(All-inclusive vs. Current Operating) Information concerning the operations of a corporation is presented in an income statement. Some believe that income statements should be prepared on a “current operating performance” basis (earning power concept), whereas others prefer an “all-inclusive” basis (historical concept). Proponents of the two types of income statements do not agree upon the proper treatment of material nonrecurring charges and credits.

Instructions

(a) Define “current operating performance” and “all-inclusive” as used above.

(b) Explain the differences in content and organization of a “current operating performance” income statement and an “all-inclusive” income statement. Include a discussion of the proper treatment of material nonrecurring charges and credits.

(c) Give the principal arguments for the use of the “all-inclusive” income statement and the “current operating performance” income statement.