Chapter 4 Learn Smart

Tax expense is $100,000 for the period. The beginning balance in taxes payable is $20,000, and the ending balance is $14,000. What is the amount of taxes paid during the period?

$106,000

The formula for average collection period is

365 divided by the receivable turnover ratio.

When net income and comprehensive income are identical for all years presented in a company's income statement, which of the following is true?

A statement of comprehensive income is not required.

If a discontinued operation is held for sale and there is an impairment loss, what are the acceptable methods for disclosing the impairment loss?

As a disclosure note in the notes to the financial statements. Parenthetically on the face of the income statement in discontinued operations.

Which type of change requires a justification in the notes to the financial statements

Change in depreciation method

Which type of change requires a justification in the notes to the financial statements?

Change in depreciation method

Which of the following changes are treated on a prospective basis because the change affects the current period and future periods?

Change in estimaite

When a company discovers an immaterial error in a year subsequent to the year the error is made, what is the proper course of action?

Correct the error in the year discovered.

Which of the following is required to be disclosed on the face of a public company's income statement?

Earnings per share

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

Where on the income statement is income tax expense reported?

In a separate line

Carol Corp. has a component that is a discontinued operations. The component suffered a loss of $60,000. The component was sold for a gain of $200,000. The tax rate is 40%. What is the total income tax effect of the discontinued operations?

Income tax expense of $56,000

_____ from discontinued operations will result in additional income tax expense; _____ from discontinued operations will result in a tax benefit.

Income;Loss

Which information regarding the receivable turnover ratio is true?

It shows the number of times during a period that the average accounts receivable balance is collected. It provides an indication of a company's efficiency in collecting receivables.

Which statements about the inventory turnover ratio are correct?

It shows the number of times the average inventory balance is sold during a reporting period. It indicates how quickly inventory is sold.

Additional details about discontinued operations, whether sold or held for sale, are provided in the____. to the financial statements

Notes

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

Peripheral Incidental

What costs include costs associated with shutdown or relocation of facilities?

Restructuring

How does GAAP typically require that voluntary changes in accounting principle be accounted for?

Retrospectively

Crimson Corp. has a component that is a discontinued operation. The component incurred a loss from operations of $40,000. The component was sold with an additional loss of $160,000. The tax rate is 30%. What is the income tax effect for the discontinued operation?

Tax benefit of $60,000

The evidence that a financial statement user or analyst might use as evidence to suggest that earnings have been smoothed is

earnings have a steady stream over time.

What basis is used for estimated restructuring costs?

fair value

Margot Company prepares its financial statements consistent with IFRS. The company chose the revaluation method for valuing its equipment. The company will report revaluation surplus if the equipment's

fair value exceeds its book value

A ____loss is reported if a discontinued operation is held for sale and the book value of the assets is more than the fair value minus cost to sell.

impairment

Any long-lived asset, whether tangible or intangible, should have its balance reduced if there has been a significant ___ of value

impairment

loss is reported if a discontinued operation is held for sale and the book value of the assets is more than the fair value minus cost to sell.

impairment

Earnings per share is disclosed at the bottom of the____ ____

income statement

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.

multiple-step

The more frequently a company incurs restructuring costs, the more appropriate it is for financial statement users to include those costs in estimates of ____ earnings when forecasting future performance

permanent

The accounting treatment required for a material error in financial statements that have already been issued is to

restate the financial statements of the previous periods affected.

A company prepares its income statement by listing all sources of revenues and gains at the top, followed by a list of all expenses and losses. Which income statement approach does this describe?

single-step

The reason for adding back net of tax interest expense to the ROA numerator is that

total assets are financed with both debt and equity capital

True or false: Net cash flows from financing activities, represents the total inflows minus the total outflows of cash from financing activities.

true

Lamb Corp. has the following information: Net income $140,000 Preferred dividends $40,000 Common stock, beginning of year 400,000 shares Common stock, end of year 600,000 shares What is basic earnings per share?

$0.20 per share

Sales on account are $100,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. What is the cash collected from customers during the period?

$105,000

Which of the following is a routine change in estimate that does not require a disclosure note if the amount is not material?

