Case study question 006

Case 2: Totz Income Statement Analysis Using FASB Codification 12 1. Net Sales ASC 225-10-S99-2 (1) in the codification indicates that net sales of tangible products (i.e. the clothing from the Totz stores) are stated separately from revenues that are earned from services (i.e. services from its in-store art studio Doodlez) but are both featured under the Sales section of the income statement. The specific regulation is as follows: "If income is derived from more than one of the subcaptions described under 210.5-03.1, each class which is not more than 10 percent of the sum of the items may be combined with anoth If these items are combined, related costs and expenses as described under 210.5-03.2 shall be combined in the same manner. 1. Net sales and gross revenues. State separately: (a) Net sales of tangible products (gross sales less discounts, returns and alloer class.wances), (b) operating revenues of public utilities or others; (c) income from rentals; (d) revenues from services; and (e) other revenues." Both sales from Totz and Doodlez are more than ten percent of the sum of the items, which means they must be separately stated on the income statement. My team and I discussed compiling a comparative income statement for the different years of information provided to us. This would be useful to be able to compare revenues from 2014, 2015, and 2016; however, Doodlez was only introduced in the third quarter of 2015. Therefore, to properly disclose the 13 dramatic change in Doodlez's revenue from 2015 to 2016 (an increase of $7.3 million), explanatory notes to the financial statements would be necessary. 2. Gross Profit Gross profit is its own line item on the income statement. However, it is not actually a "section" of the income statement, but it is an important part of the financial statement. According to the codification ASC 360-20-55-14, "gross profit is presented as a separate item of revenue on the income statement when it is recognized as earned." Gross profit is equal to net sales less cost of sales, which needs to be broken down into cost of tangible goods sold and cost of services and are stated separately according to the FASB codification. ASC 225-10-S99-2 (2) states, "2. Costs and expenses applicable to sales and revenues. State separately the amount of (a) cost of tangible goods sold, (b) operating expenses of public utilities or others, (c) expenses applicable to rental income, (d) cost of services, and (e) expenses applicable to other revenues. Merchandising organizations, both wholesale and retail, may include occupancy and buying costs under caption 2(a). Amounts of costs and expenses incurred from transactions with related parties shall be disclosed as required under 210.4-08(k)." This says that both cost of goods sold and cost of services must be recognized as two different line items under the sales section of the income 14 statement. Additionally, we are told that depreciation is excluded from cost of sales. Under ASC225-10-S99-8, the company cannot report a subtotal that excludes depreciation. Therefore, Totz should not report a gross profit subtotal because the excluded depreciation is attributable to cost of sales. ASC 225-20- S99-8, or SAB Topic 11, states the following: "The following is the text of SAB Topic 11.B, Depreciation and Depletion Excluded from Cost of Sales. Facts: Company B excludes depreciation and depletion from cost of sales in its income statement. Question: How should this exclusion be disclosed? Interpretive Response: If cost of sales or operating expenses exclude charges for depreciation, depletion and amortization of property, plant and equipment, the description of the line item should read somewhat as follows: "Cost of goods sold (exclusive of items shown separately below)" or "Cost of goods sold (exclusive of depreciation shown separately below)." To avoid placing undue emphasis on "cash flow," depreciation, depletion and amortization should not be positioned in the income statement in a manner which results in reporting a figure for income before depreciation." 3. Gain on Sale of Corporate Headquarters Totz sold its corporate headquarters and relocated to Mountain View, California. The sale of the old building would be recognized as extraordinary under ASC 225-20-45-1; however, this codification is superseded by ASU 225- 20-65-1, which states that extraordinary items are no longer listed on the income statement. Under the combination of ASC-605-10-S99-1 and ASC-360-10-45-5, the gain on the sale of corporate headquarters should be recognized and presented 15 as operating income. ASC-605-10-S99-1 states that "Gains or losses from the sale of assets should be reported as 'other general expenses' ... Any material item should be stated separately." ASC-360-10-45-5 states that "A gain or loss recognized on the sale of the long-lived asset (disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes in the income statement of a business entity." Because of this, the sale of this building will be recognized as operating income. The gain on the sale of the building would be included in the operating income section of the income statement. This gain will be listed as a line item under the operating income section of the income statement, and will be be added to net income and be taxed accordingly. 4. Class Action Settlement Due to a class action lawsuit settlement against a supplier, Totz received proceeds of $2.7 million. Under ASC 225-20-45-1, this item would have been treated as an extraordinary item; it is both unusual and infrequent and would have been listed as an extraordinary gain or loss on the income statement. However, under ASU 225-20-65-1, extraordinary items are no longer listed on the income statement, which means that this item would no longer be considered extraordinary. the costs associated with the materials provided by the supplier in this transaction are part of Totz' central operations and therefore, the gain associated with the class action lawsuit should be treated as operating income. ASC-605-10-S99-1 indicates that both gains and losses should be treated according to the guidance of Reg S-X, Rule 5-03(b)(6).

Question 1 What is the Bernheim effect and the reverse Bernheim effect? Question 2 Kindly explain why the left side of the heart is more prone to disease. Question 3 1. Is it always necessary to examine the cardiovascular system of a patient in the 45 incline of the head end? Other than convenience for examining the jugular venous pressure (JVP), does this position have any other advantage? 2. If the JVP is not visible when the patient is in the upright position, can one presume it is not raised? Question 4 The mitral area (of auscultation) normally corresponds with the apex beat. When the heart is dilated and the apex beat is shifted laterally, will the mitral area follow the apex beat to its new location or remain at the place where the apex beat is normally situated? Question 5 Please explain in detail how to measure the pulsus paradoxus using a sphygmomanometer. Question 6 What is the difference between dicrotic pulse and pulsus bisferiens? Question 7 1. Why does the radial pulse become more prominent when the hand is lifted overhead? 13 Cardiovascular disease 120 Cardiovascular disease 13 121 2. Please explain the mechanism of a collapsing pulse. Which is the best artery to elicit it: radial, brachial or carotid? Question 8 What is the mechanism of Durozier's sign? Question 9 What effects aortic stenosis, aortic regurgitation and coarctation of the aorta have on systolic and diastolic blood pressure, and why do they produce these effects? Question 10 In the section headed 'Pulsus bisferiens' (K&C 7e, p. 691) what do 'percussion wave' and 'tidal wave' mean? An illustration here would be helpful. Question 11 When examining a patient's carotid pulse, why should we not palpate both carotids at once? Is it because it might block the blood supply to the brain?