ACC 311 Chapter 5 Questions

Which of the following is not an element of the income statement? revenues liabilities expenses gains

B

Which of the following represents the financial position of a company? income statement. balance sheet. statement of cash flows. statement of shareholders' equity.

B

In the accrual approach, net income for a period is measured by which of the following formulas? Net Income = Expenses + Revenues - Gains - Losses Net Income = Revenues - Expenses (ignoring gains and losses) Net Income = Revenues - Expenses + Gains - Losses Net Income = Revenues - Expenses - Gains + Losses

C

The SEC requires registrants to file interim reports on a weekly basis. monthly basis. quarterly basis. annual basis.

C

The income statement may be used to do all of the following except evaluate profitability and assess the return on investment. evaluate management's performance. obtain a snapshot of the company's financial position at a moment in time. assess the company's operating capability and financial performance for the current period.

C

Which of the following is not required of private companies, who may show the information in a supporting schedule or note? income statement. balance sheet. statement of shareholders' equity. none of these choices.

C

In its most basic form, earnings per share is computed by dividing the______ available to common shareholders by the weighted average number of _______ outstanding throughout the year. Diluted earnings per share takes into account potentially dilutive contingent claims on equity.

net income common shares

Revenue is ________________ when received in cash or if it results in the creation of an accounts receivable

realized or is reasonably certain to be realized

Companies typically recognize monetary assets and liabilities using acquisition costs. fair values. historical costs. present values.

D

________ enables users to identify which items on the income statement are growing quickly or slowly over time.

Rate of change analysis

Under the indirect method, the net cash provided by operating activities is determined by reporting net income first, then adjusting net income by_____________

adding back amortization expense.

As a corporate stakeholder, which do you wish to see reflected in the corporation's financial statements? earnings quality earnings management earnings analysis earnings dividends

A

Common-size analysis presents financial statement items as a percentage of a base amount. converts financial statement items to a common currency. is useful only if the companies analyzed are of similar size. may only be used for intercompany comparisons.

A

On the balance sheet, inventories would fall under Current Assets. Property, Plant, and Equipment. Current Liabilities. Long-Term Liabilities.

A

The primary purpose(s) of a statement of cash flows is to: a. Provide relevant information about a company's cash receipts and cash payments during the period. b. Report the resources of a firm and the claims on the firm as of a specific date. c. Inform stakeholders so they can evaluate profitability and assess the return on investment in the company and assess the company's operating capability and financial performance for the current period and over time. d. All of the choices are correct.

A

The purposes of the income statement include all of the following except: a. Report the resources of a firm and the claims on the firm as of a specific date. b. Assess the company's risk. c. Assess the impact of economic factors on a company. d. Compare the company's performance against other companies.

A

Under IFRS, the fair value option is available for a wider set of assets and liabilities. expenses must be classified by relevance and size. alternative performance measures, such as EBITDA, may not be presented. the measurement and presentation of earnings per share are exactly the same as under GAAP.

A

Using the indirect method, depreciation expense would appear on the statement of cash flows in the operating activities section as an addition to reverse out the effects of a non-cash transaction. in the operating activities section as a deduction because it represents a non-cash transaction. in the investing activities because it is related to investments in property, plant, and equipment. in the other activities section, because it is a non-cash transaction.

A

When used with a company's other financial statements, the statement of cash flows helps external users assess all of the following except: a. The company's profitability and the return on investment in the company. b. The company's ability to meet its obligations. c. The company's capital raised from external financing sources and repayments of external financing. d. The differences between the company's net income and associated cash receipts and payments.

A

Which of the following ratios measures a company's liquidity? current ratio and quick ratio. current ratio and inventory turnover ratio. quick ratio and account receivable turnover ratio. all of these.

A

Which of the following ratios provides insights about a company's risk and financial flexibility because it measures the ability to cover the interest charges associated with debt? earnings-based interest coverage return on common equity rate of change analysis gross profit margin

A

______ are recognized on the income statement and create receivables on the balance sheet. The earnings process is ______ , and the future cash receipts are reasonably certain to occur.

A. Accrued revenue B. complete

Management's salaries and most selling and administrative costs are recognized using the _________ because _______.

