FAR Quiz 1 Income Statement

The following information was extracted from the 2017 financial statements of Max Company: Income from continuing operations before income tax $705,000 Selling and administrative expenses 480,000 Income from continuing operations 495,000 Gross profit 1,350,000 The amount reported for other expenses and losses is $210,000 $225,000. $15,000. $165,000.

165,000

Which of the following items would be reported net of tax on the face of the income statement? A. Unusual gain B. Discontinued operations C. Change in realizability of receivables D. Prior period adjustment

Discontinued operations

Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business? A. Earnings per share from continuing operations, discontinued operations, and net income should be disclosed on the face of the income statement. B. The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations. C. The gain or loss on disposal should be reported as an unusual gain or loss. D. Results of operations of a discontinued component should be disclosed immediately before income from continuing operations.

Earnings per share from continuing operations, discontinued operations, and net income should be disclosed on the face of the income statement.

Dividends declared on common and preferred stock are subtracted from net income in the computation of earnings per share. True False

False

Which of the following is not a generally practiced method of presenting the income statement? A. Including gains and losses from discontinued operations of a component of a business in determining net income. B. The consolidated statement of income. C. The single-step income statement. D. Including prior period adjustments in determining net income.

Including prior period adjustments in determining net income.

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

Relax credit policies for customers.

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. Reducing research and development expenditures. C. Not writing off obsolete inventory. D. Revising the estimated life of equipment from 10 years to 8 years.

Revising the estimated life of equipment from 10 years to 8 years.

Companies report the results of operations of a component of a business that will be disposed of separately from continuing operations. True or false

True

Revenues and gains increase both net income and owners' equity. True or false

True

Which of the following would represent the least likely use of an income statement prepared for a business enterprise? A. Use by labor unions to examine earnings closely as a basis for salary discussions. B. Use by investors interested in the financial position of the entity. C. Use by government agencies to formulate tax and economic policy. D. Use by customers to determine a company's ability to provide needed goods and services.

Use by investors interested in the financial position of the entity.

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. an extraordinary item. B. a bulk sale of plant assets included in income from continuing operations. C. an amount after continuing operations. D. a prior period adjustment.

an amount after continuing operations.

Earnings per share should always be shown separately for A. net income and pretax income. B. net income and gross margin. C. income from continuing operations. D. discontinued operations items and prior period adjustments.

income from continuing operations.

Earnings per share data are required on the face of the A. statement of stockholders' equity. B. income statement. C. statement of retained earnings. D. balance sheet.

income statement

The occurrence which most likely would have no effect on 2017 net income (if all amounts involved are material) is the A. collection in 2017 of a receivable from a customer whose account was written off in 2016 by a charge to the allowance account. Correct! B. settlement based on litigation in 2017 of previously unrecognized damages from a serious accident that occurred in 2015. C. Selling of fully depreciated equipment for its salavage (book) value. D. sale in 2017 of an office building contributed by a stockholder in 1986.

settlement based on litigation in 2017 of previously unrecognized damages from a serious accident that occurred in 2015.

Noncontrolling interest is the portion of equity (net assets) interest in a subsidiary not attributable to the parent company. True False

true