned on Total Assets = (Net Income + Interest Expense) ÷ Average Total Assets Rate Earned on Total Assets = ($125,000 + 25,000) ÷ $2,000,000 Rate Earned on Total Assets = 7.5% Determine the rate earned on total assets.

67. 11-6715-67 Rate Earned on Stockholders’ Equity The rate earned on stockholders’ equity measure emphasizes the rate of income earned on the amount invested by the stockholders. 3

68. 11-6815-68 Rate Earned on Stockholders’ Equity Net Income Average Total Stockholders’ Equity = Rate earned on stockholders’ equity (a ÷ b) 11.3% 10.0% a.Net income$ 91,000$ 76,500 Stockholders’ equity: Beginning of year$ 787,500$ 750,000 End of year 829,500 787,500 Total$1,617,000$1,537,500 b.Average (Total ÷ 2)$ 808,500$ 768,750 20102009 3

69. 11-6915-69 The difference in the rate earned on stockholders’ equity and the rate earned on total assets is called leverage. Leverage 3

70. 11-7015-70 3 Exhibit 8Effect of Leverage

71. 11-7115-71 The rate earned on common stockholders’ equity focuses only on the rate of profits earned on the amount invested by the common stockholders. Rate Earned on Common Stockholders’ Equity 3

72. 11-7215-72 Rate Earned on Common Stockholders’ Equity Net Income – Preferred Dividends Average Common Stockholders’ Equity = Rate earned on common stockholders’ equity (a ÷ b) 12.5% 10.9% 20102009 Net income$ 91,000$ 76,500 Less preferred dividends 9,000 9,000 a.Remainder—common stock$ 82,000$ 67,500 Common stockholders’ equity: Beginning of year $ 637,500$ 600,000 End of year 679,500 637,500 Total$1,317,000$1,237,500 b.Average (Total ÷ 2)$ 658,500$ 618,750 3

73. 11-7315-73 Example Exercise 15-10 Common Stockholders’ Profitability Analysis 3 A company reports the following: Net income$ 125,000 Preferred dividends 5,000 Average stockholders’ equity1,000,000 Average common stockholders’ equity 800,000 Determine (a) the rate earned on stockholders’ equity and (b) the rate earned on common stockholders’ equity. 15-73

74. 11-7415-74 Example Exercise 15-10 (continued) 3 15-74 For Practice: PE 15-10A, PE 15-10B a.Rate Earned on Stockholders’ Equity = Net Income ÷ Average Stockholders’ Equity Rate Earned on Stockholders’ Equity = $125,000 ÷ $1,000,000 Rate Earned on Stockholders’ Equity = 12.5% b.Rate Earned on Common Stockholders’ Equity = (Net Income – Preferred Dividends) ÷ Average Common Stockholders’ Equity Rate Earned on Common Stockholders’ Equity = ($125,000 – $5,000) ÷ $800,000 Rate Earned on Common Stockholders’ Equity = 15% Follow My Example 15-10

75. 11-7515-75 Earnings per Share on Common Stock Earning per share (EPS) on common stock measures the share of profits that are earned by share of common stock. GAAP require the reporting of earnings per share in the income statement. 3

76. 11-7615-76 Earnings per Share (EPS) on Common Stock Net Income – Preferred Dividends Shares of Common Stock Outstanding = Earnings per share on common stock (a ÷ b) $1.64 $1.35 2010 2009 Net income$91,000$76,500 Preferred dividends 9,000 9,000 a.Remainder—identified with common stock$82,000$67,500 b.Shares of common stock50,00050,000 3

77. 11-7715-77 Price-Earnings Ratio Another profitability measure quoted by the financial press is the price-earnings (P/E) ratio on common stock. The price- earnings ratio on common stock measures a company’s future earnings prospects. 3

78. 11-7815-78 Price-earnings (P/E) ratio Market Price per Share of Common Stock Earnings per Share on Common Stock = Price-earnings ratio on common stock 25 20 2010 2009 Market price per share of common stock$41.00$27.00 Earnings per share on common stock ÷ 1.64÷ 1.35 3

