C4
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 reported with tax from continuing operations. is included in the computation of income from continuing operations. is included in the computation of net income.
-is reported separately from the tax computation for continuing operations -is included in the computation of net income
The formula for average collection period is
365 divided by the receivable turnover ratio.
Which of the following is required to be disclosed on the face of a public company's income statement?
Earnings per share
The statement of cash flows classifies all cash inflows and outflows into one of the three categories Payments of interest on notes payable
Operating Activities
The financial statement that provides information about cash receipts and cash disbursements for the period is the
Statement of cash flows
The statement of cash flows is useful because
accrual-based income is not an indication of cash flows.
Which of the following is disclosed on the balance sheet?
accumulated other comprehensive income
Consistent with IFRS, comprehensive income must be presented in
either one or two statement[s]
The ( ? ) method of preparing the statement of cash flows begins with net income.
indirect
The indirect method for preparing a statement of cash flows begins with
net income
Operating and nonoperating items are not separately classified in a ( ? ) step income statement
single
Lamb Corp. has the following information: Net income $140,000 Preferred dividends $40,000 Common stock, beginning of year 400,000 shares Common stock, end of year 600,000 shares What is basic earnings per share?
$0.20 per share Reason: ($140,000 - $40,000)/(($400,000 + $600,000)/2)
Beagle Corp. has the following information: Net income $250,000 Preferred dividends $50,000 Common stock, beginning of year 1,000,000 shares Common stock, end of year 1,500,000 shares What is basic earnings per share?
$0.16 per share Reason: ($250,000 - $50,000)/((1,000,000 + 1,500,000)/2) *use weighted-average number of common shares outstanding
What is the formula to compute the average days in inventory?
365/inventory TO ratio
What is one difference in the reporting requirements between most changes in accounting estimates and a change in depreciation method?
A change in depreciation method requires a disclosure of why the new method is preferred, and the others do not.
Current year other 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 financial statement elements are measured and reported as a result of providing goods and services to customers? Losses Revenues Expenses Gains
Revenue and Expenses
Operating, investing, and financing activities are found on which financial statement?
Statement of cash flows
An other comprehensive income item
Unrealized gain on debt securities
When calculating profitability ratios, analysts often adjust net income by (Select all that apply.) Multiple select question. adding in one-time losses. subtracting out one-time gains. excluding transitory earnings effects. adding in cash flows.
adding in one-time losses. subtracting out one-time gains. excluding transitory earnings effects.
The return on assets expresses income as a percentage of the average total ( ? ) available to generate that income.
assets
Reports the cash effects of each operating activity directly on the statement
direct method
A component of an entity
discontinued operation
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 statement of cash flows classifies all cash inflows and outflows into one of the three categories cash proceeds from notes payable
financing activities
A prior period adjustment requires an adjustment to
the beginning balance of retained earnings
Accumulated other comprehensive income represents
the total of other comprehensive income to date.
Compute the average days in inventory ratio using the following information: Net sales is $200,000 for the year, costs of goods sold are $80,000, 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 $40,000. Inventory changed from $30,000 last year to $10,000 this year.
91.25 days Reason: Average days in inventory is 365/inventory turnover ratio = 365/4. Inventory turnover is calculated as cost of goods sold/average inventory = $80,000/[($30,000 + 10,000)/2] = 4.
To qualify as an operation for purposes of determining discontinued operations, which of the following must occur?
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.
What type of ratios measure a company's efficiency in managing its assets?
Activity ratio
Which of the following is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding?
Basic earnings per share
Which type of change requires a justification in the notes to the financial statements?
Change in depreciation method
Which of the following are changes in accounting estimates? (Select all that apply.) Changing inventory methods. Changing the estimate for future warranty expenses. Changing the useful life of an asset. Changing the bad debt estimate.
Changing the estimate for future warranty expenses. Changing the useful life of an asset. Changing the bad debt estimate.
Revaluation surplus is reported as other comprehensive income under
IFRS
Related to the acquisition and disposition of long-term assets
Investing activities
The statement of cash flows classifies all cash inflows and outflows into one of the three categories Purchase of common stock of another corporation for cash
Investing activities
Which of the following would most likely affect earnings quality? (Select all that apply.) Losing a major customer. Accelerating revenue recognition. Delaying payment of liabilities.
Losing a major customer. Accelerating revenue recognition.
