ACCT 3210 Review Chapter 4: Income Statement, Comprehensive Income, Cash Flow Statement

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?

52,000

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

Balance sheet

In promulgating GAAP for the statement of cash flows, the FASB stated that it prefers the _____ method; however, nearly all U.S. companies use the _____ method.

Blank 1: direct Blank 2: indirect

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

Change in inventory methods. Change to a new standard issued by the FASB. Change in revenue recognition methods.

True or false: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements.

False

Where on the income statement is income tax expense reported?

In a separate line

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

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

Statement of Operations Statement of Earnings

The three types of accounting changes are a change in

accounting estimate. accounting principle. reporting entity.

Which of the following is disclosed on the balance sheet?

accumulated other comprehensive income

Profit margin multiplied by asset turnover equals return on _____ _____. (Enter only one word.)

assets

The two generally accepted formats for preparing the statement of cash flows under U.S. GAAP are the

direct and indirect method.

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.

Cash borrowed or paid to a creditor is an example of a(n) _____ activity.

financing

A change in accounting principle is a change

from one acceptable accounting method to another.

The guidance on discontinued operations defines a discontinued operation as a component that either/or (Select all that apply.)

has been sold is classified as held for sale

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

indirect

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 _____ costs. (Enter only one word.)

restructuring

The asset turnover ratio provides an indication of how efficiently a company uses all of its assets to generate _____. (Enter one word per blank)

revenue

Earnings quality refers to

the ability of reported earnings to predict future earnings.

The direct method and indirect method of preparing the statement of cash flows result in (Select all that apply.)

the same net cash flows from operating activities. the same presentation of investing and financing activities.

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

they are often nonrecurring.

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?

240,000

Ranier Corp. has the following information: Sale of building $100,000 Sales on account 40,000 Purchase of land 30,000 Collection from customers 50,000 Issue of stock 30,000 What is the net cash flow from investing activities?

70,000

Which is a significant noncash activity?

Signing a note payable in exchange for land.

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

Statement of cash flows

The direct method for preparing the statement of cash flows reports

cash received and cash paid from operating activities.

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

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

How are discontinued operations reported? (Select all that apply.)

As a separate line item on the income statement. With separate reporting of the tax effect on the item of discontinued operations. Below income from continuing operations.

When a company discovers an immaterial error in a year subsequent to the year the error is made, what is the proper course of action?

Correct the error in the year discovered.

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

Income Statement

Which of the following may provide useful information about a company's ability to continue to generate a high level of sales and collect its receivables in a timely manner? (Select all that apply.)

Receivable turnover ratio Average collection period

The ratio that provides an indication of how efficiently a company utilizes all of its assets to generate revenue is referred to as the _____ turnover ratio. (Enter only one word.)

asset

Profit margin multiplied by asset turnover equals return on _____. (Enter only one word.)

assets

The return on assets expresses income as a percentage of the average total _____ available to generate that income. (Enter only one word.)

assets

Non-GAAP earnings are calculated

based on management's assumptions of permanent earnings.

A discontinued operation is reported when a _____ of an entity either (a) has been disposed of or (b) is classified as held for sale. (Enter one word per blank)

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.

Net income is a part of

comprehensive income

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

each dollar of sales.

What items must be removed from continuing operations and reported separately for a discontinued operation? (Select all that apply.)

gains expenses tax expense Revenues

The profit margin ratio measures the company's ability to withstand either _______ expenses or _______ revenues.

higher; lower

A high inventory turnover ratio indicates that

inventory was sold frequently during the year.

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

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

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.)

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

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

low ending inventory levels. a superior sales force.

The majority of errors discovered are not _____ and are corrected in the year discovered. (Enter only one word.)

material

The indirect method for preparing a statement of cash flows begins with _____ _____ . (Enter one word per blank.)

net income

The indirect method for preparing a statement of cash flows begins with _____ _____. (Enter one word per blank.)

net incomes

Discontinued operations should be reported on the income statement

net of tax below income from continuing operations.

