Corporation Income Statements
¾ Income statements for corporations are the same as the statements for proprietorships
or partnerships except for one thing: the reporting of income tax.
Corporate Income Tax
¾ For tax purposes, corporations are considered to be a separate legal entity. As a result,
income tax expense is reported in a separate section of the corporation income
statement, which is located before net income. There are two separate accounts
added: income before income tax and income tax expense. Income tax is calculated
annually, but estimated and remitted monthly. Usually, the estimated and accrued
amount of income tax is different from the actual amount. When the definitive
amount is given, an adjusting entry with the income tax expense and income tax
payable accounts are adjusted.
¾ Interperiod Tax Allocation ± The difference in accounting objectives for revenues and
expenses for GAAP and CCRA purposes causes timing differences to occur. These
timing differences result in future income taxes. The act of dividing the amounts due
and receivable for current operations and future operations is called interperiod tax
¾ Intraperiod Tax Allocation - Intraperiod tax allocation refers to the procedure of
associating income taxes within the income statement to the specific item that directly
affects the income taxes for the period.
Presentation of Non-Typical Items
¾ Material items not typical of regular operations are reported separately in the income
statement to show the regularity of the published results. Non-typical items include
discontinues operations and extraordinary items.
¾ Discontinued Operations ± refers to the disposal of a significant segment of a
business. Examples of disposed segments of the business are entire subsidiaries or
entire activities. When the disposal of a significant segment occurs, the income
statement should report both income from continuing operations and income (or loss)
from discontinued operations. The income (loss) from discontinued operations
consists of two parts: the income (loss) from these operations and the gain (loss) on
disposal of the segment. Both items are presented net of applicable income tax. In the
new section, discontinued operations, both the operating loss and the loss on disposal
are reported net of applicable income tax.
¾ Extraordinary Items ± these are events and transactions that meet three conditions.
They are: not expected to occur frequently, not typical of normal business activities,
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