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
The statement of cash flows classifies all cash inflows and outflows into one of the three categories Issuance of bonds payable in exchange for land and building
Noncash investing and financing activities
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
Directly related to principal revenue-generating activities
Operating income
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?
Operating income or loss of the component during the reporting period. Estimated impairment loss expected from the sale of the component.
Which of the following are commonly used to assess a company's profitability? Profit margin on sales Quick ratio Return on assets Return on equity Current ratio
Profit margin on sales Return on assets Return on equity
_____ costs include costs associated with shutdown or relocation of facilities.
Restructuring (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)
GAAp typically requires that voluntary accounting changes be accounted for which approach?
Retrospectively
Select the financial statement ratio that expresses income as a percentage of average total assets.
Return on assets
A high inventory turnover ratio could be caused by
a superior sales force. low ending inventory levels.
The return on assets expresses income as a percentage of the average total ( ? )available to generate that income.
assets
Asset turnover ratio is net sales divided by
average total assets
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.
Return on assets is calculated as net income divided by
average total assets.
The potential tax expense or benefits of items reported as components of Other Comprehensive Income
can be shown separately for each item or aggregated and reported as one line item
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 purpose of a statement of cash flows is to provide information about the
cash receipts and cash disbursements during a period.
The direct method for preparing the statement of cash flows reports
cash received and cash paid from operating activities.
The profit margin ratio indicates the amount of net income achieved for
each dollar of sales
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 represents the costs of providing goods and services to customers?
expenses
What items must be removed from continuing operations and reported separately for a discontinued operation?
expenses tax expense Revenues gains
What basis is used for estimated restructuring costs?
fair value
A change in accounting principle is a change
from one acceptable accounting method to another.
When a discontinued operation is sold before the end of the reporting period, the income or loss from operations and the ( ? ) or ( ? ) on the disposal of assets is included in the reported income.
gain or loss
Comprehensive income includes net income as well as other( ? ) and ( ? ) that change shareholders' equity but are not included in traditional net income
gains and losses
If a company frequently uses restructuring charges in its income statement, an analyst should
include them in the company's permanent earnings stream.
Earnings per share is disclosed at the bottom of the
income statement
When a company uses a special charge such as restructuring costs and shows a loss on the income statement, income may be manipulated through
income statement classification shifting.
Identify which items on an income statement are included in calculating income from continuing operations. (Select all that apply.) Multiple select question. income tax discontinued operations loss revenue
income tax loss revenue
Associates tax with income statement item
intraperiod tax allocation
The process of associating income tax effects with the income statement components that create those effects is referred to as
intraperiod tax allocation
A high inventory turnover ratio indicates that
inventory was sold frequently during the year. ( not purchased)
Cash flows from ( ? )activities are related to the purchase and sale of long-term assets used in business operations.
investing
The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.
multiple-step
The calculation of ( ? ) income omits certain gains and losses that are instead included in the broader perspective of other ( ? ) income
net/ comprehensive
Additional details about discontinued operations, whether sold or held for sale, are provided in the disclosure ( ? ) to the financial statements.
notes
Related to the transactions entering into the determination of net income.
operating activities
The inflows and outflows of cash that result from activities reported in the income statement are classified as cash flows from
operating activities
Under IFRS, if the revaluation option is chosen, the excess of the fair value of property, plant and equipment over its book value is reported as
other comprehensive income
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 expenses related to peripheral activities revenues related to peripheral activities
revenues related to primary revenue-generating activities expenses related to primary revenue-generating activities
The three key components to the DuPont framework include
profitability. activity. financial leverage.
A change in depreciation method is accounted for by
prospectively applying the new method
Where on the income statement is income tax expense reported?
in a separate line
The formula for the inventory turnover ratio is
cost of goods sold/average inventory
The statement of cash flows classifies all cash inflows and outflows into one of the three categories collection of cash from customers
operating activities
The statement of cash flows classifies all cash inflows and outflows into one of the three categories: Payment of employee salaries.
operating activities
The initial measurement of restructuring liabilities is at fair value, which often is estimated as the ( ? ) ( ? ) of estimated future cash outflows.
present value
The correction of a material error in the prior year's financial statements is considered a
prior period adjustment.
Analyzing earnings quality requires an analyst to
separate a company's temporary and permanent earnings.
What does the inventory turnover ratio measure?
The average number of times inventory is sold during a period.
Which of the following is a category of accounting change?
