ACCT 310 Exam 3

What is found when you add "other revenues and gains" and subtract "other expenses and losses" from Operating Profit?

Income from Continuing Operations Before Tax

What do you subtract from "Income before continuing operations before tax" to get income from continuing operations?

Income tax (tax rate x income from cont. op b/tax)

How is net sales calculated?

total gross sales - sales returns - sales allowances - sales discounts ==================== Net sales

Limitations of the income statement

1. certain items that affect the value of the company may not be recorded in the income statement 2. certain items that cannot be measured with reliability may not be recorded 3. income numbers are affected by the selection of accounting methods 4. income numbers are affected by the use of estimates or judgment

What are the three uses of the income statement?

1. evaluate past performance 2. predicting future performance 3. help assess the risk of achieving future cash flows

On a single-step income statement, is gross profit reported?

No; gross profit is only reported on the multi-step income statement

Which of the following accounts should be reported as general and administrative expenses? a. accounting and legal fees b. freight-in c. freight-out d. officers' salaries e. insurance f. sales representatives' salaries

a, d, and e

Which of the following is not included in the operating section of a multi-step income statement? a. income tax expense b. sales c. cost of goods sold d. administrative expenses

a. income tax expense

Which of the following is not a selling expense? a. office salaries expense b. advertising expense c. freight-out d. store supplies consumed

a. office salaries expense

What are inflows of assets or settlements of liabilities resulting from the delivery of goods or services that are part of the entity's ongoing operations? a. revenues b. expenses c. gains d. losses

a. revenues

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

b. an amount after continuing operations

Which of the following items will not appear in the retained earnings statement? a. prior period adjustment b. discontinued operations c. dividends d. net loss

b. discontinued operations

Unusual and infrequent gains and losses a. are reported net of tax b. include restructuring charges c. include the elimination of a component of the business d. include restructuring charges and are reported net of tax

b. include restructuring charges

Which of the following would not be included under the operating section of a multi-step income statement? a. net sales b. income tax expense c. salaries and wage expense d. cost of goods sold

b. income tax expense

Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles? a. on the face of the balance sheet b. on the face of the income statement c. on the face of the statement of retained earnings d. in the footnotes to the financial statements

b. on the face of the income statement

Income statement items found on a multiple-step income statement include all of the the following except a. income tax expense b. prepaid expenses c. gross profit d. income from operations

b. prepaid expenses

How is cost of goods sold calculated?

beginning inventory + purchases - purchase returns and allowances - purchase discounts + transport in ================================== goods available for sale - ending inventory ================================== cost of goods sold

What type of expense contains the expenses that are directly related to the company's efforts to sell products or services, and all expenses directly related to sales activities? a. sales and revenue section b. cost of goods sold section c. selling expenses d. administrative and general expenses

c. selling expenses

A multi-step income statement a. highlights certain intermediate components of income that analysts use to compute ratios for assessing the performance of the company b. separates operating transactions from nonoperating transactions c. matches costs and expenses with related revenues d. all of these answer choices are correct

d. all of these answer choices are correct

Prior period adjustments are reported as: a. an addition to net income in the income statement b. an addition to the ending balance of retained earnings c. an unusual gain or loss item in the income statement d. an addition to the beginning balance of retained earnings

d. an addition to the beginning balance of retained earnings

Which of the following would not appear in the non-operating section of the multi-step income statement? a. gain from sale of assets b. loss from the effect of a strike c. loss from casualties d. depreciation on store equipment

d. depreciation on store equipment

Limitations of the income statement include all of the following except a. it provides a basis for predicting future performance b. companies omit items from the income statement that they cannot reliably measure c. income measurement involves judgement d. income numbers are affected by the accounting methods employed

d. income numbers are affected by the accounting methods employed

Which of the following is an example of an unusual or infrequent gain or loss? a. net income attributable to noncontrolling shareholders b. dividends declared c. interest expense d. write-downs of receivables, inventories, properties

d. write-downs of receivables, inventories, properties

The nonoperating section contains which of the following a. other revenues b. other expenses c. Interest revenues d. interest expense e. all of these

e. all of these

How do you find the gross profit ratio?

gross profit/net sales

how do you find the return on assets?

net income / average total assets

how do you find the return on equity?

net income / average total equity

how do you find earnings per share?

net income / number of shares of common stock

How do you find profit margin percentage?

net income/sales

How do you calculate gross profit on a multi-step income statement?

net sales - cost of goods sold

what is an expense?

outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations

What two sections are included in a single-step format income statement?

revenues - expenses

What is the difference between gains and revenues and losses and expenses?

revenues and expenses result from the "normal" operating activities of the business. Gains and losses result from "peripheral" or non-operating activities