A. immediate recognition principle B. the costs provide no discernible future benefits.

In which section of the cash flow statement will the following transactions appear? Purchases of goods for sale Operating activity Repayment of loan Financing activity Purchase and sale of fixed assets, eg. plant Investing activity

Answers are below

A company's ability to generate a profit from its operating activities after covering all of its operating costs is indicated by the gross profit margin. operating margin. net profit margin. operating expenses margin.

B

Basic earnings per share (EPS) is used by investors and analysts in evaluating the book value of the company's assets. the value of a share of the company's common stock. the value of a share of the company's preferred stock. the risk factor of the company's dilutive securities.

B

Earnings per share: a. Is disclosed in the footnotes to a company's financial statements. b. Is computed by dividing the net income available to common shareholders by the weighted average number of common shares outstanding throughout the year. c. Reflects the market price a share of the company's stock can be sold for currently. d. All of the choices are correct.

B

The ______ indicates a company's ability to generate revenues and control the costs of producing and delivering its products and services. a. Operating margin. b. Gross profit margin. c. Comprehensive income margin. d. Net profit margin.

B

The amount of income for a period of time that could be distributed to shareholders without depleting the capital shareholders have invested is called comprehensive income. what the capital maintenance concept considers to be the net income. called accrual income. none of these choices.

B

The three major sections of the statement of cash flows are net income, adjustments to net income, and other activities. operating activities, investing activities, and financing activities. indirect activities, investing activities, and operating activities. operating activities, financing activities, and other activities.

B

Which of the following make up cost of goods sold? the cost of inventory available for sale the cost of inventory that was actually sold the operating expenses incurred in generating sales all of these

B

Which of the following statements is incorrect regarding revenues? a. Operating activities that generate revenues are the company’s ongoing primary activities in producing and delivering goods and services to customers. b. Revenues are increases in the net assets of a company from all other events and circumstances during a period except those that result from investments by owners. c. Revenues are increases in assets during a period from delivering or producing goods, rendering services, or other activities that are the company’s ongoing major or central operations. d. Revenues are settlements of liabilities during a period from delivering or producing goods, rendering services, or other activities that are the company’s ongoing major or central operations.

B

Which of the following would not be considered a discontinued operation to be reported separately on the income statement? A company decides to discontinue all retail sales, which have accounted for 30% of its revenues, in its chain of locations and focus only on services. A company decides to close 10 of its 200 store locations due to poor performance at those locations. A manufacturer that produces and sells both lawn mowers and snow blowers has decided to discontinue the production and sale of snow blowers. A business that sells goods as both a wholesaler and a retailer has decided to close all of its retail outlets.

B

Which of the following would not be found on a single-step income statement? revenues gross profit expenses net income

B

All of the following are "other items" reported on a multiple-step income statement after income from operations except interest income. interest expense. depreciation expense. dividend income.

C

Basic earnings per share (EPS) is computed as all earnings divided by all shares of stock. all earnings divided by outstanding shares of common stock. net income available to common shareholders divided by weighted average outstanding shares of common stock. dividends to preferred shareholders divided by weighted average outstanding shares of preferred stock.

C

Financial statement users are interested in segment financial reports because they: Are more timely than annual reports. Provide financial data on a disaggregated basis. Enable to users understand financial performance of a company's operating segments. a. I and III only b. I and II only c. II and III only d. I, II, and III.

C

When a component of a company's operations is classified as held for sale at the end of an accounting period, the component may not be reported as a discontinued operation until sold. the component will be reported on the balance sheet at the higher of its (1) fair value net of any costs to sell or (2) book value. the company may report the difference between the component's (1) fair value net of any costs to sell and (2) book value as a loss from discontinued operations on the income statement. none of these choices apply.

C

Which of the following ratios measures how profitably a company is using its resources? debt-to-assets ratio. debt-to-equity ratio. return on assets. inventory turnover ratio.

C

Which of the following would not appear in the financing activities section of the statement of cash flows? receipts from the issuance of bonds receipts from the issuance of common stock payments for the purchase of factory equipment payments of dividends

C

Which of the following would not be reported on the balance sheet? assets. liabilities. expenses. shareholders' equity.