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

Which of the following situations qualifies for treatment as a change in accounting principle?

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

What represents the costs of providing goods and services to customers?

Expenses

True or false: Net cash flows from investing activities represents the total inflows plus the total outflows of cash.

False

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

IFRS

Which of the following would most likely affect earnings quality?

Losing a major customer. Accelerating revenue recognition

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

Loss

Which implementation of a mandated change in accounting principle applies to the adoption period and future periods with an adjustment to the beginning balance of retained earnings?

Modified retrospective approach

Which of the following are acceptable methods of presenting the income statement?

Multiple-step format Single-step format

What is the formula for the profit margin ratio?

Net income divided by net sales.

When a component that qualifies as a discontinued operation is held for sale, what are the two elements that may be reported in discontinued operations?

Operating income or loss of the component during the reporting period. Estimated impairment loss expected from the sale of the component.

Which of the following is a category of accounting change?

Reporting entity

The ____ - ___ Act established a requirement that a if a company includes non-GAAP earnings in any report filed with the SEC or any public disclosure or press release, it must also provide a ____ with earnings determined according to GAAP.

Sarbanes Oxley; reconciliation

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

Statement of cash flows

What does the inventory turnover ratio measure?

The average number of times inventory is sold during a period.

Prague Company has sales of $1,000,000 each year, but the average collection period has increased from 45 days to 65 days. What are the most likely reasons for the change in average collection period?

The company has become more lax in its credit policies and is extending credit terms to maintain customers. Customers are not paying in a timely manner.

Which of the following information must be included in the notes to the financial statements regarding discontinued operations?

The major classes of assets and liabilities of the component. The identity of the component. The reason for the discontinuance.

Other comprehensive income is reported in the current reporting period on the income statement or as an addition to the income statement, and_____ other comprehensive income is reported on the balance sheet.

accumulated

Changes in accounting estimates are reflected in the financial statements of the ___ period and ___ periods

current;future

If a company owns multiple lines of business in different areas such as cable TV, film entertainment, networks, and publishing, and decides to sell a specific unit, the resulting gain or loss would most likely be classified as a(n)______ on the income statement.

discontinued operation

Two items that are treated differently on the statement of cash flows for U.S. GAAP and IFRS are

dividends. interest.

The profit margin ratio indicates the amount of net income achieved for

each dollar of sales.

A gain from discontinued operations will result in an income tax ____, whereas a loss from discontinued operations will result in an income tax _____.

expense;benefit

The outflows of resources incurred while generating revenue are referred to as

expenses

Under IFRS, if the revaluation option is chosen, the excess of the fair value of property, plant and equipment over its book value is reported as

other comprehensive income

For financing activities, a cash ______ occurs when a company purchases its own securities as treasury stock; a cash ______ occurs when a company issues stock for cash to investors

outflow; inflow

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

profitability

Which of the following are cash outflows from financing activities?

repayment of note payable payment of dividends

Mint Corp. has net credit sales of $300,000 for year 2. Mint has the following information in its accounting records: End of Year 1 End of Year 2 Accounts receivable $ 50,000 $ 70,000 Inventory 80,000 120,000 Total assets 400,000 500,000 The receivables turnover ratio is

5

The formula to compute the receivables turnover ratio is net credit sales divided by

average accounts receivable

Asset turnover ratio is net sales divided by

average total assets.

Return on assets is calculated as net income divided by

average total assets.

The direct method for preparing the statement of cash flows reports

cash received and cash paid from operating activities.

The two types of adjustments to net income for the indirect method are adjustments for

changes in operating assets and liabilities during the period that affected cash and were not in net income. components of net income that do not affect cash.

The receivables turnover ratio offers an indication of how quickly a company is able to

collect its accounts receivable.

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

collection on account interest received on notes receivable

The formula for the inventory turnover ratio is

cost of goods sold divided by average inventory.

Profitability, as measured by return on assets, can be achieved by

high asset turnover high profit margin

The profit margin ratio measures the company's ability to withstand either _______ expenses or _______ revenues.

higher; lower

Categorizing operating expenses as nonoperating expenses is an example of

income statement classification shifting.

