Gliem 6

Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in accounting principle, a $3,000 unrealized loss on available-for-sale debt securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Palmyra's comprehensive income? a) $17,000 b) $10,000 c) $11,000 d) $4,000

$10,000

During the second quarter, Buzz Company sold a piece of equipment at a $12,000 gain. What portion of the gain should Buzz report in its income statement for the second quarter? a) $4,000 b) $12,000 c) $0 d) $6,000

$12,000

A company reports the following information as of December 31: Sales revenue $800,000 Cost of goods sold 600,000 Operating expenses 90,000 Unrealized holding gain on available-for-sale debt securities, net of tax 30,000 What amount should the company report as comprehensive income as of December 31? a) $30,000 b) $110,000 c) $140,000 d) $200,000

$140,000

On April 1, Julie began operating a service proprietorship with an initial cash investment of $1,000. The proprietorship provided $3,200 of services in April and received a payment of $2,500 in May. The proprietorship incurred expenses of $1,500 in April that were paid in June. During May, Julie drew $500 from her capital account. What was the proprietorship's income for the 2 months ended May 31 under the following methods of accounting? Cash-Basis Accrual-Basis a) $2,000, $1,200 b) $2,500, $1,700 c) $500, $1,200 d) $1,000, $1,700

$2,500, $1,700

Corey Co.'s income statement accounts for the year ended December 31, Year 2, included the following: Sales $800,000 Cost of sales 320,000 Administrative expenses 80,000 Interest expenses 10,000 Other Information Available-for-sale debt securities held by the company had fair values of $250,000 and $300,000 on December 31, Year 1, and December 31, Year 2, respectively. On December 31, Year 2, 70,000 shares of common stock, $1.00 par, were outstanding. Corey repurchased 25,000 shares on June 1, Year 2. Corey's enacted tax rate for the current and future years is 30%. Corey's comprehensive income is a) $323,000 b) $308,000 c) $425,000 d) $440,000

$308,000

During the first quarter of Year 4, Tech Co. had income before taxes of $200,000, and its effective income tax rate was 15%. Tech's Year 3 effective annual income tax rate was 30%, but Tech expects its Year 4 effective annual income tax rate to be 25%. In its first quarter interim income statement, what amount of income tax expense should Tech report? a) $0 b) $50,000 c) $60,000 d) $30,000

$50,000

Farr Corp. had the following transactions during the quarter ended March 31: Loss on disposal of equipment $ 70,000 Payment of fire insurance premium for calendar year 100,000 What amounts should be included in Farr's income statement for the quarter ended March 31? Loss on disposal Insurance Expense a) $70,000 $25,000 b) $70,000 $100,000 c) $0 $100,000 d) $17,500 $25,000

$70,000 $25,000

On January 16, Tree Co. paid $60,000 in property taxes on its factory for the current calendar year. On April 2, Tree paid $240,000 for unanticipated major repairs to its factory equipment. The repairs will benefit operations for the remainder of the calendar year. What amount of these expenses should Tree include in its third quarter interim financial statements for the 3 months ended September 30? a) $95,000 b) $0 c) $15,000 d) $75,000

$95,000

The summary of significant accounting policies should disclose the a) Concentration of credit risk of all financial instruments by geographical region. b) Maturity dates of noncurrent debts. c) Terms for convertible debt to be exchanged for common stock. d) Criteria for determining which investments are treated as cash equivalents.

Criteria for determining which investments are treated as cash equivalents.

Which of the following is a component of other comprehensive income? a) Minimum accrual of vacation pay. b) Unrealized gain or loss on trading debt securities. c) Cumulative currency-translation adjustments. d) Changes in market value of inventory.

Cumulative currency-translation adjustments.

Which of the following is correct concerning financial statement disclosure of accounting policies? a) The format and location of accounting policy disclosures are fixed by generally accepted accounting principles. b) Disclosure of accounting policies is an integral part of the financial statements. c) Disclosures should be limited to principles and methods peculiar to the industry in which the company operates. d) Disclosures should duplicate details disclosed elsewhere in the financial statements.

Disclosure of accounting policies is an integral part of the financial statements.

Which of the following is true regarding interim financial reporting? a) Both IFRS and U.S. GAAP view each interim period as a discrete reporting period. b) Each interim period is viewed as a discrete reporting period under U.S. GAAP and as an integral part of an annual period under IFRS. c) Each interim period is viewed as a discrete reporting period under IFRS and as an integral part of an annual period under U.S. GAAP. d) Both IFRS and U.S. GAAP view each interim period as an integral part of the annual period to which it relates.

Each interim period is viewed as a discrete reporting period under IFRS and as an integral part of an annual period under U.S. GAAP.

For interim financial reporting, a company's income tax provision for the second quarter should be determined using the a) Statutory tax rate for the year. b) Effective tax rate expected to be applicable for the full year as estimated at the end of the first quarter. c) Effective tax rate expected to be applicable for the second quarter. d) Effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter.

Effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter.

A company that issues quarterly financial statements incurs a material unusual loss in one of the first three quarters. In which of the following ways would the company report this loss? a) Disclosed only by a note in the quarter that the loss occurs. b) Entirely in the quarter that the loss occurs. c) Only in the annual report. d) Prorated over the remaining quarters of the current year.

