ACC 3321 CH 4

Salary expense is $50,000 for the period. The beginning balance in salaries payable is $5,000, and the ending balance is $3,000. What is the amount of salaries paid during the period?

52K

Carol Corp. has a component that is a discontinued operations. The component suffered a loss of $60,000. The component was sold for a gain of $200,000. The tax rate is 40%. What is the total income tax effect of the discontinued operations?

56K

The operating activities section on the statement of cash flows includes the elements of net income on a(n) basis rather than a(n) basis

cash, accrual

The two acceptable methods under U.S. GAAP for preparing the statement of cash flows are the method and the method.

direct, indirect

The treatment of discontinued operations and unusual items in interim reporting under U.S. GAAP is more consistent with the

discrete

The statement of cash flows classifies items as

operating, investing, and financing.

The asset turnover ratio provides an indication of how efficiently a company uses all of its assets to generate

revenue

Which of the following items are included in calculating operating income? (Select all that apply.)

revenues related to primary revenue-generating activities expenses related to primary revenue-generating activities

The formula for average collection period is

365 divided by the receivable turnover ratio.

Which of the following are significant noncash activities? (Select all that apply.)

Acquiring equipment by issuing a long-term note. Acquiring land by issuing common stock.

When an accounting change occurs during an interim period, the change is applied retrospectively. In subsequent interim periods of the same fiscal year, which of the following are disclosed? (Select all that apply.)

Affect on net income. Affect on related per share amounts. Affect on income from continuing operations.

If a causal relationship cannot be established between revenues and expenses, which of the following occurs? (Select all that apply.)

Allocate the expense over several periods. Record the expense as incurred. Relate the expense to a particular period.

Which of the following are acceptable ways of implementing a FASB mandated change in accounting principle? (Select all that apply.)

Apply the new standard to the current and future periods with an adjustment to the beginning balance of retained earnings in the year of adoption. Apply the new standard in the current period and all future periods with no change to prior financial statements. Apply the new standard to all periods presented in the financial statements.

Correct Answer it highlights changes in how efficiently a company collects cash from customers it can signal a future increase in bad debts.

Average collection period Receivable turnover ratio

Which of the following is a routine change in estimate that does not require a disclosure note if the amount is not material? (Select all that apply.)

Change in estimate for uncollectible accounts. Change in depreciable lives.

Which of the following is required to be disclosed on the face of a public company's income statement?

Earnings per share

When a component that qualifies as a discontinued operation is held for sale, what are the two elements that may be reported in discontinued operations?

Estimated impairment loss expected from the sale of the component. Operating income or loss of the component during the reporting period.

Which standards require certain minimum information to be reported on the face of the income statement?

IFRS

What do high turnover ratios suggest? (Select all that apply.)

The company is more efficient in managing its assets. Fewer assets are required to maintain a given level of activity.

Which of the following best describes why losing a major customer at the end of the fiscal year can affect earnings quality?

The current year's revenue number may not be predictive of next year's revenue.

When an expense benefits more than just the period in which it is incurred, how is the expense treated under U.S. GAAP?

The expense should be allocated among the periods benefited.

The return on assets expresses income as a percentage of the average total

assets available to generetae that income

The Dupont framework calculates return on equity as profit margin times asset turnover times the equity multiplier. The equity multiplier is defined as

average total assets divided by average total equity.

Asset turnover ratio is net sales divided by

average total assets.

______ long-lived assets should have their balance reduced if there has been a significant impairment of value.

both tangible and intangible

The FASB's expanded view of income is included in

comprehensive inc

The formula for the inventory turnover ratio is

cost of goods sold divided by average inventory.

The direct method for preparing the statement of cash flows ignores transactions that have no cash flow effect, such as

depreciation

The profit margin ratio indicates the amount of net income achieved for

each dollar of sales

Consistent with IFRS, comprehensive income must be presented in

either one or teo statment

Consistent with IFRS, comprehensive income must be presented in

either one or two statement[s]

Comprehensive income is defined as the total change in Blank______ for a reporting period other than transactions with owners.

equity

When a transaction is recorded incorrectly or is not recorded at all, this is treated as an accounting

eroor

Financial statements covering periods of less than one year are called

interim repo

The process of associating income tax effects with the income statement components that create those effects is referred to as

intraperiod

Average days in inventory is calculated as 365 divided by the

inv turnover ratio

According to IFRS, interest and dividends received can be classified as a(n) (Select all that apply.)

inv, operating

Which of the following ratios are activity ratios?

inventory turnover asset turnover average collection period inventory turnover asset turnover receivables turnover

A high inventory turnover ratio indicates that

inventory was sold frequently during the year.