When a company uses a special charge such as restructuring costs and shows a loss on the income statement, income may be manipulated through

income statement classification shifting.

When a discontinued operation is sold before the end of the reporting period, the ____ or____ from operations and the gain or loss on the disposal of assets is included in the reported income

income;loss

Which of the following methods for preparing the statement of cash flows begins with net income and works backward to calculate net cash flow from operating activities?

indirect method

In preparing the operating section of the statement of cash flows, the ______ method begins with net income and adjusts for items that affect cash but are not included in net income, whereas, the____ method converts each line item in income from operations to a cash basis.

indirect;direct

The statement of cash flows is useful because

it reveals the company's ability to generate positive cash flow from its normal operations it provides information about liquidity accrual-based income is not an indication of cash flows

The inflows and outflows of cash that result from activities reported in the income statement are classified as cash flows from

operating activities

The purchase of a long-term investment is a cash ______ from investing activities; sale of a long-term investment is a cash ______ from investing activities.

outflow; inflow

To calculate the return on equity from resources provided by common shareholders___, stock should be excluded from the denominator.

preferred

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

present value

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

prior period adjustment.

Beagle Corp. has the following information: Net income $250,000 Preferred dividends $50,000 Common stock, beginning of year 1,000,000 shares Common stock, end of year 1,500,000 shares What is basic earnings per share?

$0.16 per share

Roger Corporation reports accumulated other comprehensive income of $10 million at 12/31/16. For the year ended 12/31/17, the company reports net income of $12 million and total comprehensive income of $15 million. On 12/31/17, Roger Corporation should report accumulated other comprehensive income of:

$13 million

Crimson Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $200,000 and $240,000, respectively. The component was sold with a resulting loss of $160,000. The tax rate is 30%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement?

$140,000

Sales on account are $200,000. Cash sales during the period are $50,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. What is the total cash collected from customers during the period?

$240,000

Regal Corporation has a component that is a discontinued operation. The revenues and expenses of the component were $120,000 and $100,000 respectively. The component was sold with a resulting loss of $80,000. The tax rate is 40%. What is the total gain or loss on discontinued operations (net of tax effects) that will be reported on the income statement?

$36,000 loss ($20,000 - 80,000) x (1-.40)

Music Corp. has the following information: Issue common stock $100,000 Pay dividend 20,000 Purchase building 100,000 Collect from customers 50,000 Repay loan from bank 30,000 What is the net cash flow from financing activities? Multiple choice question.

$50,000

Salary expense is $50,000 for the period. The beginning balance in salaries payable is $5,000, and the ending balance is $3,000. What is the amount of salaries paid during the period?

$52,000

Ranier Corp. has the following information: Sale of building $100,000 Sales on account 40,000 Purchase of land 30,000 Collection from customers 50,000 Issue of stock 30,000 What is the net cash flow from investing activities? Multiple choice question.

$70,000

Carol Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $100,000 and $160,000, respectively. The component was sold with a resulting gain of $200,000. The tax rate is 40%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement?

$84,000 gain

Colter Corp. has the following information: Sale of land $10,000 Purchase of inventory 20,000 Purchase of building 100,000 Collection from customers 50,000 Sale of available-for-sale securities 30,000 What is the net cash flow from investing activities?

($60,000)

Compute the asset turnover ratio using the following information: net sales is $100,000 for the year, last year's assets in place were $900,000 and this year's assets in place are $1,100,000. Receivables for both years are $50,000

10%

What is the formula to compute the average days in inventory?

365/inventory turnover ratio

Compute the receivables turnover ratio using the following information: Net credit sales is $200,000 for year 2. Total assets at the end of years 1 and 2 were $800,000 and $1,200,000, respectively. Accounts receivable at the end of years 1 and 2 were $40,000 and $60,000, respectively.

4

Cryon Corp. has the following information: Borrow from bank $100,000 Pay dividend 30,000 Purchase building 50,000 Collect from customers 50,000 Repay loan from bank 30,000 What is the net cash flow from financing activities? Multiple choice question.

