(Different ways of looking at income, LO 2, 6) In the traditional income statement prepared in accordance with GAAP, net income is thought of as the increase of wealth that belongs to the owners of the entity. In this view, interest is an expense, whereas dividends are a reduction of retained earnings. However, this is only one way to view an entity and its financial statements. Net income could also be calculated by expensing both interest and dividends. Another alternative would not treat interest, dividends, or income taxes as expenses.

During the year ended December 31, 2006 Atnarko Ltd. (Atnarko) had revenues of

$2,450,000, expenses of $1,500,000, and income taxes of $237,000. In addition, Atnarko incurred interest costs of $150,000, and declared preferred share dividends of $70,000 and common share dividends of $110,000.

Required:

a. Prepare an income statement for Atnarko using the traditional GAAP approach. Explain why the measure of income is useful from the perspective of shareholders.

b. Devise three alternative measures of net income and prepare income statements on these bases. Explain which users of the income statement would find your alternative measures useful.