Accounting Chapter 4

A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to: a. beginning retained earnings of the earliest period presented. b. stockholders' equity of the period in which the change occurred. c. net income of the period in which the change occurred. d. comprehensive income for the earliest period presented.

A

Comprehensive income includes all of the following except a. investments by owners. b. losses on disposal of assets. c. dividend revenue. d. unrealized holding gains.

A

The income statement provides investors and creditors with information to predict all of the following except the: a. sources of future cash flows. b. timing of future cash flows. c. uncertainty of future cash flows. d. amount of future cash flows.

A

Which of the following items will not appear in the retained earnings statement? a. Discontinued operations b. Net loss c. Prior period adjustment d. Dividends

A

If plant assets of a manufacturing company are sold at a gain of $1710000 with related taxes of $536000, and the gain is not considered unusual or infrequent, the income statement for the period would disclose these effects as a. operating income net of applicable taxes, $1174000. b. a gain of $1710000 and an increase in income tax expense of $536000. c. a prior period adjustment net of applicable taxes, $1174000. d. a discontinued operations gain net of applicable taxes, $1174000.

B

The accountant for the Lintz Sales Company is preparing the income statement for 2017 and the balance sheet at December 31, 2017. The January 1, 2017 merchandise inventory balance will appear a. only as an asset on the balance sheet. b. only in the cost of goods sold section of the income statement. c. as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet. d. as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

B

The occurrence that most likely would have no effect on 2017 net income is the a. stock purchased in 1999 deemed worthless in 2017. b. correction of an error in the financial statements of a prior period discovered subsequent to their issuance. c. collection in 2017 of a dividend from an investment. d. sale in 2017 of an office building contributed by a stockholder in 1964.

B

Which of the following is an example of managing earnings down? a. Changing estimated bad debts from 3 percent to 2.5 percent of sales. b. Revising the estimated life of equipment from 10 years to 8 years. c. Not writing off obsolete inventory. d. Reducing research and development expenditures.

B

Which of the following is included in comprehensive income? a. Changes in accounting principles. b. Unrealized gains on available-for-sale securities. c. Distributions to owners. d. Investments by owners.

B

A correction of an error in prior periods' income will be reported. In the income statement // Net of tax a. Yes No b. No No c. No Yes d. Yes Yes

C

The income statement reveals a. resources and equities of a firm for a period of time. b. net earnings (net income) of a firm at a point in time. c. net earnings (net income) of a firm for a period of time. d. resources and equities of a firm at a point in time.

C

Which of the following earnings per share figures must be disclosed on the face of the income statement? a. EPS for income before taxes. b. The effect on EPS from unusual items. c. EPS for income from continuing operations. d. EPS for gross profit.

C

Which of the following is an example of managing earnings up? a. Writing off obsolete inventory. b. Decreasing estimated salvage value of equipment. c. Underestimating warranty claims. d. Accruing a contingent liability for an ongoing lawsuit.

C

Which of the following items would be reported net of tax on the face of the income statement? a. Change in realizability of receivables b. Unusual gain c. Discontinued operations d. Prior period adjustment

C

The occurrence which most likely would have no effect on 2017 net income (assuming that all amounts involved are material) is the a. sale in 2017 of an office building contributed by a stockholder in 1986. b. settlement based on litigation in 2017 of previously unrecognized damages from a serious accident that occurred in 2015. c. worthlessness determined in 2017 of stock purchased on a speculative basis in 2013. d. collection in 2017 of a receivable from a customer whose account was written off in 2016 by a charge to the allowance account.

D

Watts Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as a. an increase in depreciation expense for the year in which the error is discovered. b. a change in accounting principle for the year in which the error was made. c. a component of income for the year in which the error is discovered, but separately listed on the income statement and fully explained in a note to the financial statements. d. a prior period adjustment.

D

What might a manager do during the last quarter of a fiscal year if she wanted to decrease current annual net income? a. Relax credit policies for customers. b. Pay suppliers all amounts owed. c. Delay purchases from suppliers until after the end of the fiscal year. d. Delay shipments and sales to customers until after the end of the fiscal year.

D

What might a manager do during the last quarter of a fiscal year if she wanted to improve current annual net income? a. Delay shipments to customers until after the end of the fiscal year. b. Delay purchases from suppliers until after the end of the fiscal year. c. Increase research and development activities. d. Relax credit policies for customers.

D

When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as a. a bulk sale of plant assets included in income from continuing operations. b. an extraordinary item c. a prior period adjustment. d. an amount after continuing operations.

D

Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles? a. On the face of the statement of retained earnings (or, statement of stockholders' equity.) b. On the face of the balance sheet. c. In the footnotes to the financial statements. d. On the face of the income statement.

D

Which of the following is true about intraperiod tax allocation? a. Its purpose is to allocate income tax expense evenly over a number of accounting periods. b. It arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return. c. It is required for extraordinary items and cumulative effect of accounting changes but not for prior period adjustments. d. Its purpose is to relate the income tax expense to the items which affect the amount of tax.

D

Which of the following is true of accounting for changes in estimates? a. A company recognizes a change in estimate by making a retrospective adjustment to the financial statements. b. Changes in estimates are considered as errors. c. A company accounts for changes in estimates only in the period of change, even though it affects the future periods. d. Changes in estimates are not carried back to adjust prior years.

D

Which of the following should be reported as a prior period adjustment? Change in Estimated Lives // Mistakes in the Application of of Depreciable Assets // Accounting Principles a. Yes No b. No No c. Yes Yes d. No Yes

D

The major elements of the income statement are a. revenues, expenses, gains, and losses. b. revenue, cost of goods sold, selling expenses, and general expense. c. operating section, nonoperating section, discontinued operations, and cumulative effect. d. revenues, irregular items, and general expenses.

a