Explanation Income Statement: It is one of the financial statements that lists the incomes and expenses of the business for an accounting year is called income statement. It is prepared at the end of the accounting period in order to know the profitability of the business. Particulars Advantage/ Disadvantage Explanation 1. Can be manipulated and managed. Disadvantage It is disadvantage of the income statement as it misguides the users and leads to wrong decision. For example inflated profits may leads to false decision of investor or management. 2. Assesses risks or uncertainties of achieving future cash flows. Advantage It is advantage of the income statement as assessment of risk will help the users to avoid losses. For example the income statement shows a trend over a period that sales will reduce in future, so management will not produce extra goods. 3. Depends on accounting methods selected Disadvantage It is disadvantage of the income statement as different accounting methods give different results, therefore it can be used to manipulate the profit or loss amounts...

2nd Edition

ISBN: 9780134730370

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Chapter 5, Problem 5.1BE

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To identify: Whether the given items are advantage or disadvantage of the income statement.

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Chapter 5, Problem 5.9MC

Chapter 5, Problem 5.2BE

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Alanood Company wants to prepare interim financial statements for the first quarter of 2020 but would like to avoid making a physical count of inventory. During the last five years the company's gross profit rate averaged 36%. The following information for the years first quarter is available from its records: January 1 beginning inventory $150,130 Purchases $472,600 Purchase returns $6,525 Transportation in $3,450 Sales $595,575 Sales returns $4,725 Use the gross profit method to prepare an estimate of the company's March 31 inventory.

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Chapter 5 Solutions

Intermediate Accounting (2nd Edition)

Ch. 5 - What are the three limitations of the income...Ch. 5 - In what way is the income statement useful for...Ch. 5 - Prob. 5.3Q Ch. 5 - Prob. 5.4Q Ch. 5 - What management behavior does the term earnings...Ch. 5 - What is the difference between permanent and...Ch. 5 - Prob. 5.7Q Ch. 5 - Prob. 5.8Q Ch. 5 - Prob. 5.9Q Ch. 5 - Prob. 5.10Q

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Whether the given items are advantage or disadvantage of the income statement.

Solution Summary: The author explains the advantages and disadvantages of the income statement.

To identify: Whether the given items are advantage or disadvantage of the income statement.

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Chapter 5 Solutions