An income statement that classifies items and uses subtotals for gross profit, operating income, and income from continuing operations is called a(n)

multi

The numerator on all profitability ratios is

net income

To calculate the return on equity from resources provided by common shareholders,

preffered stock

Fill in the Blank Question Fill in the blank question. The initial measurement of restructuring liabilities is at fair value, which often is estimated as the of estimated future cash outflows.

present value

When a company changes from one acceptable accounting method to another, this is treated as a change in accounting

principle

The correction of a material error in the prior year's financial statements is considered a

prior period adj

The correction of a material error in the prior year's financial statements is considered a

prior period edj

Profit margin on sales, return on assets, and return on shareholders' equity are commonly used

profits

A change in depreciation method is accounted for by

prospectively applying the new method

The ability of reported earnings to predict a company's future earnings is referred to as earnings

quality

Interim reports are typically issued

quarterly

Which of the following are cash outflows from financing activities? (Select all that apply.)

repayment of note payable payment of dividends

Costs that are planned and controlled by management that materially change the scope of the business undertaken or the manner in which the business is conducted are called

restructuring

Accounting changes made in an interim period are reported

retrospectively

Select the financial statement ratio that expresses income as a percentage of average total assets.

return on assets

Which of the following cash transactions are classified as cash inflows from investing activities? (Select all that apply.)

sale of land sale of investment securities

Accumulated other comprehensive income represents

the total of other comprehensive income to date.

Gains and losses from the sale of investments can affect earnings quality because

they are often nonrecurring

Gains and losses from the sale of investments can affect earnings quality because

they are often nonrecurring.

One objective of interim reporting is to enhance the Blank______ of financial statements.

timeliness

The reason for adding back net of tax interest expense to the ROA numerator is that

total assets are financed with both debt and equity capital

Basic earnings per share is calculated as net income available to common shareholders divided by

weighted average common shares outstanding.

If a company pays termination benefits in a restructuring and future service is not required, the restructuring costs should be recognized:

when the company comm the arragemnt to emp

Compute the asset turnover ratio using the following information: net sales is $100,000 for the year, last year's assets in place were $900,000 and this year's assets in place are $1,100,000. Receivables for both years are $50,000.

10%

Sales on account are $100,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. What is the cash collected from customers during the period?

105K

Tax expense is $100,000 for the period. The beginning balance in taxes payable is $20,000, and the ending balance is $14,000. What is the amount of taxes paid during the period?

106K

Crimson Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $200,000 and $240,000, respectively. The component was sold with a resulting loss of $160,000. The tax rate is 30%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement? Multiple choice question. $1

140K

Sales on account are $200,000. Cash sales during the period are $50,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. What is the total cash collected from customers during the period?

240K

What is the formula to compute the average days in inventory?

365/inventory turnover ratio

Regal Corporation has a component that is a discontinued operation. The revenues and expenses of the component were $120,000 and $100,000 respectively. The component was sold with a resulting loss of $80,000. The tax rate is 40%. What is the total gain or loss on discontinued operations (net of tax effects) that will be reported on the income statement?

36K

To qualify as an operation for purposes of determining discontinued operations, which of the following must occur? (Select all that apply.)

A component of the entity has been sold, disposed of, or is held for sale. A strategic shift is represented that will have a major effect on financial results.

Which of the following would most likely affect earnings quality? (Select all that apply.)

Accelerating revenue recognition. Losing a major custom

Which accounting standard(s) allow companies to choose between the one and the two statement approach for reporting comprehensive income?

Both U.S. GAAP and IFRS

______ long-lived assets should have their balance reduced if there has been a significant impairment of value.

Both tangible and intangible

Which of the following situations qualifies for treatment as a change in accounting principle? (Select all that apply.)

Change from LIFO to FIFO. Change from percent-of-completion to completed contract method.

Which of the following are changes in accounting estimates? (Select all that apply.)

Changing the bad debt estimate. Changing the estimate for future warranty expenses. Changing the useful life of an asset.

Computations for EPS for interim reports under U.S. GAAP are based on what?

Conditions actually existing during the particular interim period.

Calculating and monitoring the average collection period over time can be useful because (select all that apply)

Correct Answer it highlights changes in how efficiently a company collects cash from customers it can signal a future increase in bad debts.

