Ch 4

A company's activities for year two included the following: Gross sales $3,600,000 Cost of goods sold 1,200,000 Selling and administrative expense 500,000 Adjustment for a prior-year understatement of amortization expense 59,000 Sales returns 34,000 Gain on sale of stock portfolio securities 8,000 Gain on disposal of a discontinued business segment 4,000 Unrealized gain on AFS debt portfolio securities 2,000 The company has a 30% effective income tax rate. What is the company's net income for year two? $1,267,700 $1,273,300 $1,314,600 $1,316,000

$1,314,600

Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in accounting principle, a $3,000 unrealized loss on available-for-sale debt securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Palmyra's comprehensive income? $4,000 $10,000 $11,000 $17,000

$10,000

The Statement of Changes in Equity shows an increase in the common stock account of $2,000 and an increase in the additional paid-in capital account of $10,000. If the common stock has a par value of $2, and the only transactions affecting these accounts were these issues of common stock, what was the average issue price of the common stock during the year? $2 $5 $10 $12

$12

A company reports the following information as of December 31: Sales revenue $800,000 Cost of goods sold 600,000 Operating expenses 90,000 Unrealized holding gain on the available-for-sale debt securities, net of tax 30,000 What amount should the company report as comprehensive income as of December 31? $30,000 $110,000 $140,000 $200,000

$140,000

Burns Corp. had the following items: Sales revenue $45,000 Loss on early extinguishment of bonds 36,000 Realized gain on sale of available-for-sale debt securities 28,000 Unrealized holding loss on available-for-sale debt securities 17,000 Loss on write-down of inventory 3,100 Which of the following amounts would the statement of comprehensive income report as other comprehensive income or loss? $11,000 other comprehensive income $16,900 other comprehensive income $17,000 other comprehensive loss $28,100 other comprehensive loss

$17,000 other comprehensive loss

In Baer Food Co.'s 20x5 single-step Income Statement, the section titled "Revenues" consisted of the following: Net sales revenue $187,000 Results from discontinued operations: Loss from operations of the segment (net of $1,200 tax effect) $(2,400) Gain on the disposal of segment (net of $7,200 tax effect) 14,400 12,000 Interest revenue 10,200 Gain on the sale of equipment 4,700 Total revenues $213,900 In the revenues section of the 20x5 Income Statement, Baer Food should have reported total revenues of: $216,300 $215,400 $203,700 $201,900

$201,900

Josie Corporation reported the following information for 2017: Sales revenue$1,000,000Cost of goods sold700,000Operating expenses110,000Unrealized holding gain on available-for-sale securities40,000Cash dividends received on the securities4,000 For 2017, Josie would report comprehensive income of $194,000. $230,000. $40,000. $234,000.

$234,000.

The following costs were incurred by Griff Co., a manufacturer, during 20x4: Accounting and legal fees $ 25,000 Freight-in 175,000 Freight-out 160,000 Officers' salaries 150,000 Insurance 85,000 Sales representatives' salaries 215,000 What amount of these costs should be reported as general and administrative expenses for 20x4? $260,000 $550,000 $635,000 $810,000

$260,000

Clair, Inc. reports net income of $700,000. It declares and pays dividends of $100,000 for the year, one-half of which relate to the preferred shares. The weighted-average number of common shares outstanding during the year is 200,000 shares, and the weighted-average number of preferred shares outstanding during the year is 10,000 shares. Earnings per share for Clair, Inc. is (round your answer to the nearest cent): $3.00. $2.95. $3.18. $3.25.

$3.25.