40,000

Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?

40.6 days

Braxton has net sales of $1,000,000 and cost of goods sold of $800,000 for year 2. Additional information is shown below: End of Year 1 End of Year 2 Accounts receivable $ 80,000 $ 100,000 Inventory 80,000 140,000 Total assets 3,000,000 3,400,000 What is inventory turnover for year 2?

7.27

Which of the following activities would constitute discontinued operations?

A U.S. cereal manufacturer commits to a plan to dispose of its operations in the EU. A retail company, like Target, sells its financial services (credit card) business.

What is one difference in the reporting requirements between most changes in accounting estimates and a change in depreciation method?

A change in depreciation method requires a disclosure of why the new method is preferred, and the others do not.Fill in the blanks to complete the sentence.

Which of the following are significant noncash activities?

Acquiring equipment by issuing a long-term note. Acquiring land by issuing common stock.

What type of ratios measure a company's efficiency in managing its assets?

Activitity

Which of the following is required to correct a material error in the financial statements?

Adjust the beginning balance in retained earnings for the earliest period presented. Include a disclosure note explaining the impact of the error on income. Restate the financial statements of all years presented.

If a component of the business qualifies for discontinued operations treatment, which of the following statements are true?

All related revenues, expenses, gains, and losses must be removed from continuing operations. The tax expense effect is removed from continuing operations.

Which of the following are acceptable ways of implementing a FASB mandated change in accounting principle?

Apply the new standard in the current period and all future periods with no change to prior financial statements. Apply the new standard to the current and future periods with an adjustment to the beginning balance of retained earnings in the year of adoption. Apply the new standard to all periods presented in the financial statements.

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

Which of the following is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding?

Basic earnings per share

Which accounting standard(s) allow companies to choose between the one and the two statement approach for reporting comprehensive income?

Both U.S. GAAP and IFRS

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

Both tangible and intangible

Which of the following are changes in accounting estimates?

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

What is the formula for the inventory turnover ratio?

Cost of goods sold divided by average inventory.

The ending balance of accumulated other comprehensive income is calculated by adding this amount to the beginning balance of accumulated other comprehensive income.

Current year other comprehensive income

Which of the following are accounting errors?

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

What are increases or decreases in equity from peripheral or incidental transactions?

Gains and Losses

Revaluation surplus is reported as other comprehensive income under

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

Which of the following are acceptable methods for reporting comprehensive income?

In one single statement of comprehensive income in two consecutive statements - income statement and comprehensive income statement

When are restructuring costs recognized on the income statement?

In the period the exit or disposal obligation is incurred.

Revenues, expenses, gains, and losses that will likely continue in future periods make up what?

Income from continuing operations

What is the formula for the asset turnover ratio?

Net sales divided by average total assets.

Management's assessment of permanent earnings are referred to as what?

Non-GAAP earnings

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

A multiple-step income statement includes which of the following?

Operating income Income before taxes Gross profit

When a component has been sold and qualifies for treatment as a discontinued operation, the reported income effects disclosed will include which of the following items?

Operating income or loss for the period and gain or loss on disposal.

A component is qualified as a discontinued operation. What are the two elements that may be reported in discontinued operations on the income statement if the component is not sold by the end of the reporting period?

Operating income or loss from the component and an impairment loss both reported on a net of tax basis.

The purpose of the statement of cash flows includes which of the following?

Provide information about cash disbursements during a period. Provide information about cash receipts during a period.

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

Quality

Which of the following may provide useful information about a company's ability to continue to generate a high level of sales and collect its receivables in a timely manner?

Receivable turnover ratio Average collection period

Select the financial statement ratio that expresses income as a percentage of average total assets

Return on assets

Which of the following are commonly used to assess a company's profitability?

Return on assets Profit margin on sales Return on equity

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

Revenue

When an immaterial error is discovered in the same year it is made before the financial statements are issued, what is the appropriate course of action?

Reverse the erroneous journal entry and record the correct entry.

The direct method and the indirect method are the two acceptable forms of preparing which financial statement?

Statement of cash flows

What 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.

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.