Prague Company has sales of $1,000,000 each year, but the average collection period has increased from 45 days to 65 days. What are the most likely reasons for the change in average collection period?

Customers are not paying in a timely manner. The company has become more lax in its credit policies and is extending credit terms to maintain customers.

Which of the following are objectives of interim reporting? (Select all that apply.)

Enhance the timeliness of financial statements. Provide information about seasonality of the company.

Which of the following are accounting errors? (Select all that apply.)

Forgetting to accrue salary expense. Making a mistake in calculating depreciation expen

Based on the DuPont model an equity multiplier greater than 1 will produce a return on equity that is higher than the return on assets. What is the trade-off to this effect?

Higher leverage results in higher probability of default.

requires certain minimum information be reported on the face of the income statement, while Blank______ does not have minimum requirements.

IFRS GAAP

When are restructuring costs recognized on the income statement?

In the period the exit or disposal obligation is incurred.

Gains and losses are increases or decreases in equity from which type of transactions? (Select all that apply.)

Incidental Peripheral

Statement of operations and statement of earnings are additional titles for the

Income Statement

A multiple-step income statement includes which of the following? (Select all that apply.)

Income before taxes Operating income Gross profit

Which statements about the inventory turnover ratio are correct? (Select all that apply.)

It indicates how quickly inventory is sold. It shows the number of times the average inventory balance is sold during a reporting period

Which information regarding the receivable turnover ratio is true? (Select all that apply.)

It shows the number of times during a period that the average accounts receivable balance is collected. It provides an indication of a company's efficiency in collecting receivables.

Which implementation of a mandated change in accounting principle applies to the adoption period and future periods with an adjustment to the beginning balance of retained earnings?

Modified retrospective approach

What is the formula for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net).

Where are the elements of net income found on a cash basis rather than an accrual basis?

Operating activities section of the statement of cash flows

When a component classified as a discontinued operation is sold, what elements are included in calculating the total gain or loss from discontinued operations displayed on the income statement?

Operating income or loss for the period and gain or loss on disposal.

A component is qualified as a discontinued operation. What are the two elements that may be reported in discontinued operations on the income statement if the component is not sold by the end of the reporting period?

Operating income or loss from the component and an impairment loss both reported on a net of tax basis.

Which of the following would require modified accounting treatment for interim reporting under U.S. GAAP? (Select all that apply.)

Property taxes paid in January for the entire year assessment. Advertising expenses incurred in the second quarter that will benefit the remainder of the year.

The calculation of income omits certain gains and losses that are instead included in the broader perspective of other income.

Provide information about cash disbursements during a period. Provide information about cash receipts during a period.

The purpose of the statement of cash flows includes which of the following? (Select all that apply.)

Provide information about cash disbursements during a period. Provide information about cash receipts during a period.

Which of the following are cash outflows from investing activities? (Select all that apply)

Purchase of building purchase of long-term investments purchase of land

Which of the following is a category of accounting change?

Reporting entity

Which of the following are commonly used to assess a company's profitability?

Return on assets Profit margin on sales Return on equity

Which of the following are required minimum disclosures in interim financial statements? (Select all that apply.)

Sales Contingencies Net income

At what amount are the assets of a discontinued operation held for sale reported on the balance sheet?

The lower of the book value or fair value less costs to sell.

At what amount are the liabilities of a discontinued operation held for sale reported in the balance sheet?

The lower of the book value or fair value less costs to sell.

Which of the following information must be included in the notes to the financial statements regarding discontinued operations? (Select all that apply.)

The major classes of assets and liabilities of the component. The identity of the component. The reason for the discontinuance.

If a component of the business qualifies for discontinued operations treatment, which of the following statements are true? (Select all that apply.)

The tax expense effect is removed from continuing operations. All related revenues, expenses, gains, and losses must be removed from continuing operations.

Activity ratios measure

a company's efficiency in using its assets.

Other comprehensive income is reported in the current reporting period on the income statement or as an addition to the income statement, and other comprehensive income is reported on the balance sheet.

accumulated

Which of the following is disclosed on the balance sheet?

accumulated other comprehensive income

The three key components to the DuPont framework include

activi, profit, financial

When calculating the return on assets, analysts sometimes make the following adjustments to the numerator

add back interest expense, net of taxes

The indirect method of statement of cash flow preparation (Select all that apply.)

adjusts for changes in assets to reconcile the difference between accrual net income and cash paid or received. adds back depreciation expense because it affects net income but does not reduce cash. adjusts for changes in liabilities to reconcile the difference between accrual net income and cash paid or received.

