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Chapter 4: Question 1 (page 179)

What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?

Short Answer

Expert verified

An income statement facilitates the investors and creditors to predict future cash flows by comparing the current outcomes with previous reports.

Step by step solution

01

Income Statement

An income statement refers to a report prepared by the business entities to ascertain their profits or losses from operating and non-operating functions.

02

Usefulness of the income statement

An income statement contains the description of revenues and expenses of one accounting period. It helps the investors and creditors to determine the business’s ability to produce cash in the future.

In addition, it facilitates the investors and creditors to determine the level of risksassociated with the business by evaluating and comparing the current and past performance.

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Most popular questions from this chapter

Using the information provided in BE4-2, prepare a condensed multiple-step income statement for Brisky Corporation

Bradshaw Company experienced a loss that was deemed to be both unusual in nature and infrequent in occurrence. How should Bradshaw report this item in accordance with IFRS?

During 2017, Williamson Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2016 and 2015 (Williamson’s first year of operations) under FIFO was \(160,000 and \)180,000, respectively. Pretax income using weighted-average pricing in the prior years would have been \(145,000 in 2016 and \)170,000 in 2015. In 2017, Williamson reported a pretax income (using weighted-average pricing) of $180,000. Show comparative income statements for Williamson, beginning with “Income before income tax,” as presented on the 2017 income statement. (The tax rate in all years is 30%.)

Question: What major types of items are reported in the retained earnings statement?

Distinguish between the modified all-inclusive income statement and the current operating performance income statement. According to present generally accepted accounting principles, which is recommended? Explain.
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