(1) a change in an accounting principle (2) a change in estimate (3) a change in reporting entity
The direct method for preparing the statement of cash flows ignores transactions that have no cash flow effect, such as ______.
depreciation
The purpose of the statement of cash flows include which of the following? (Select all that apply.) -provide information about cash disbursements that occurred during the period. -provide information about cash receipts that occurred during the period. -provide information about the revenues that occurred during the period. -provide information about the investing activities that occurred during the period. -provide information about the expenses that occurred during the period. -provide information about the financing activities that occurred during the period.
-provide information about cash disbursements that occurred during the period. -provide information about cash receipts that occurred during the period. -provide information about the investing activities that occurred during the period. -provide information about the financing activities that occurred during the period.
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% Reason: Net sales/average total assets = $100,000/[($900,000 + $1,100,000)/2] = 10%
Compute the receivables turnover ratio using the following information: Net credit sales is $200,000 for year 2. Total assets at the end of years 1 and 2 were $800,000 and $1,200,000, respectively. Accounts receivable at the end of years 1 and 2 were $40,000 and $60,000, respectively.
4 Reason: Net credit sales/average accounts receivable = $200,000/((40,000+60,000)/2) = 4
Black Company has the following information: Receivable turnover 6 Inventory turnover 5 Asset turnover 3 Net credit sales $500,000 What is the average collection period?
60.8 days 365/ Receivable TO 6
When net income and comprehensive income are identical for all years presented in a company's income statement, which of the following is true?
A statement of comprehensive income is not required.
Which of the following would most likely affect earnings quality? (Select all that apply.) Multiple select question. Accelerating revenue recognition. Losing a major customer. Delaying payment of liabilities.
Accelerating revenue recognition. Losing a major customer
If a discontinued operation is held for sale and there is an impairment loss, what are the acceptable methods for disclosing the impairment loss? (Select all that apply.) Parenthetically below fixed assets on the balance sheet. As a disclosure note in the notes to the financial statements. In the Management Discussion and Analysis section of the annual report. Parenthetically on the face of the income statement in discontinued operations.
As a disclosure note in the notes to the financial statements. Parenthetically on the face of the income statement in discontinued operations.
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 depreciation method. Change in depreciable lives. Change in revenue recognition method.
Change in estimate for uncollectible accounts. Change in depreciable lives. (Depreciation- need to be explained) (revenue recognition- change in principle not estimate)
The ending balance of accumulated other comprehensive income is calculated by adding this amount to the beginning balance of accumulated other comprehensive income.
Current year other comprehensive income
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.) Customers are not paying in a timely manner. The company has tightened its credit policies for its customers. The company has incurred additional marketing expenses to attract customers. 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 company has become more lax in its credit policies and is extending credit terms to maintain customers.
Which standards require certain minimum information to be reported on the face of the income statement?
IFRS
________ requires certain minimum information be reported on the face of the income statement, while _____ does not have minimum requirements.
IFRS; US GAAP
When are restructuring costs recognized on the income statement?
In the period the exit or disposal obligation is incurred.
A multiple-step income statement includes which of the following? (Select all that apply.) Total expenses Income before taxes Gross profit Operating income Total revenues
Income before taxes Gross profit Operating income
Revenues, expenses, gains, and losses that will likely continue in future periods make up what?
Income from continuing operations
Which financial statement summarizes the profit-generating activities that occurred during the reporting period?
Income statement
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?
Income tax benefit of $56,000 ($200,000-$60,000)*40%
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?
Income tax expense of $56,000 ($200,000-60,000)*40%
_____ from discontinued operations will result in additional income tax expense; _____ from discontinued operations will result in a tax benefit.
Income; Loss
The statement of cash flows classifies all cash inflows and outflows into one of the three categories: Operating activities, Investing activities, Financing activities. In addition, certain transactions that do not involve cash are reported in the statement as noncash investing and financing activities. Purchase of equipment for cash.
Investing activities
Match each component of the DuPont formula with its ratio. Profitability Activity Financial leverage
Net income divided by total sales Total sales divided by average total assets Average total assets divided by average total equity
When a component classified as a discontinued operation is sold, what two 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. Revenues and expenses of the component. Extraordinary loss on the sale of the asset and the related tax benefit.
Operating income or loss for the period and gain or loss on disposal.
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 ($40,000 + 160,000) x 30%
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.
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.
True or false: If a causal relationship can be established, expenses are reported in the same period that the related revenue is recognized.