The ratio that provides an indication of how efficiently a company utilizes all of its assets to generate revenue is referred to as the

asset

Cash flows from investing activities include inflows and outflows of cash related to the acquisition and disposition of long-term used in operations.

assets

Profit margin multiplied by asset turnover equals return on

assets

Asset turnover ratio is net sales divided by

avrd total assets

Accumulated other comprehensive income (AOCI) is found on what financial statement?

balance sheet

Which of the following is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding?

basic ear per share

The indirect method of preparing the operating section of the statement of cash flows begins with net income and adjusts for items that do not affect

cash

The direct method for preparing the statement of cash flows reports

cash received and cash paid from operating activities.

The receivables turnover ratio offers an indication of how quickly a company is able to

collect its accounts receivable.

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? (Select all that apply.)

collection on account interest received on notes receivable

Deducting preferred stock from the denominator and preferred stock dividends from the numerator results in a return on equity that focuses on profits generated by

common shareholders

A discontinued operation is reported when a of an entity either (a) has been disposed of or (b) is classified as held for sale

component

The two types of adjustments to net income for the indirect method are adjustments for

components of net income that do not affect cash. changes in operating assets and liabilities during the period that affected cash and were not in net income.

U.S. GAAP requires that a statement of cash flows must be presented for

each period for which a balance sheet and income statement are prepared.

The evidence that a financial statement user or analyst might use as evidence to suggest that earnings have been smoothed is

earnings have a steady stream over time.

The DuPont framework shows that return on equity can be calculated by multiplying which ratios?

equity multiplier profit margin asset turnover

Fill in the Blank Question Fill in the blank question. The three types of accounting changes are a change in accounting principle, a change in accounting , and a change in reporting . (Enter one word per blank.)

estimate, entity

A change in depreciation method is treated as a change in accounting that is achieved by a change in accounting

estimate, principle

A gain from discontinued operations will result in an income tax , whereas a loss from discontinued operations will result in an income tax

expense , benefit

What basis is used for estimated restructuring costs?

fair value

Which type of activities involve cash inflows and outflows from transactions with creditors and owners?

fin

The classifications on the statement of cash flows are cash flows from (Select all that apply.)

financing activities. operating activities. investing activities.

A change in accounting principle is a change

from one acceptable accounting method to another.

The income statement is considered most useful for predicting

future pofit

When a discontinued operation is sold before the end of the reporting period, the income or loss from operations and the

gain , loss

In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for (Select all that apply.)

gain from sale of asset. loss from sale of asset. depreciation expense.

What are increases or decreases in equity from peripheral or incidental transactions?

gains and losses

Profitability, as measured by return on assets, can be achieved by (select all that apply)

high asset turnover high profit margin

Profitability, as measured by return on assets, can be achieved by (select all that apply)

high profit margin high asset turnover

The profit margin ratio measures the company's ability to withstand either

higher lower

Where on the income statement is income tax expense reported?

in a separate line

Fill in the Blank Question Fill in the blank question. IAS No. 34 requires companies to apply the same accounting policies in its financial statements as it applies in its financial statements. (Enter one word per blank.)

interim , annual

Investing activities involve the acquisition and sale of (Select all that apply.)

long-lived assets used in business operations. nonoperating investment assets.

Additional details about discontinued operations, whether sold or held for sale, are provided in the disclosure

notes

Additional details about discontinued operations, whether sold or held for sale, are provided in the disclosure to the financial statement

notes

A decrease in accounts payable represents a cash Blank______ from operating activities; a decrease in accounts receivable represents a cash Blank______ from operating activitie

outflow, inflow

The outflows of resources incurred while generating revenue are referred to as

outflows

The inflow of resources resulting from providing goods or services to customers is referred to as

rev

Which of the following items are reported as components of operating income for most manufacturing and merchandising companies? (Select all that apply.)

selling expenses administrative expenses revenues

A company prepares its income statement by listing all sources of revenues and gains at the top, followed by a list of all expenses and losses. Which income statement approach does this describe?

single step

Operating, investing, and financing activities are found on which financial statement?

statement of cash flows

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows.

When calculating profitability ratios, analysts often adjust net income by (Select all that apply.)

subtracting out one-time gains. excluding transitory earnings effects. adding in one-time losses.