Entirely in the quarter that the loss occurs.

Other comprehensive income (OCI) includes a) Certain foreign currency items and unrealized gains and losses on investments in equity securities for which the fair value option was elected. b) Gains and losses on certain derivatives designated, qualifying, and effective as foreign-currency hedging instruments. c) Unrealized gains and losses on investments in debt securities classified as trading securities. d) Translation adjustments and the gain or loss on disposal of a segment of a business.

Gains and losses on certain derivatives designated, qualifying, and effective as foreign-currency hedging instruments.

Because of a decline in market price in the second quarter, Petal Co. incurred an inventory loss, but the market price was expected to return to previous levels by the end of the year. At the end of the year, the decline had not reversed. Petal accounts for its inventory using the LIFO method. When should the loss be reported in Petal's interim income statements? a) Ratably over the second, third, and fourth quarters. b) Ratably over the third and fourth quarters. c) In the second quarter only. d) In the fourth quarter only.

In the fourth quarter only.

How are discontinued operations and material unusual or infrequently occurring items that occur at midyear initially reported? a) Included in net income and disclosed in the notes to interim financial statements. b) Disclosed only in the notes to the year-end financial statements. c) Included in net income and disclosed in the notes to the year-end financial statements. d) Disclosed only in the notes to interim financial statements.

Included in net income and disclosed in the notes to interim financial statements.

Which of the following items is not classified as other comprehensive income (OCI)? a) Prior service cost adjustment resulting from amendment of a defined benefit pension plan. b) Foreign currency translation adjustments. c) Unrealized gains for the year on available-for-sale marketable debt securities. d) Infrequent in occurrence gains from extinguishment of debt.

Infrequent in occurrence gains from extinguishment of debt.

Which of the following describes how comprehensive income is reported under U.S. GAAP? a) It should be disclosed in the notes but not reported in the financial statements. b) No specific format is required. c) It may be reported in a statement of equity. d) It must be reported in two separate but consecutive statements or in one continuous statement.

It must be reported in two separate but consecutive statements or in one continuous statement.

The accounting measurement that is not consistent with the going concern concept is a) Fair value. b) Historical cost. c) Present value of expected cash flows. d) Liquidation value.

Liquidation value.

According to authoritative GAAP issued by the FASB, an entity that presents a full set of financial statements a) May report comprehensive income instead of net income. b) Must report comprehensive income even if it has no items of other comprehensive income. c) Must report comprehensive income if it has items of other comprehensive income (OCI). d) Must report other comprehensive income (OCI) in the liabilities section of the statement of financial position.

Must report comprehensive income if it has items of other comprehensive income (OCI).

Which of the following items should be included in Melay, Inc.'s summary of significant accounting policies for the current year? a) Future common share dividends are expected to approximate 60% of earnings. b) During the current year, the Delay Segment was sold. c) Operating segment sales for the current year are Alay $1M, Belay $2M, and Celay $3M. d) Property, plant, and equipment is recorded at cost with depreciation computed principally by the straight-line method.

Property, plant, and equipment is recorded at cost with depreciation computed principally by the straight-line method.

For interim financial reporting, a gain on disposal of property occurring in the second quarter should be a) Recognized ratably over the last three quarters. b) Recognized ratably over all four quarters, with the first quarter being restated. c) Disclosed in the notes only in the second quarter. d) Recognized in the second quarter.

Recognized in the second quarter.

Which of the following must be included in a summary of significant accounting policies in the notes to the financial statements? a) Schedule of fixed assets. b) Description of current year equity transactions. c) Summary of long-term debt outstanding. d) Revenue recognition policies.

Revenue recognition policies.

Comprehensive income is best defined as a) Total revenues minus total expenses. b) The change in net assets for the period including contributions by owners and distributions to owners. c) The change in net assets for the period excluding owner transactions. d) Net income excluding discontinued operations.

The change in net assets for the period excluding owner transactions.

Conceptually, interim financial statements can be described as emphasizing a) Relevance over comparability. b) Comparability over neutrality. c) Timeliness over reliability. d) Reliability over relevance.

Timeliness over reliability.

In general, an enterprise preparing interim financial statements should a) Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred. b) Use the same accounting principles followed in preparing its latest annual financial statements. c) Disregard permanent decreases in the market value of its inventory. d) Defer recognition of seasonal revenue.

Use the same accounting principles followed in preparing its latest annual financial statements.

Comprehensive income includes Unrealized Holding Gains and Losses on Available-for-Sale Net Income Debt Securities a) No No b) No Yes c) Yes Yes d) Yes No

Yes Yes

For interim financial reporting, the computation of a company's second quarter provision for income taxes uses an effective tax rate expected to be applicable for the full fiscal year. The effective tax rate should reflect anticipated Available Tax Foreign Tax Rates Planning Alternatives a) No Yes b) Yes No c) No No d) Yes Yes

Yes Yes

For interim financial reporting, which of the following may be accrued or deferred to provide an appropriate cost in each period? Interest Rent a) Yes No b) Yes Yes c) No Yes d) No No

Yes Yes