True When a causal relationship exists, expenses should be matched with the related revenue.
Under which of the following conditions is a statement of comprehensive income not required?
When a company has no other comprehensive income items for all years presented.
How are discontinued operations reported?
With separate reporting of the tax effect on the item of discontinued operations. As a separate line item on the income statement. Below income from continuing operations.
Activity ratios measure
a company's efficiency in using its assets.
The indirect method of statement of cash flow preparation (Select all that apply.) -adjusts for changes in liabilities to reconcile the difference between accrual net income and cash paid or received. -reports the cash effect of each operating activity directly in the statement. -adds back depreciation expense because it affects net income but does not reduce cash. -adjusts for changes in assets to reconcile the difference between accrual net income and cash paid or received. -ignores income statement transactions that have no cash flow effect.
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. adjusts for changes in assets to reconcile the difference between accrual net income and cash paid or received.
Which of the following ratios are activity ratios?
asset turnover average collection period inventory turnover
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 turnover ratio
Cash flows from investing activities include inflows and outflows of cash related to the acquisition and disposition of long-term
assets
Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? (Select all that apply.) issuance of common stock collection on account interest received on notes receivable borrowing from bank sale of building
collection on account interest received on notes receivable (issuance...financing borrowing...financing building...investing)
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
Net income is a part of
comprehensive income
Total nonowner change in equity.
comprehensive income
Companies have considerable flexibility in reporting income from ( ? ) operations, but the reporting of income from ( ? )operations is strictly mandated
continuing/ discontinuing
The two generally accepted formats for preparing the statement of cash flows under U.S. GAAP are the
direct and indirect method
Revenues, expenses, gains, losses, and income tax related to a(n) ( ? / ? ) must be removed from continuing operations and reported separately on the income statement.
discontinued operation
The DuPont framework shows that return on equity can be calculated by multiplying which ratios? equity multiplier return on equity asset turnover profit margin gross margin
equity multiplier asset turnover profit margin
When a transaction is recorded incorrectly or is not recorded at all, this is treated as an accounting
error
A change in depreciation method is treated as a change in accounting ( ? ) that is achieved by a change in accounting ( ? ) .
estimate / principle
The outflows of resources incurred while generating revenue are referred to as
expenses
Margot Company prepares its financial statements consistent with IFRS. The company chose the revaluation method for valuing its equipment. The company will report revaluation surplus if the equipment's
fair value exceeds its book value
The type of activities related to the external financing of the company are _____ activities.
financing
Related to the external financing of the company
financing activities
The statement of cash flows classifies all cash inflows and outflows into one of the three categories payment of principal on notes payable
financing activities
An income statement prepared in accordance with IFRS allows expenses to be classified by (Select all that apply.) Multiple select question. function. size. due date. nature.
function nature
Which of the following is an increase in equity from a peripheral or incidental transaction that is included in income from continuing operations?
gain
Which of the following information must be included in the notes to the financial statements regarding discontinued operations?
identity major classes of assets and liabilities major revenue and expenses continuing pretax income or loss from operations reason for the discontinuance expected manner of disposition if held for sale
Any long-lived asset, whether tangible or intangible, should have its balance reduced if there has been a significant ( ? ) of value
impairment/ decrease
Which of the following are acceptable methods for reporting comprehensive income?
in two consecutive statements - income statement and comprehensive income statement In one single statement of comprehensive income
Gains and losses are increases or decreases in equity from which type of transactions? (Select all that apply.) Multiple select question. Incidental Causal Peripheral Primary
incidental peripheral
Janex Company manufactures refrigerators. Which of the following items would likely be included in the determination of nonoperating income on Janex's income statement? interest expense general and administrative expenses manufacturing overhead cost of goods sold
interest expense
Which of the following items may be included in nonoperating income for a company that manufactures televisions? (Select all that apply.)
interest income gain from sale of land
The classifications on the statement of cash flows are cash flows from
investing, operating, and financing
Calculating and monitoring the average collection period over time can be useful because
it can signal a future increase in bad debts. it highlights changes in how efficiently a company collects cash from customers
The advantages of a multiple-step income statement is (Select all that apply.) it reports the relationships between various items. it reports expenses by function. it provides more information than a single-step income statement. it is simpler to prepare than a single-step income statement.
it reports the relationships between various items. it reports expenses by function. it provides more information than a single-step income statement.