79. 11-7915-79 Example Exercise 15-11 Earnings per Share and Price-Earnings 3 A company reports the following: Net income$250,000 Preferred dividends$15,000 Shares of common stock outstanding20,000 Market price per share of common stock$35 a.Determine the company’s earnings per share on common stock. b.Determine the company’s price-earnings ratio. Round to one decimal place. 15-79

80. 11-8015-80 Example Exercise 15-11 (continued) 3 15-80 For Practice: PE 15-11A, PE 15-11B b.Price-Earnings Ratio = Market Price per Share of Common Stock ÷ Earnings per Share on Common Stock Price-Earnings Ratio = $35.00 ÷ $11.75 Price-Earnings Ratio = 3.0 a.Earnings per Share on Common Stock =(Net Income – Preferred Dividends) ÷ Shares of Common Stock Outstanding Earnings per Share = ($250,000 – $15,000) ÷ 20,000 Earnings per Share = $11.75 Follow My Example 15-11

81. 11-8115-81 Dividends per Share Dividends per share can be reported with earnings per share to indicate the relationship between dividends and earnings. Comparing these two per share amounts measures the extent to which earnings are being distributed to common shareholders. 3

82. 11-8215-82 Dividends per Share Dividends Shares of Common Stock Outstanding = Dividends per share of common stock (a ÷ b) $0.80 $0.60 2010 2009 a. Dividends$40,000$30,000 b. Shares of common stock outstanding 50,00050,000 3

83. 11-8315-83 Dividends and Earnings per Share of Common Stock 3 Exhibit 9

84. 11-8415-84 The dividend yield on common stock measures the rate of return to common stockholders from cash dividends. Dividend Yield 3

85. 11-8515-85 Dividend Yield Dividends per Share of Common Stock Market Price per Share of Common Stock = Dividend yield on common stock 2.0% 2.2% 20102009 a. Dividends per share of common stock$ 0.80$ 0.60 b. Market price per share of common stock41.0027.00 3

86. 11-8615-86 Summary of Analytical Methods Exhibit 10 Solvency Measures (continued) 4

87. 11-8715-87 4 Summary of Analytical Methods (continued) Exhibit 10 Profitability Measures

88. 11-8815-88 4 Describe the contents of corporate annual reports

89. 11-8915-89 Corporate Annual Reports In addition to the financial statements and the accompanying notes, corporate annual reports usually include the following sections: Management discussion and analysis Report on adequacy of internal control Report on fairness of financial statements 4

90. 11-9015-90 The Management Discussion and Analysis (MD&A) includes an analysis of the results of operations and discusses management’s opinion about future performance. It compares the prior year’s income statement with the current year’s. It also contains an analysis of the firm’s financial condition. Management Discussion and Analysis 4

91. 11-9115-91 The Sarbanes-Oxley Act of 2002 requires a report stating management’s responsibility for establishing and maintaining internal control. In addition, management’s assessment of the effectiveness of internal controls over financial reporting is included in the report. Report on Internal Control 4

92. 11-9215-92 All publicly held corporations are required to have an independent audit (examination) of their financial statements. The CPA firm that conducts the audit renders an opinion on the fairness of the statements. Report on Fairness of Financial Statements 4

93. 11-9315-93 Appendix: Unusual Items on the Income Statement

94. 11-9415-94 Unusual Items Affecting the Current Period’s Income Statement Unusual items affecting the current period’s income statement include the following: Discontinued operations Extraordinary items

95. 11-9515-95 Discontinued Operations A company may discontinue a segment of its operations by selling or abandoning the operations. A note accompanying the income statement should describe the operations sold including such details as the date operations were discontinued, the assets sold, and the effect (if any) on current and future operations.

96. 11-9615-96 Extraordinary Items An extraordinary item is defined as an event or transaction with the following characteristics: Unusual in nature Infrequent in occurrence

97. 11-9715-97 Unusual Items in the Income Statement Exhibit 11

98. 11-9815-98 Income Statement with Earnings per ShareExhibit 12

99. 11-9915-99