Exam 2 - Ch 4 MC

Barger Enterprises has an unusual or infrequent loss of $300,000, an unusual gain of $700,000, and a tax rate of 30%. At what amount should Barger report each item? Unusual loss Unusual gain 1. (300,000) $700,000 2. (300,000) 490,000 3. (210,000) 700,000 4. (210,000) 490,000

1. (300,000) $700,000 * Unusual and infrequent gains and losses are NOT reported net of tax.

Sawyer, Inc. consistently estimated its bad debt expense at 1 percent of credit sales. In 2017, however, Sawyer determines that it must revise upward the estimate of bad debts for the current year's credit sales to 2%, or double the prior years' percentage. Sawyer uses the revised estimate of 2% and calculates bad debt expense of $500,000. How is the change in the estimated bad debt expense reported in Sawyer's 2017 financial statements? A. $500,000 of expense in the income statement and $500,000 as a contra asset in the balance sheet. B. $500,000 of expense and $500,000 as an unusual loss in the income statement. C. $500,000 of expense in the income statement as an ordinary item, $500,000 of expense reported as an adjustment to the beginning balance of retained earnings (net of tax). D. $500,000 of expense reported as a change in accounting principle and accounted for under the retrospective approach.

A. $500,000 of expense in the income statement and $500,000 as a contra asset in the balance sheet.

Companies are required to highlight certain items in the financial statements so that users can better determine the long-run earning power of the company. Which of the following is not one of those items? A. Changes in accounting principle. B. Noncontrolling interest. C. Discontinued operations. D. Unusual gains and losses.

A. Changes in accounting principle.

Which of the following would be reported in a separate income statement category, separately from continuing operations, on the income statement? A. Discontinued operations. B. Unusual gains. C. Income tax expense. D. Unusual losses.

A. Discontinued operations.

Which of the following is not included in the operating section of a multiple-step income statement? A. Income tax expense. B. Cost of goods sold. C. Sales. D. Administrative expenses.

A. Income tax expense.

Krista Company prepares a consolidated income statement that includes its subsidiary, Edward Co. Krista's income statement shows $23,500 of net income attributable to the noncontrolling interest which is presented as A. an allocation of net income. B. a gain attributable to the noncontrolling interest. C. an expense. D. a dividend.

A. an allocation of net income.

Gains and losses that bypass net income but affect stockholders' equity are referred to as: A. other comprehensive income. B. unusual gains and losses. C. prior period income. D. prior period adjustments.

A. other comprehensive income.

Jackson, Inc. has the following information is available: Cost of goods sold $148,500 Dividend revenue 3,750 Income tax expense 3,000 Operating Expense 79,500 Sales 255,000 In Jackson's's multiple-step income statement, gross profit: A. will be reported at $106,500. B. will not be reported. C. will be reported at $27,000. D. will be reported at $24,000.

A. will be reported at $106,500.

Clair, Inc. reports net income of $700,000. It declares and pays dividends of $100,000 for the year, one-half of which relate to the preferred shares. The weighted-average number of common shares outstanding during the year is 200,000 shares, and the weighted-average number of preferred shares outstanding during the year is 10,000 shares. Earnings per share for Clair, Inc. is (round your answer to the nearest cent): A. $3.00. B. $3.25. C. $2.95. D. $3.18.

B. $3.25.

A change in the method of inventory pricing from FIFO to LIFO would be accounted for as a (an): A. accounting error. B. change in accounting principle. C. part of discontinued operations. D. change in estimate.

B. change in accounting principle.

Unusual and infrequent gains and losses A. include the elimination of a component of the business. B. include restructuring charges. C. include restructuring charges and are reported net of tax. D. are reported net of tax.

B. include restructuring charges.

Earnings per share A. represents the dollar amount paid to stockholders in the form of dividends. B. measures the number of dollars earned by each share of common stock. C. can be reported either on the face of the income statement or in the notes to the financial statement. D. all of these answer choices are correct.