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
The profit margin ratio measures the company's ability to withstand either _______ expenses or _______ revenues.
lower; higher
Income smoothing describes the concept that
managers manipulate the pattern of income to not vary much between years.
The numerator on all profitability ratios is
net income
In calculating basic earnings per share, ______ is divided by the weighted average common shares outstanding.
net income less any preferred stock dividends
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 issuance of bonds Payment of salaries purchase of building purchase of supplies on account
payment on accounts payable Payment of salaries (Purchase of supplies on account- financing...???
The more frequently a company incurs restructuring costs, the more appropriate it is for financial statement users to include those costs in estimates of company's ( ? ) earnings when forecasting future performance.
permanent
Although U.S. GAAP uses the term net income on the income statement, IFRS uses the terms
profit/ loss
Profit margin on sales, return on assets, and return on shareholders' equity are commonly used
profitability ratios
The Sarbanes-Oxley Act requires that if non-GAAP earnings are included in a report or any public disclosure, the company must
provide a reconciliation with earnings according to GAAP.
When a company voluntarily changes its inventory method from LIFO to FIFO, GAAP typically requires that this change be accounted for
retrospectively
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 reported as components of operating income for most manufacturing and merchandising companies? (Select all that apply.)
revenues selling expenses administrative expenses
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
Which of the following terms is also used as a heading for an income statement?
statement of operations/ statement of earnings
The purpose of an income statement is to
summarize the profit-generating activities that occurred during a particular reporting period.
In looking at earnings quality, analysts try to separate a company's ( ? ) earnings effects from its ( ? ) earnings.
temporary permanent
Nonoperating items that are not expected to continue into the future are considered a ______ component of earnings and should be __________ when forecasting future performance.
temporary; excluded
The average collection period is an estimate of
the number of days the average account receivable balance is outstanding.
Net income using the multiple-step income statement presentation is ____ net income using the single-step income statement presentation.
the same as
Gains and losses from the sale of investments can affect earnings quality because
they are often nonrecurring.
If a company pays termination benefits in a restructuring and future service is not required, the restructuring costs should be recognized:
when the company communicates the arrangement to employees
Roger Corporation reports accumulated other comprehensive income of $10 million at 12/31/16. For the year ended 12/31/17, the company reports net income of $12 million and total comprehensive income of $15 million. On 12/31/17, Roger Corporation should report accumulated other comprehensive income of:
$13 million Reason: beginning AOCI + OCI for 2017 ($10 mill. + ($15 - 12 mill). ($15 million includes net income, which increase retained earnings)
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?
$36,000 loss Reason: ($20,000 - 80,000) x (1-.40) = $36,000 loss.
Marston has the following information: Sales $120,000 Cost of goods sold 80,000 Tax expense 5,000 Operating expenses 20,000 Total assets 500,000 Accounts receivable 25,000 What is Marston's profit margin?
12.5% net sales=$120,000-expenses=15000 15,000/120,000= 0.125
Lim Company has the following information: Profit margin 4% Asset turnover 1.4 Average total assets $600,000 Average total liabilities $400,000 Average total equity $200,000 What is Lim's return on equity?
16.8%
Mint Corp. has net credit sales of $300,000 for year 2. Mint has the following information in its accounting records: Accounts receivable End of Year 1 $ 50,000 End of Year 2 $ 70,000 Inventory End of Year 1 $80,000 End of Year 2 $120,000 Total assets 400,000 500,000 The receivables turnover ratio is
5 net credit sales $300,000 / average receivables ($50,000+70,000)
Which of the following are significant noncash activities? (Select all that apply.) Acquiring land by issuing common stock. Acquiring equipment by issuing a long-term note. Selling land. Issuing common stock for cash.
Acquiring land by issuing common stock. Acquiring equipment by issuing a long-term note.
Required disclosure for publicly traded corporation
Earnings Per Share
Which statements about the inventory turnover ratio are correct? (Select all that apply.) It indicates how quickly inventory is sold. The lower the ratio, the quicker a company sells its inventory. It shows the number of times the average inventory balance is sold during a reporting period. A high ratio suggests a high inventory level.
It indicates how quickly inventory is sold. It shows the number of times the average inventory balance is sold during a reporting period.
Correction of a material error of a period
Prior period adjustment
The purpose of the statement of cash flows includes
Provide information about cash disbursements during a period. Provide information about cash receipts during a period. (not a specific date)
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 Asset turnover ratio Average collection period Gross profit margin
Receivable TO ratio Average collection period
True or false: The single-step and the multiple-step formats are most commonly used in income statement preparation; however, there are no specific standards on how income from continuing operations must be displayed.
