Chapter 2 Solution-Classifying Accounting Items

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E2.5. Classifying Accounting Items

a. Current asset
b. Net revenue in the income statement: a deduction from revenue c. Net accounts receivable, a current asset: a deduction from gross receivables d. An expense in the income statement. But R&D is usually not a loss to shareholders; it is an investment in an asset. e. An expense in the income statement, part of operating income (and rarely an extraordinary item). If the restructuring charge is estimated, a liability is also recorded, usually lumped with “other liabilities.” f. Part of property, plan and equipment. As the lease is for the entire life of the asset, it is a “capital lease.” Corresponding to the lease asset, a lease liability is recorded to indicate the obligations under the lease. g. In the income statement

h. Part of dirty-surplus income in other comprehensive income. The accounting would be cleaner if these items were in the income statement. i. A liability
j. Under GAAP, in the statement of owners equity. However from the shareholders’ point of view, preferred stock is a liability k. Under GAAP, in the statement of owners’ equity. However from the shareholders’ point of view, preferred dividends are an expense. Preferred dividends should be deducted in calculating “net income available to common” and for earnings in earnings per share. l. As an expense in the income statement.

E2.10.Testing Accounting Relations: Genetech Inc.

(a) Revenue = Net income + Net expenses (including taxes)
= $784.8 + 3,836.4
= $4,621.2 million

(b)ebit = Net income + Interest + Taxes
= $784.8 - 82.6 + 434.6
= $1,136.8 million
(Note: net interest is interest income minus interest expense)

(c)ebitda= Net income + interest + taxes + depreciation and amortization
= Ebit + depreciation + amortization
= $1,136.8 + 353.2
= $1,490.0 million
Depreciation and amortization is reported as...
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