Question

In the traditional approach to financial reporting in Canada, 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. An alternative wouldn't treat interest, dividends, or income taxes as expenses.
During the year ended December 31, 2017, Atnarko Ltd. (Atnarko) had revenues of $2,450,000, expenses of $1,400,000, and income taxes of $115,000. In addition, Atnarko incurred interest costs of $170,000, and it declared and paid preferred share dividends of $75,000 and common share dividends of $150,000.

Required:
a. Prepare an income statement for Atnarko using the traditional 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 alterna tive measures useful.



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  • CreatedFebruary 26, 2015
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