True These 2 methods are most common, but GAAP does not dictate any certain methods.
The receivables turnover ratio offers an indication of how quickly a company is able to
collect its accounts receivable.
Starts with net income and works backwards to convert to cash.
indirect method
Carol Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $100,000 and $160,000, respectively. The component was sold with a resulting gain of $200,000. 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?
$84,000 gain The loss from operating the component is $100,000 - 160,000 = -$60,000. The loss from operating the discontinued operation is then netted against the gain on sale of the discontinued operations -$60,000 + $200,000 = $140,000. The gain net of tax is $140,000 x (1 - 0.40) = $84,000.
Powell Company has the following information for year 2: Net sales $200,000 Gross profit 80,000 Net income 40,000 Powell's balance sheet had the following balances: End of Year 1 End of Year 2 Total current assets $ 50,000 $ 70,000 Total noncurrent assets 150,000 230,000 Total owners equity 60,000 80,000 What is Powell's return on assets for year 2?
16% Reason: Net income/average total assets $40,000/(($200,000 + $300,000)/2)
Compute the inventory turnover ratio using the following information: Net sales is $100,000 for the year, costs of goods sold are $40,000, 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. Inventory changed from $30,000 last year to $10,000 this year.
2 Reason: Cost of goods sold/average inventory = $40,000/[($30,000 + 10,000)/2] = 2
Linden has the following information: Sales $100,000 Cost of goods sold 60,000 Operating Expenses 10,000 Total assets 700,000 Accounts receivable 30,000 Assuming that the company has no interest or tax expense, what is Linden's profit margin?
30% Profit margin= net income / sales net income = sales - CGS - expenses 100,000-60,000-10,000=30,000 30/100 = 0.3
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 direct write-off method to allowance method. Change from aging method to percent-of-credit sales method for bad debts. Change from percent-of-completion to completed contract method.
Change from LIFO to FIFO. Change from percent-of-completion to completed contract method. ( Change from direct write-off method to allowance method. Reason: The direct write-off method is not acceptable for GAAP; therefore, this would be a correction of an error.) ( Change from aging method to percent-of-credit sales method for bad debts. Reason: Changing the way bad debt expense is calculated is a change in accounting estimate.)
Which of the following situations qualifies for treatment as a change in accounting principle? (Select all that apply.) Change to a new standard issued by the FASB. Change from aging method to percent-of-credit sales method for bad debts. Change in revenue recognition methods. Change in inventory methods.
Change to a new standard issued by the FASB. Change in revenue recognition methods. Change in inventory methods. ( Change from aging method to percent-of-credit sales method for bad debts. is not / Reason: Changing the way bad debt is expensed is a change in accounting estimate.)
Which type of activities involve cash inflows and outflows from transactions with creditors and owners?
Financing
The statement of cash flows classifies all cash inflows and outflows into one of the three categories Issuance of common stock for cash
Financing activities
The statement of cash flows classifies all cash inflows and outflows into one of the three categories payment of cash dividends to shareholders
Financing activities
Which of the following are accounting errors? (Select all that apply.) Forgetting to accrue salary expense. Making a mistake in calculating depreciation expense. Changing from LIFO to FIFO. Using a different depreciation method.
Forgetting to accrue salary expense. Making a mistake in calculating depreciation expense.
Expenses reported on an income statement can be classified by nature or by function under these accounting standards.
IFRS
Which information regarding the receivable turnover ratio is true? (Select all that apply.) It shows the number of days it takes to collect accounts receivable. 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. The lower the ratio, the better the company is performing.
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.
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. ( not require to include a note to the financial statements not report the error to the authorities)
Categorizing operating expenses as nonoperating expenses is an example of
income statement classification shifting.
Non-GAAP earnings are
management's estimates and view of earnings.
Which of the following are acceptable ways of implementing a FASB mandated change in accounting principle? (Select all that apply.) Apply the new standard in the current period and all future periods with no change to prior financial statements. Apply the new standard beginning the following period with no change to prior 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 to all periods presented in the financial statements.
Apply the new standard in the current period and all future periods with no change to prior financial statements.( 3.prospective approach) 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.(2. Modified retrospective approach) Apply the new standard to all periods presented in the financial statements.(1. Retrospective approach)
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. ( Don't have to include a note to the financial statements)