Which of the following is true regarding interim reporting requirements for a discontinued operation?

The income effects of the discontinued component must be separately reported in the quarterly income statement.

At what amount are the assets of a discontinued operation held for sale reported on the balance sheet?

The lower of the book value or fair value less costs to sell.

At what amount are the liabilities of a discontinued operation held for sale reported in the balance sheet?

The lower of the book value or fair value less costs to sell.

True or false: If a component of an entity is considered held for sale at the end of a quarter, the income effects of that component must be separately reported as discontinued operations.

True

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

True

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

Under which of the following conditions is a statement of comprehensive income not required?

When a company has no other comprehensive income items for all years presented.

Activity ratios measure

a company's efficiency in using its assets.

A high inventory turnover ratio could be caused by

a superior sales force. low ending inventory levels.

Which of the following is disclosed on the balance sheet?

accumulated other comprehensive income

When calculating the return on assets, analysts sometimes make the following adjustments to the numerator

add back interest expense, net of taxes

The indirect method of statement of cash flow preparation

adjusts for changes in assets to reconcile the difference between accrual net income and cash paid or received. adjusts for changes in liabilities to reconcile the difference between accrual net income and cash paid or received. adds back depreciation expense because it affects net income but does not reduce cash.

The return on assets expresses income as a percentage of the average total____ available to generate that income.

assets

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

administrative expenses selling expenses revenues

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

asset

The ratio that provides an indication of how efficiently a company utilizes all of its assets to generate revenue is referred to as the___ turnover ratio

asset

The ratio that provides an indication of how efficiently a company utilizes all of its assets to generate revenue is referred to as the___ turnover ratio.

asset

Profit margin multiplied by asset turnover equals return on

assets

Non-GAAP earnings are calculated

based on management's assumptions of permanent earnings

Companies must report comprehensive income in either a single statement of comprehensive income or in two separate statements under

both US GAAP and IFRS

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

Some types of gains and losses are excluded from the determination of net income on the income statement, but are included in the broader concept of____ income

comprehensive

The FASB's expanded view of income is included in___ income

comprehensive

Net income is a part of

comprehensive income

Companies have considerable flexibility in reporting income from ____ operations, but the reporting of income from _____ operations is strictly mandated.

continuing; discontinued

Which of the following are used to calculate diluted earnings per share?

convertible securities options that can be converted to common stock

The direct method for preparing the statement of cash flows ignores transactions that have no cash flow effect, such as

depreciation

The primary purpose of the FASB/IASB convergence project on discontinued operations was to

develop a common set of disclosures develop a common definition of discontinued operations

Public companies report basic earnings per share on their financial statements, but if there are potentially dilutive securities_____, earnings per share must also be disclosed on the income statement.

diluted

In promulgating GAAP for the statement of cash flows, the FASB stated that it prefers the ____method; however, nearly all U.S. companies use the ____method.

direct;indirect

As part of convergence efforts, the FASB and IASB have developed a common definition and common set of financial statement ____ for discontinued operations.

disclosures

As part of convergence efforts, the FASB and IASB have developed a common definition and common set of financial statement____ for discontinued operations

disclosures

Separate reporting as a ____ 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

Revenues, expenses, gains, losses, and income tax related to a(n) ____ ____must be removed from continuing operations and reported separately on the income statement.

discontinued operation

U.S. GAAP requires that a statement of cash flows must be presented for

each period for which a balance sheet and income statement are prepared.

Consistent with IFRS, comprehensive income must be presented in

either one or two statement[s]

Comprehensive income is defined as the total change in ______ for a reporting period other than transactions with owners.

equity

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

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

estimate

A change in depreciation method is treated as a change in accounting ____ that is achieved by a change in accounting ____

estimate; principle

Which of the following items are included in calculating operating income?

expenses & revenues related to primary revenue-generating activities

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.

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

function. nature.

Which of the following is an increase in equity from a peripheral or incidental transaction that is included in income from continuing operations?

gain

In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for

gain from sale of asset. depreciation expense. loss from sale of asset.

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

gain from sale of land interest income

Comprehensive income includes net income as well as other____ & _____ that change shareholders' equity but are not included in traditional net income.

gains & loss

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

include them in the company's permanent earnings stream.