In Yew Co.'s 20x4 annual report, Yew described its social awareness expenditures during the year as follows: "The Company contributed $250,000 in cash to youth and educational programs. The Company also gave $140,000 to health and human service organizations, of which $80,000 was contributed by employees through payroll deductions. In addition, consistent with the Company's commitment to the environment, the Company spent $100,000 to redesign product packaging." What amount of the above should be included in Yew's Income Statement as charitable contributions expense? $310,000 $390,000 $410,000 $490,000

$310,000

Brock Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 20x5 included the following expense and loss accounts: Accounting and legal fees$120,000Advertising150,000Freight-out80,000Interest70,000Loss on the sale of long-term investments30,000Officers' salaries225,000Rent for office space220,000Sales salaries and commissions140,000 One-half of the rented premises is occupied by the sales department. Brock's total selling expenses for 20x5 are: $480,000 $400,000 $370,000 $360,000

$480,000

Sawyer, Inc. consistently estimated its bad debt expense at 1 percent of credit sales. In 2017, however, Sawyer determines that it must revise upward the estimate of bad debts for the current year's credit sales to 2%, or double the prior years' percentage. Sawyer uses the revised estimate of 2% and calculates bad debt expense of $500,000. How is the change in the estimated bad debt expense reported in Sawyer's 2017 financial statements? $500,000 of expense reported as a change in accounting principle and accounted for under the retrospective approach. $500,000 of expense in the income statement as an ordinary item, $500,000 of expense reported as an adjustment to the beginning balance of retained earnings (net of tax). $500,000 of expense in the income statement and $500,000 as a contra asset in the balance sheet. $500,000 of expense and $500,000 as an unusual loss in the income statement.

$500,000 of expense in the income statement and $500,000 as a contra asset in the balance sheet.

Rock Co.'s financial statements had the following balances at December 31: Gain on the sale of equipment$ 50,000Foreign currency translation gain$100,000Net income$400,000Unrealized gain on the available-for-sale debt securities$ 20,000 What amount should Rock report as comprehensive income for the year ended December 31? $400,000 $420,000 $520,000 $570,000

$520,000

Barger Enterprises has an unusual or infrequent loss of $300,000, an unusual gain of $700,000, and a tax rate of 30%. At what amount should Barger report each item? Unusual loss Unusual gain 1.$(300,000) $700,000 2.(300,000) 490,000 3.(210,000) 700,000 4.(210,000) 490,000 4 3 2 1

1

Which of the following is an acceptable method of presenting the income statement? A classified income statement. A current operating performance income statement. A condensed income statement. None of these answer choices are correct.

A condensed income statement.

Which of the following is not classified as an unusual and infrequent gain or loss? Losses from inventory write-downs. Flood damage losses to property. A discontinued operation. Impairment losses on intangible assets.

A discontinued operation.

When a company transfers an amount of restricted retained earnings into a different account, that account is titled Appropriated Retained Earnings. Noncontrolling Retained Earnings. Comprehensive Retained Earnings. Unappropriated Retained Earnings.

Appropriated Retained Earnings.

When a full set of general-purpose financial statements are presented, comprehensive income and its components should Appear below income from continuing operations in the Income Statement. Be reported net of related income tax effect, in total and individually. Appear in a supplemental schedule in the notes to the financial statements. Be presented as part of the Income Statement or as a separate financial statement following the Income Statement.

Be presented as part of the Income Statement or as a separate financial statement following the Income Statement.

Which of the following would not represent an accounting error? Mistakes in the application of accounting principles. Change in the method of inventory pricing form FIFO to average-cost. Oversight or misuse of facts that existed at the time financial statements were prepared. Mathematical mistakes.

Change in the method of inventory pricing form FIFO to average-cost.

Companies are required to highlight certain items in the financial statements so that users can better determine the long-run earning power of the company. Which of the following is not one of those items? Changes in accounting principle. Noncontrolling interest. Discontinued operations. Unusual gains and losses.

Changes in accounting principle.

Which of the following is a component of other comprehensive income? Minimum accrual of vacation pay Currency-translation adjustments Changes in market value of inventory Unrealized gain or loss on equity securities carried at fair value

Currency-translation adjustments

Which of the following would be reported in a separate income statement category, separately from continuing operations, on the income statement? Discontinued operations. Unusual losses. Income tax expense. Unusual gains.

Discontinued operations.