B. measures the number of dollars earned by each share of common stock.

The gain or loss from disposal of a component of a business is shown as a (an): A. prior period adjustment. B. part of discontinued operations. C. unusual gain or loss. D. noncontrolling interest.

B. part of discontinued operations.

The statement of stockholders' equity A. is dated using "As of December 31, 20x7". B. reports the change in each stockholders' equity account and in total stockholders' equity during the year. C. all of these answer choices are correct. D. need not be presented if a company is reporting comprehensive income using the two statement approach.

B. reports the change in each stockholders' equity account and in total stockholders' equity during the year.

Which of the following would be reported as "other comprehensive income"? A. gain from the sale of available-for-sale securities. B. unrealized holding gain on available-for-sale securities. C. correction for understatement of net income in a prior period. D. loss on impairment of an intangible asset.

B. unrealized holding gain on available-for-sale securities.

Josie Corporation reported the following information for 2017: Sales revenue $1,000,000 Cost of goods sold 700,000 Operating expenses 110,000 Unrealized holding gain on available-for-sale securities 40,000 Cash dividends received on the securities 4,000 For 2017, Josie would report comprehensive income of: A. $40,000. B. $194,000. C. $234,000. D. $230,000.

C. $234,000. * Comprehensive Income=Sales revenue - Cost of goods sold - operating expenses + Unrealized holding gain on available-for-sale securities + Cash dividends received on the securities

Reddaway Corporation reports the following information: Net Income $500,000 Dividends on common stock $140,000 Dividends on preferred stock $60,000 Weighted average common shares outstanding $100,000 Reddaway should report earnings per share of: A. $3.60. B. $5.00. C. $4.40. D. $3.00.

C. $4.40.

Which of the following would not represent an accounting error? A. Oversight or misuse of facts that existed at the time financial statements were prepared. B. Mistakes in the application of accounting principles. C. Change in the method of inventory pricing form FIFO to average-cost. D. Mathematical mistakes.

C. Change in the method of inventory pricing form FIFO to average-cost.

Which of the following is charged (net of tax) to the opening balance of retained earnings? A. Discontinued operations. B. Unusual gains/losses. C. Changes in accounting principle. D. All of these answer choices are correct.

C. Changes in accounting principle.

Which of the following occur from peripheral or incidental transactions? A. Cost of goods sold. B. Operating expenses. C. Gain on the sale of equipment. D. Sales revenue.

C. Gain on the sale of equipment.

Which limitation of an income statement occurs when one company uses an accelerated depreciation method while another company uses straight-line depreciation? A. Companies omit from the income statement items they cannot measure reliably. B. Income measurement involves judgment. C. Income numbers are affected by the accounting methods employed. D. All of these answer choices are correct.

C. Income numbers are affected by the accounting methods employed.

Limitations of the income statement include all of the following except: A. Companies omit items from the income statement that they cannot reliably measure. B. Income measurement involves judgment. C. It provides a basis for predicting future performance. D. Income numbers are affected by the accounting methods employed.

C. It provides a basis for predicting future performance.

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. Its purpose is to relate the income tax expense to the items that give rise to the amount of income tax provision. D. It is required for discontinued operations but not for prior period adjustments.

C. Its purpose is to relate the income tax expense to the items that give rise to the amount of income tax provision.

Which of the following statements related to noncontrolling interest is incorrect? A. Noncontrolling interest is sometimes called minority interest. B. Consolidated net income is allocated to the parent and to the noncontrolling interest in proportion to their appropriate percentages of ownership. C. Noncontrolling interest in net income is reported as an expense on the income statement. D. Noncontrolling interest is the portion of equity interest in a subsidiary not attributable to the parent company.