For financing activities, a cash ______ occurs when cash is borrowed from a creditor; a cash ______ occurs when owners receive a dividend.

inflow; outflow

The sale of a building is a cash ____ from investing activities; a loan made to another entity is a cash ______ from investing activities.

inflow; outflow

Sales of services for cash and collection on account are classified as cash ____, while payment on account and payment of salaries are classified as cash ____from operating activities on the statement of cash flows.

inflows;outflows

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

Differences arise between U.S. GAAP and IFRS on the statement of cash flows due to different classifications of____ & _____

interest; dividends

The process of associating income tax effects with the income statement components that create those effects is referred to as ___ tax allocation

intraperiod

The process of associating income tax effects with the income statement components that create those effects is referred to as _____ tax allocation.

intraperiod

Average days in inventory is calculated as 365 divided by the

inventory turnover ratio.

A high inventory turnover ratio indicates that

inventory was sold frequently during the year.

The classifications on the statement of cash flows are cash flows from

investing activities. operating activities. financing activities.

The income tax expense or benefit associated with discontinued operations

is included in the computation of net income. is reported separately from the tax computation for continuing operations.

Calculating and monitoring the average collection period over time can be useful because

it highlights changes in how efficiently a company collects cash from customers it can signal a future increase in bad debt

The advantages of a multiple-step income statement is

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

Income smoothing describes the concept that

managers manipulate the pattern of income to not vary much between years.

The majority of errors discovered are not___ and are corrected in the year discovered.

material

An income statement that classifies items and uses subtotals for gross profit, operating income, and income from continuing operations is called a ___ -step income statement

multiple

The indirect method for preparing a statement of cash flows begins with

net income

The numerator on all profitability ratios is____ ____

net income

The profit margin ratio is defined as___ ___ divided by net sales

net income

Profitability ratios are similar because the profit margin ratio, return on asset ratio, and return on shareholders' equity all use the same

net income in the numerator.

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

net income less any preferred stock dividends

Which of the following are used in the computation of comprehensive income?

net income.

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

Investing activities involve the acquisition and sale of

nonoperating investment assets. long-lived assets used in business operations.

Which of the following ratios are components of the DuPont framework of analyzing return on equity?

profit margin asset turnover

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

profit;loss

The three key components to the DuPont framework include

profitability. activity. financial leverage.

A change in depreciation method is accounted for by

prospectively applying the new method

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.

Significant noncash investing and financing activities are disclosed because they

provide more complete information.

Which of the following ratios are activity ratios?

receivables turnover inventory turnover asset turnover average collection period

The three types of accounting changes are a change in

reporting entity. accounting estimate. accounting principle.

If a company reorganizes its operation to gain efficiency, the cost associated with this reorganization is classified as

restructuring costs.

When a company voluntarily changes its inventory method from LIFO to FIFO, GAAP typically requires that this change be accounted for

retrospectively

An inflow of resources resulting from providing goods or services to customers is a

revenue

The asset turnover ratio provides an indication of how efficiently a company uses all of its assets to generate

revenue

The asset turnover ratio provides an indication of how efficiently a company uses all of its assets to generate___

revenue

Identify which items on an income statement are included in calculating income from continuing operations.

revenue income tax loss

Which of the following cash transactions are classified as cash inflows from investing activities?

sale of investment securities sale of land

The type of income statement that does not classify items as operating and nonoperating is the ______ income statement.

single-step

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows

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

In looking at earnings quality, analysts try to separate a company's _____ earnings effects from its ____ earnings.

temporary;permanent

A prior period adjustment requires an adjustment to

the beginning balance of retained earnings.

The average collection period is an estimate of

the number of days the average account receivable balance is outstanding.

The average collection period is calculated as 365 divided by

the receivable turnover ratio.

Net income using the multiple-step income statement presentation is ____ net income using the single-step income statement presentation.

the same as

The direct method and indirect method of preparing the statement of cash flows result in

the same net cash flows from operating activities. the same presentation of investing and financing activities.

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.

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