__ from discontinued operations will result in additional income tax expense; Blank______ from discontinued operations will result in a tax benefit.

Income; Loss

The direct method and the indirect method are the two acceptable forms of preparing which financial statement?

Statement of cash flows

Crimson Corp. has a component that is a discontinued operation. The component incurred a loss from operations of $40,000. The component was sold with an additional loss of $160,000. The tax rate is 30%. What is the income tax effect for the discontinued operation?

Tax benefit of $60,000

What does the inventory turnover ratio measure?

The average number of times inventory is sold during a period.

How are discontinued operations and unusual items treated in interim financial statements under U.S. GAAP?

The full amount should be separately reported in the period in which the discontinued operation or unusual item occurs.

Which of the following is an increase in equity from a peripheral or incidental transaction that is included in income from continuing operations?

gain

Where is earnings per share disclosed in the financial statements?

inc statement

method of preparing the statement of cash flows begins with net income. (Enter only one word.)

indirect

Which of the following methods for preparing the statement of cash flows begins with net income and works backward to calculate net cash flow from operating activities?

indirect method

In preparing the operating section of the statement of cash flows, the method begins with net income and adjusts for items that affect cash but are not included in net income, whereas, the method converts each line item in income from operations to a cash basis.

indirect, direct

Fill in the Blank Question Fill in the blank question. Any long-lived asset, whether tangible or intangible, should have its balance reduced if there has been a significant of value. (Enter only one word.)

loss

A high inventory turnover ratio could be caused by (Select all that apply.)

low ending inventory levels. a superior sales force.

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? (Select all that apply.)

payment on accounts payable Payment of salaries

Which of the following are required minimum disclosures in interim financial statements? (Select all that apply.)

Significant changes in financial position Changes in accounting principles Fair value of financial instruments

Which of the following terms are used to describe an income statement? (Select all that apply)

Statement of Operations Statement of Earnings

In order to provide more complete information, U.S. GAAP allows that any significant noncash investing and financing activities may be reported (Select all that apply.)

in the notes to financial statements. on the face of the statement of cash flow

Which of the following are acceptable methods for reporting comprehensive income? (Select all that apply.)

in two consecutive statements - income statement and comprehensive income statement In one single statement of comprehensive income

Which financial statement summarizes the profit-generating activities that occurred during the reporting period?

inc statement

Sales of services for cash and collection on account are classified as cash , while payment on account and payment of salaries are classified as cash from operating activities on the statement of cash flows.

inflow, outflow

Two items that are treated differently on the statement of cash flows for U.S. GAAP and IFRS are

int, dividend

The income tax expense or benefit associated with discontinued operations (Select all that apply.)

is reported separately from the tax computation for continuing operations. is included in the computation of net income

The statement of cash flows is useful because (select all that apply)

it provides information about liquidity it reveals the company's ability to generate positive cash flow from its normal operations

An income statement prepared in accordance with IFRS allows expenses to be classified by (Select all that apply.)

nature , function

The indirect method for preparing a statement of cash flows begins with

net income

The profit margin ratio is defined as divided by net sales

net income

he profit margin ratio is defined as divided by net sales.(Enter one word per blank)

net income

In calculating basic earnings per share, Blank______ is divided by the weighted average common shares outstanding

net income less any preferred stock dividends

n calculating basic earnings per share, Blank______ is divided by the weighted average common shares outstanding.

net income less any preferred stock dividends

Discontinued operations should be reported on the income statement

net of tax below income from continuing operations.

Net income using the multiple-step income statement presentation is Blank______ net income using the single-step income statement presentation.

same as

Fill in the Blank Question Fill in the blank question. In looking at earnings quality, analysts try to separate a company's earnings effects from its earnings. (Enter only one word per blank.)

temp , permanent

Nonoperating items that are not expected to continue into the future are considered a Blank______ component of earnings and should be Blank______ when forecasting future performance

temp, excluded

Earnings quality refers to

the ability of reported earnings to predict future earnings.

A prior period adjustment requires an adjustment to

the beginning balance of retained earnings.

The average collection period is an estimate of

the number of days the average acc receive

The average collection period is an estimate of

the number of days the average account receivable balance is outstanding.

The advantages of a multiple-step income statement is (Select all that apply.)

it provides more information than a single-step income statement. it reports expenses by function. it reports the relationships between various items.

Non-GAAP earnings are

management's estimates and view of earnings.