Which of the following is included in other comprehensive income? Unrealized holding gains and losses on equity securities carried at fair value Unrealized holding gains and losses that result from a debt security being transferred into the trading category from the held-to-maturity category Foreign currency translation adjustments The difference between the accumulated benefit obligation and the fair value of pension plan assets

Foreign currency translation adjustments

Which of the following occur from peripheral or incidental transactions? Sales revenue. Gain on the sale of equipment. Operating expenses. Cost of goods sold.

Gain on the sale of equipment.

In a multi-step Income Statement: Total expenses are subtracted from total revenues. Gross profit (margin) is shown as a separate item. Cost of sales and operating expense are subtracted from total revenues. Other income is added to revenue from sales.

Gross profit (margin) is shown as a separate item.

Comprehensive income can be disclosed in various formats. Which of the following is an acceptable format for disclosing comprehensive income? I.At the bottom of the income statement, continue from net income and add other comprehensive income to arrive at comprehensive income for the year. II.In a separate statement, start with net income and add other comprehensive income to arrive at comprehensive income for the year. III.In the statement of stockholders' equity, net income is adjusted for other comprehensive income to arrive at comprehensive income for the year. IV.After retained earnings in the stockholders' equity section of the statement of financial position, start with net income and add other comprehensive income to arrive at comprehensive income for the year. II and III I and II III and IV All of the above are acceptable.

I and II

Which limitation of an income statement occurs when one company uses an accelerated depreciation method while another company uses straight-line depreciation? Companies omit from the income statement items they cannot measure reliably. Income measurement involves judgment. Income numbers are affected by the accounting methods employed. All of these answer choices are correct.

Income numbers are affected by the accounting methods employed.

Noncontrolling interest Is not shown on the face of the income statement. Is reported as a separate item below net income or loss. Is shown in a separate section of the income statement after continuing operations but before discontinued operations net of tax. Is shown in a separate section of the income statement after discontinued operations, net of tax.

Is reported as a separate item below net income or loss.

Which of the following is true about intraperiod tax allocation? It is required for discontinued operations but not for prior period adjustments. It arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return. Its purpose is to relate the income tax expense to the items that give rise to the amount of income tax provision. Its purpose is to allocate income tax expense evenly over a number of accounting periods.

Its purpose is to relate the income tax expense to the items that give rise to the amount of income tax provision.

Income reporting follows which of the following approaches? Modified current operating performance. Current operating performance. All-inclusive. Modified all-inclusive.

Modified all-inclusive.

If the accountant forgets to record salary expense in the Statement of Income, what is the result? Net income is too high. Net income is too low. Retained earnings is too low. Retained earnings is correctly stated, as the omission only affects the Income Statement.

Net income is too high.

Which of the following should be included in general and administrative expenses? Interest Advertising Yes Yes Yes No No Yes No No

No No

Which of the following statements related to noncontrolling interest is incorrect? Noncontrolling interest is the portion of equity interest in a subsidiary not attributable to the parent company. Noncontrolling interest in net income is reported as an expense on the income statement. Consolidated net income is allocated to the parent and to the noncontrolling interest in proportion to their appropriate percentages of ownership. Noncontrolling interest is sometimes called minority interest.

Noncontrolling interest in net income is reported as an expense on the income statement.

Which of the following describes an expense? Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations. Outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations. Increases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from revenues or investments by owners. Decreases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from expenses or distributions to owners.

Outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations.

The Statement of Changes in Equity: Is one of the required financial statements under U.S. GAAP Includes accounts such as the retained earnings and common share accounts but not other comprehensive income items. Is used only if a corporation frequently issues common shares Reconciles all of the beginning and ending balances in the equity accounts.

Reconciles all of the beginning and ending balances in the equity accounts.

What is the purpose of reporting comprehensive income? To summarize all changes in equity from nonowner sources To reconcile the difference between net income and cash flows provided from operating activities To provide a consolidation of the income of the firm's segments To provide information for each segment of the business

To summarize all changes in equity from nonowner sources

Under FASB U.S. GAAP, which of the following items would cause net earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles? Unrealized loss on debt investments classified as available-for-sale Unrealized loss on equity investments classified as current Loss on exchange of similar assets. Loss on exchange of dissimilar assets.

