Lads & Lassies

Arthur Gharakhanian Lads & Lassies (LL) ACCU-620 Brandman University Week 4, Assignment 2 November 14th, 2012 Lads & Lassies Introduction Classifying how the income statement needs to be coded for Lads & Lassies is a two step processes. I will be using the data provided in the case along with information from FASB's Accounting Standards Codification. FASB's coding system is being used to help prepare the layout and ensure proper reporting of the items listed in the case analysis. Some minor changes need to be done to the income statement format to make it presentable which will be noted in the analysis.Please reference Appendix A throughout the analysis to see how the income statement is ultimately being constructed. Analysis – 2005 When constructing the 2005 income statement for Lads & Lassies, I will be using a multi step income statement as this is the format that â€Å"includes other important revenue and expense classifications makes the income statement more useful† (Kieso, 2012). We have limited information to use for 2005, but we can still construct an income statement up to gross profit.We will adhere to FASB rule ASC 225-10-S99-2 (Regulation S-X Rule 5-03, Income Statements), which regulates the relevant items and their components which should be separately stated in the income statement and their arrangement for the presentation. This coding rule provides us the guidance on how to label and present the revenue generated by Lads & Lassies. Also included in this rule is the requirement on how to report costs and expenses associated with the applicable sales be reported separately on the income statement. Therefore we will breakout the expenses directly tied to sales on their own line item (Cost of Goods Sold).Lastly in 2005 we will calculate the gross profit, which â€Å"tells us how much money an entity would have earned if it Lads & Lassies didn’t pay any other expenses such as salary, income taxes, office supplies, utility, ren t, etc. † (Kieso, 2012). Analysis – 2006 The accounting reporting standards mentioned in the 2005 analysis still apply, however, there are additional standards that need to be applied in 2006. When constructing the income statement we will have to address the gain on sale of corporate headquarters and the class action settlement.In accordance with ASC 225-20-45-4(d), † the sale or abandonment of property used in the business is being excluded from being presented as an extra-ordinary item† (FASB, 1973). However, when the gain or loss of a building is associated with the movement of corporate headquarters, we would use ACS 225-20-45-16 (Presentation of Unusual or Infrequently Occurring Items). This rule states that â€Å"a material event or transaction that is unusual in nature or occurs infrequently but not both, shall be reported as a separate component of income from continuing operations† (FASB, 1973).Rules ASC 225-20-45-4 & ASC 225-20-45-16 also a ddress the presentation of the settlement received from the class action lawsuit. We must report the gain or loss from the class action lawsuit in other income (expense) section of the income statement. This section will follow the income and cost of goods sold sections, thereby â€Å"adding back† revenue to the gross profit to reveal a new gross profit. These transactions could be considered below the line entries and would follow indirect expenses (salaries, rent, etc. , but since those items are not present these entries will follow revenue and cost of goods sold. Conclusion Using FASB we are able to determine how to properly present Lads & Lassies income statements. The changes that accompany the growing company from 2005 to 2006 are easily Lads & Lassies recorded and presented in the income statements year over year. Being able to distinguish what is an unusual or infrequently occurring item is crucial in determining if it falls under operations or non-operating income ( loss).Although the income statement is not complete as we are missing information regarding expenses not directly tied to revenue, the income statements presented (Appendix A) are complete and prepared to code. References FASB ASC 225-20-45-2. [Predecessor literature: â€Å"Reporting the Results of Operations,† Opinions of the Accounting Principles Board No. 30 (New York: AICPA, 1973), par. 20. ] FASB ASC 225-20-45-4. [Predecessor literature: â€Å"Reporting the Results of Operations,† Opinions of the Accounting Principles Board No. 30 (New York: AICPA, 1973), par. 3, as amended by â€Å"Accounting for the Impairment or Disposal of Long-lived Assets,† Statement of Financial Accounting Standards No. 144 (Norwalk, Conn. : FASB, 2001). ] FASB ASC 225-20-45-16. [Predecessor literature: â€Å"Reporting the Results of Operations,† Opinions of the Accounting Principles Board No. 30 (New York: AICPA, 1973), par. 23, as amended by â€Å"Accounting for the Impairm ent or Disposal of Long-lived Assets,† Statement of Financial Accounting Standards No. 144 (Norwalk, Conn. : FASB, 2001). ] Kieso, D. E. , Weygandt, J. J. , & Warfield, T.D. (2012). Intermediate accounting, 14th edition binder ready version. (14 ed. ). Wiley. Appendix A | | | Lads & Lassies Income Statement| Fiscal Year Ending on January 29, 2005| (Figures in Millions)| |   |   | Revenue|   |   | Clothing| $ 70. 60 |   | Sassy Spa| $ 3. 90 |   | Total Revenue|   | $ 74. 50 | |   |   | Less: Cost of goods sold|   | $ 46. 50 | |   |   | Gross Profit|   | $ 28. 00 | | | | | | | Lads & Lassies Income Statement| Fiscal Year Ending on January 28, 2006| (Figures in Millions)| |   |   | Revenue|   |   |Clothing| $ 71. 10 |   | Sassy Spa| $ 11. 20 |   | Transaction value| $ 4. 20 |   | Total Revenue|   | $ 86. 50 | |   |   | Less: Cost of Goods Sold: Clothing| $ 46. 50 |   | Cost of Goods Sold: Sassy Spa| $ 9. 60 |   | Total Cost of Goo ds Sold|   | $ 56. 10 | |   |   | Gross Profit|   | $ 30. 40 | |   |   | Non-Operating Income|   |   | Gain (Loss) on Sale of Building| $ 1. 70 |   | Income from Law-Suit Settlement| $ 2. 70 |   | Total Non-Operating Income|   | $ 4. 40 | |   |   | Net Income|   | $ 34. 80 |