C

Advance payments from customers for the future performance of services are classified as accrued expenses under Current Assets. accrued expenses under Current Liabilities. deferred revenues under Current Assets. deferred revenues under Current Liabilities.

D

An economic resource must have which of the following characteristics to be considered an asset? probable future economic benefit. acquired through completed transaction by the company. under control of the company. all of these choices.

D

An income statement provides information that is useful to investors, creditors, and other external users. for evaluating financial performance. for predicting future cash flows. for all of these choices.

D

An operating segment is a reporting segment if it passes the revenue test of 10% or more of combined revenues. the profit test of 10% or more of combined profits. the asset test of 10% or more of combined assets. any one of these tests.

D

Differences between IFRS and U.S. GAAP in regard to a company's presentation and content of the income statement include all of the following except a. IFRS prohibit the reporting of items that are unusual in nature and infrequent in occurrence as extraordinary items. b. IFRS terminology may differ, for instance "turnover" can be used to refer to sales. c. The definition of a component of an operation is defined much more broadly under IFRS than under U.S. GAAP. d. IFRS require the multiple-step format for the income statement.

D

IFRS require a multiple-step format of the income statement. a single-step format of the income statement. either the multiple-step or single step format of the income statement. no prescribed income statement format choices.

D

The level 1 input for fair value measurement of an asset is observable market prices for similar assets. quoted prices in active markets for identical assets. estimates and assumptions used to calculate fair value. all of these choices.

D

The statement of shareholders' equity shows beginning balances of the equity accounts. changes in the equity accounts over the accounting period. ending balances of the equity accounts. all of these choices.

D

The tests to determine whether an operating segment is a reportable segment include all of the following except: a. Its segment assets are 10% or more of the combined assets of all operating segments. b. Its reported revenues (including sales to external customers and intersegment sales) are 10% or more of the combined revenues of all the company's operating segments. c. The absolute amount of its profit (loss) is 10% or more of the combined reported profits of all operating segments that did not report a loss. d. Its segment liabilities are 10% or more of the combined liabilities of all operating segments

D

To provide relevant and faithfully represented information about financial performance and income to investors, lenders, and other creditors, the company must: a. Identify the elements that must be recognized in income. b. Decide where to report the elements on the income statement. c. Determine the timing of recognition of income elements. d. All of the choices are correct.

D

Under U.S. GAAP, all of the following are other comprehensive income (loss) except an unrealized gain (loss) in the fair value of available-for-sale investment securities. gains (losses) on derivative financial instruments that hedge future cash flows. translation adjustments from converting the financial statements of foreign subsidiaries into U.S. dollars. none of these options are exceptions.

D

When must a company report the accounting principles and methods it adopts? when there are acceptable alternative choices provided by GAAP. when its principles and methods are unique to its industry. when it adopts unusual or innovative applications of GAAP. all of these choices.

D

When should revenues be recognized? at the point of agreement regarding the transaction price when performance obligations can be identified when payment is received when performance obligations have been satisfied

D

Which of the following equations related to comprehensive income is incorrect? Net Income - Other Comprehensive Loss = Comprehensive Income Comprehensive Income - Other Comprehensive Income = Net Income Net Loss + Other Comprehensive Income = Comprehensive Income (Loss) Net Income - Other Comprehensive Income = Comprehensive Income

D

Which of the following is true of the financial reporting of a company with subsidiaries or reportable segments? The company must prepare consolidated statements. The company must provide disaggregated information about its operating segments. The company must show reconciliations of total revenues, total profit or loss, and total assets of reportable segments to corresponding consolidated totals. all of these choices are true.

D

Which of the following need not be disclosed in the financial statements? an innovative application of GAAP. a contingent gain that is probable and reasonably estimated. the fair values of all financial instruments. a contingent loss that is not probable and not reasonably estimated.

D

Which of these is not a major section of the statement of cash flows? Investing activities Financing activities Discontinued business activities Operating activities

Discontinue business activities

Which of the following items are included in a company's results from discontinued operations? Gain or loss on the sale of the discontinued component. Income or loss from the operations of a discontinued component.

I & II

Which of the following items are included in a company's income from continuing operations? Extraordinary items. Interest expense. Unusual and nonrecurring gains and losses.

II & III