For financing activities, a cash ______ occurs when a company purchases its own securities as treasury stock; a cash ______ occurs when a company issues stock for cash to investors.

outflow; inflow

The purchase of a long-term investment is a cash ______ from investing activities; sale of a long-term investment is a cash ______ from investing activities.

outflow; inflow

Which of the following ratios are components of the DuPont framework of analyzing return on equity?

profit margin asset turnover

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

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

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

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

selling expenses revenues administrative expenses

The two approaches for preparing an income statement are the _____ step and _____ step approaches.

single, multiple

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

statement of cash flows.

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

weighted average common shares outstanding.

Cryon Corp. has the following information: Borrow from bank $100,000 Pay dividend 30,000 Purchase building 50,000 Collect from customers 50,000 Repay loan from bank 30,000 What is the net cash flow from financing activities?

40,000

Revenues, expenses, gains, losses, and income tax related to a(n) _____ _____ must be removed from continuing operations and reported separately on the income statement. (Enter only one word per blank.)

Blank 1: discontinued or discontinuing Blank 2: operation or operations

The calculation of _____income omits certain gains and losses that are instead included in the broader perspective of other _____ income. (Enter one word per blank.)

Blank 1: net Blank 2: comprehensive

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?

$105,000

Colter Corp. has the following information: Sale of land $10,000 Purchase of inventory 20,000 Purchase of building 100,000 Collection from customers 50,000 Sale of available-for-sale securities 30,000 What is the net cash flow from investing activities?

($60,000)

Match each company to the type of revenue it receives.

ABC Tax Advisors matches Choice, Service revenue Service revenue Best Buy matches Choice, Sales revenue Sales revenue

True or false: Net cash flows from investing activities represents the total inflows plus the total outflows of cash.

False

When a component has been sold and qualifies for treatment as a discontinued operation, the reported income effects disclosed will include which of the following items? (Select all that apply.)

Gain or loss on disposal of the component's assets. Operating income or loss of the component from the beginning of the reporting period to the disposal date.

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

Issuance of common stock to investors Borrowing from bank

Inflows and outflows of cash related to the transactions used to determine net operating income are what type of activities?

Operating

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

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

Return on assets

True or false: Net cash flows from financing activities, represents the total inflows minus the total outflows of cash from financing activities.

True

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

high asset turnover high profit margin

A(n) _____ loss is reported if a discontinued operation is held for sale and the book value of the assets is more than the fair value minus cost to sell. (Enter only one word.)

impairment

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 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

For financing activities, a cash ______ occurs when cash is borrowed from a creditor; a cash ______ occurs when owners receive a dividend.

inflow; outflow

The sale of a building is a cash ____ from investing activities; a loan made to another entity is a cash ______ from investing activities.

inflow; outflow

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

payment of dividends repayment of note payable

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.

When an immaterial error is discovered in the same year it is made before the financial statements are issued, what is the appropriate course of action?

Reverse the erroneous journal entry and record the correct entry.

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

Statement of cash flows

True or false: Net income is a portion of comprehensive income.

True

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?

$106,000

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 all periods presented in the financial statements. 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

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.

Blank 1: inflows or inflow Blank 2: outflows or outflow

Cash flows from _____ activities are related to the purchase and sale of long-term assets used in business operations. (Enter only one word.)

Blank 1: investing or investment

The calculation of _____ income omits certain gains and losses that are instead included in the broader perspective of other _____ income. (Enter one word per blank.)

Blank 1: net Blank 2: comprehensive

In looking at earnings quality, analysts try to separate a company's _____ earnings effects from its _____ earnings. (Enter only one word per blank.)

Blank 1: temporary Blank 2: permanent

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

Change in inventory methods. Change to a new standard issued by the FASB. Change in revenue recognition methods. Change from LIFO to FIFO. Change from percent-of-completion to completed contract method.

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? (Select all that apply.)

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

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. adjusts for changes in liabilities 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.