Unrealized loss on debt investments classified as available-for-sale

A multiple-step income statement highlights certain intermediate components of income that analysts use to compute ratios for assessing the performance of the company. separates operating transactions from nonoperating transactions. matches costs and expenses with related revenues. all of these answer choices are correct.

all of these answer choices are correct.

Prior period adjustments are reported as: an addition to (or a deduction from) the beginning balance of retained earnings. an unusual gain or loss item in the income statement. an addition to (or deduction from) net income in the income statement. an addition to (or deduction from) the ending balance of retained earnings.

an addition to (or a deduction from) the beginning balance of retained earnings.

A change in the method of inventory pricing from FIFO to LIFO would be accounted for as a (an): part of discontinued operations. change in accounting principle. change in estimate. accounting error.

change in accounting principle.

The occurrence which most likely would have no effect on 20x7 net income (assuming that all amounts involved are material) is the settlement based on litigation in 20x7 of previously unrecognized damages from a serious accident which occurred in 20x5. collection in 20x7 of a receivable from a customer whose account was written off in 20x6 by a charge to the allowance account. worthlessness determined in 20x7 of stock purchased on a speculative basis in 20x4. sale in 20x7 of an office building contributed by a stockholder in 20x5.

collection in 20x7 of a receivable from a customer whose account was written off in 20x6 by a charge to the allowance account.

The income statement can be used to assess liquidity. solvency. creditworthiness. all of these answer choices are correct.

creditworthiness.

Unusual and infrequent gains and losses are reported net of tax. include the elimination of a component of the business. include restructuring charges and are reported net of tax. include restructuring charges.

include restructuring charges.

In the single-step income statement: expenses are classified by functions, such as merchandising, selling and administration interest revenue and rental revenue are reported as other revenues and gains just two groupings exist - revenues and expenses an income from operations figure is presented

just two groupings exist - revenues and expenses

Earnings per share is computed as net income: minus preferred dividends divided by the weighted average of common shares outstanding. divided by the ending common shares outstanding. minus preferred dividends divided by the ending common shares outstanding. divided by the weighted average of common shares outstanding.

minus preferred dividends divided by the weighted average of common shares outstanding.

Gains and losses that bypass net income but affect stockholders' equity are referred to as: unusual gains and losses. other comprehensive income. prior period income. prior period adjustments.

other comprehensive income.

The gain or loss from disposal of a component of a business is shown as a (an): unusual gain or loss. part of discontinued operations. noncontrolling interest. prior period adjustment.

part of discontinued operations.

The statement of stockholders' equity need not be presented if a company is reporting comprehensive income using the two statement approach. all of these answer choices are correct. reports the change in each stockholders' equity account and in total stockholders' equity during the year. is dated using "As of December 31, 20x7".

reports the change in each stockholders' equity account and in total stockholders' equity during the year.

The major elements of the income statement are operating section, non-operating section, discontinued operations, and extraordinary items. revenues, expenses, gains, and losses. revenue, cost of goods sold, selling expenses, and general expense. revenue, cost of goods sold, operating expenses, non-operating section.

revenues, expenses, gains, and losses.

The single-step income statement emphasizes the gross profit and income from operations. total revenues and total expenses. the various components of income from continuing operations. discontinued operations more than these are emphasized in the multiple-step income statement.

total revenues and total expenses.

The ________ approach focuses on the income-related activities that have occurred during the period. transaction classification earnings quality capital maintenance

transaction

Jackson, Inc. has the following information is available: Cost of goods sold $148,500 Dividend revenue 3,750 Income tax expense 3,000 Operating expenses 79,500 Sales 255,000 In Jackson's's multiple-step income statement, gross profit will be reported at $106,500. will not be reported. will be reported at $27,000. will be reported at $24,000.

will be reported at $106,500.