Income Statement Ch. 4

Which of the following would most likely affect earnings quality?

Accelerating revenue recognition. Losing a major customer.

_____ long-lived assets should have their balance reduced if there has been a significant impairment of value.

Both tangible and intangible

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

Earnings quality

True or false: Under both U.S. GAAP and IFRS, the "bottom line" of the income statement is typically referred to as net income or net loss.

False Under IFRS, the bottom line is either profit or loss

Expenses reported on an income statement can be classified by nature or by function under these accounting standards.

IFRS

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.

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

Which of the following is a decrease in equity due to an incidental transaction?

Loss

Gains and losses are increases or decreases in equity from which type of transactions?

Peripheral Incidental

If a causal relationship cannot be established between revenues and expenses, which of the following occurs?

Record the expense as incurred. Relate the expense to a particular period. Allocate the expense over several periods.

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.

What basis is used for estimated restructuring costs?

fair value

Which of the following items may be included in nonoperating income for a company that manufactures televisions?

gain from sale of land interest income

If a company frequently uses restructuring charges in its income statement, an analyst should

include them in the company's permanent earnings stream

The advantages of a multiple-step income statement is

it reports expenses by function. it reports the relationships between various items. it provides more information than a single-step income statement.

Non-GAAP earnings are

management's estimates and view of earnings.

An income statement prepared in accordance with IFRS allows expenses to be classified by

nature. function.

The initial measurement of restructuring liabilities is at fair value, which often is estimated as the _____ _____ of estimated future cash outflows

present value

Although U.S. GAAP uses the term net income on the income statement, IFRS uses the terms _____ and _____

profit and loss

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.

_____ 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 are called _______

restructuring costs

Which of the following items are reported as components of operating income for most manufacturing and merchandising companies?

revenues selling expenses administrative expenses

Analyzing earnings quality requires an analyst to

separate a company's temporary and permanent earnings.

The two approaches most commonly used to prepare an income statement are

single-step and multiple-step

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

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