acc ch 4 sb

Which of the following is a category of accounting change? (1) -Asset classification -Accounting structure -Accounting principle -Liability classification

-Accounting principle

Which of the following are significant non-cash activities? (2) 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.

How are discontinued operations reported? (3) -Above income from continuing operations. -As a separate line item on the income statement. -Below income from continuing operations. -With tax on the discontinued operation included in total income tax expense. -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. -With separate reporting of the tax effect on the item of discontinued operations.

Which of the following situations qualifies for treatment as a change in accounting principle? (2) -Change from direct write-off method to allowance method. -Change from percent-of-completion to completed contract- method. -Change from LIFO to FIFO. -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.

Which of the following is a routine change in estimate that does not require a disclosure note if the amount is not material? (2) -Change in depreciation method. -Change in revenue recognition method. -Change in depreciable lives. -Change in estimate for uncollectible accounts.

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

Which of the following situations qualifies for treatment as a change in accounting principle? (3) -Change in inventory methods. -Change in revenue recognition methods. -Change from aging method to percent-of-credit sales method for bad debts. -Change to a new standard issued by the FASB.

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

Which of the following are changes in accounting estimates? (3) -Changing inventory methods. -Changing the useful life of an asset. -Changing the estimate for future warranty expenses. -Changing the bad debt estimate.

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

Which of the following are accounting errors? (2) -Using a different depreciation method. -Forgetting to accrue salary expense. -Changing from LIFO to FIFO. -Making a mistake in calculating depreciation expense.

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

Which of the following are commonly used to assess a company's profitability? (3) -Return on equity -Current ratio -Profit margin on sales -Quick ratio -Return on assets

-Return on equity -Profit margin on sales -Return on assets

Match each company to the type of revenue it receives: -ABC Tax Advisors -Best Buy

-Service Revenue -Sales Revenue

Which of the following terms are used to describe an income statement? (2) -Statement of Earnings -Statement of Operations -Statement of Changes in Financial Position -Statement of Business Activities

-Statement of Earnings -Statement of Operations

Which of the following terms is also used as a heading for an income statement? (1) -Statement of Cash Flows -Statement of Performance Indicators -Statement of Operations -Statement of Business Activities

-Statement of Operations

Which of the following items are reported as components of operating income for most manufacturing and merchandising companies? (3) -interest expense -administrative expenses -selling expenses -revenues

-administrative expenses -selling expenses -revenues

Which of the following items are included in calculating operating income? (2) -expenses related to peripheral activities -expenses related to primary revenue-generating activities -revenues related to primary revenue-generating activities -revenues related to peripheral activities

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

In order to provide more complete information, U.S. GAAP allows that any significant non-cash investing and financing activities may be reported (2) -in other comprehensive income. -in the notes to financial statements. -on the face of the statement of cash flows. -in the statement of owners' equity.

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

The statement of cash flows is useful because (2) -it reveals the company's ability to generate positive cash flow from its normal operations -it provides information about liquidity -it provides a more accurate prediction of the company's ability to generate future cash flows than income does

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

Investing activities involve the acquisition and sale of (2) -inventories sold in normal operations. -non-operating investment assets. -long-lived assets used in business operations.

-non-operating investment assets. -long-lived assets used in business operations.

The classifications on the statement of cash flows are cash flows from (3) -operating activities. -financing activities. -discontinued activities. -business activities. -investing activities.

-operating activities. -financing activities. -investing activities.

Income tax expense is reported in what way on the income statement?

As a separate line item.

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

Balance sheet

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

False (Reason: Income tax expense must be disclosed as a separate line item on the income statement.)

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

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

Statement of Cash Flows

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

True (Reason: Comprehensive income includes gains and losses that are required to be measured but GAAP does not allow to be reported in the determination of net income.)

True or false: Reporting comprehensive income can be done with a single, continuous statement or in two separate, but consecutive statements.

True (Reason: GAAP allows one income statement that includes comprehensive income or a separate statement.)

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 (Reason: These 2 methods are most common, but GAAP does not dictate any certain methods.)

The statement of cash flows is useful because

accrual-based income is not an indication of cash flows.

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

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

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

Separate reporting as a(n) __________ operation is required when the disposal of a component represents a strategic shift that has, or will have, a major effect on a company's operations and financial results

discontinued

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

error

A change in the residual value of a depreciable asset is treated as a change in accounting _________

estimate

The three types of accounting changes are a change in accounting principle, a change in accounting ___________, and a change in reporting _____________.

estimate; entity

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

financing

The type of activities related to the external financing of the company are ________ activities.

financing

A change in accounting principle is a change

from one acceptable accounting method to another.

Where on the income statement is income tax expense reported?

in a separate line

Cash flows from ___________ activities are related to the purchase and sale of long-term assets used in business operations.

investing

Inflows and outflows of cash related to the acquisition and disposition of long-lived assets used in operations and investment assets are what type of cash flow?

investing

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

net income less any preferred stock dividends

Discontinued operations should be reported on the income statement

net of tax below income from continuing operations.

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

net; comprehensive

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

operating

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

principle

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

prior period adjustment.

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

profit

Significant non-cash investing and financing activities are disclosed because they

provide more complete information.

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

quality

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

revenue

Analyzing earnings quality requires an analyst to

separate a company's temporary and permanent earnings.

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

single; multi

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

temporary; excluded

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.

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

they are often nonrecurring.

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

weighted average common shares outstanding.