C. Noncontrolling interest in net income is reported as an expense on the income statement.

The occurrence which most likely would have no effect on 20x7 net income (assuming that all amounts involved are material) is the A. worthlessness determined in 20x7 of stock purchased on a speculative basis in 20x4. B. sale in 20x7 of an office building contributed by a stockholder in 20x5. C. collection in 20x7 of a receivable from a customer whose account was written off in 20x6 by a charge to the allowance account. D. settlement based on litigation in 20x7 of previously unrecognized damages from a serious accident which occurred in 20x5.

C. collection in 20x7 of a receivable from a customer whose account was written off in 20x6 by a charge to the allowance account.

The income statement can be used to assess A. liquidity. B. solvency. C. creditworthiness. D. all of these answer choices are correct.

C. creditworthiness.

Expenses include all of the following except: A. taxes. B. depreciation. C. dividends. D. cost of goods sold.

C. dividends.

Classification as an unusual item on the income statement would be appropriate for all of the following except: A. loss from a strike. B. gain from condemnation settlement. C. gain or loss on disposal of a component of the business. D. substantial writedown of obsolete inventories.

C. gain or loss on disposal of a component of the business.

"Other comprehensive income" A. includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. B. is reported pre-tax, with tax expense shown as a separate line item. C. is non-owner changes in equity that bypass the income statement. D. all of these answer choices are correct.

C. is non-owner changes in equity that bypass the income statement.

In the single-step income statement: A. expenses are classified by functions, such as merchandising, selling and administration B. an income from operations figure is presented C. just two groupings exist - revenues and expenses D. interest revenue and rental revenue are reported as other revenues and gains

C. just two groupings exist - revenues and expenses

Income statement items found on a multiple-step income statement include all of the following except: A. gross profit. B. income from operations. C. prepaid expenses. D. income tax expense.

C. prepaid expenses.

Which of the following is not classified as an unusual and infrequent gain or loss? A. Losses from inventory write-downs. B. Flood damage losses to property. C. Impairment losses on intangible assets. D. A discontinued operation.

D. A discontinued operation.

Which of the following items may increase retained earnings? A. Net income. B. Changes in accounting principle. C. Prior period adjustments. D. All of these answer choices are correct.

D. All of these answer choices are correct.

Noncontrolling interest A. Is shown in a separate section of the income statement after discontinued operations, net of tax. B. Is not shown on the face of the income statement. C. Is shown in a separate section of the income statement after continuing operations but before discontinued operations net of tax. D. Is reported as a separate item below net income or loss.

D. Is reported as a separate item below net income or loss.

Which of the following describes an expense? A. Increases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from revenues or investments by owners. B. Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations. C. Decreases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from expenses or distributions to owners. D. 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.

D. 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.

A multiple-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 (or deduction from) the ending balance of retained earnings. B. an addition to (or deduction from) net income in the income statement. C. an unusual gain or loss item in the income statement. D. an addition to (or a deduction from) the beginning balance of retained earnings.

D. an addition to (or a deduction from) the beginning balance of retained earnings.

Companies use intraperiod tax allocation on the income statement for: A. only income from continuing operations. B. neither income from continuing operations nor discontinued operations. C. only discontinued operations. D. income from continuing operations and discontinued operations.

D. income from continuing operations and discontinued operations.

Earnings per share is computed as net income: A. minus preferred dividends divided by the ending common shares outstanding. B. divided by the ending common shares outstanding. C. divided by the weighted average of common shares outstanding. D. minus preferred dividends divided by the weighted average of common shares outstanding.

D. minus preferred dividends divided by the weighted average of common shares outstanding.

The major elements of the income statement are A. revenue, cost of goods sold, selling expenses, and general expense. B. operating section, non-operating section, discontinued operations, and extraordinary items. C. revenue, cost of goods sold, operating expenses, non-operating section. D. revenues, expenses, gains, and losses.

D. revenues, expenses, gains, and losses.

The single-step income statement emphasizes A. discontinued operations more than these are emphasized in the multiple-step income statement. B. the various components of income from continuing operations. C. the gross profit and income from operations. D. total revenues and total expenses.

D. total revenues and total expenses.