Intermediate Accounting - Chapter 4

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 Reason: ($250,000 - $50,000)/((1,000,000 + 1,500,000)/2)

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 Reason: $100,000 + 20,000 - 15,000 = $105,000

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 $190,000 $40,000 $220,000

$70,000

Which statements about the inventory turnover ratio are correct?

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

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

-payment on accounts payable -Payment of salaries

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

1. Operating Income 2. Nonoperating Income 3. Income Tax Expense

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 Reason: Net credit sales/average accounts receivable = $200,000/((40,000+60,000)/2) = 4

Sync Corp. has net sales of $1,000,000 for the year. Additional information is shown below: Receivables turnover ratio 10 Inventory turnover ratio 5 Asset turnover ratio 3 Return on equity 10% What is the average days in inventory? Multiple choice question. 121.7 days 36.5 days 73 days 24.3 days

73 days

Compute the average days in inventory ratio using the following information: Net sales is $200,000 for the year, costs of goods sold are $80,000, 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 $40,000. Inventory changed from $30,000 last year to $10,000 this year.

91.25 days Reason: Average days i inventory is 365/inventory turnover ratio = 365/4. Inventory turnover is calculated as cost of goods sold/ average inventory = $80,000/(($30,000+10,0000)/2)=4

Which of the following would most likely affect earnings quality?

Accelerating revenue recognition. Losing a major customer.

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

Activity ratios

Balance sheet date would be stated as.....

At .......20x9

Financial leverage

Average total assets divided by average total equity

Accumulated other comprehensive income (AOCI) is found on what financial statement?

Balance Sheet

_____ 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 situations qualifies for treatment as a change in accounting principle?

Change from percent-of-completion to completed contract method. Change from LIFO to FIFO.

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? Multiple choice question. Ignore the error.

Correct the error in the year discovered.

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

________ _______ incorporates the diluted effect of all potential common shares in the calculations of EPS. Diluted refers to the reduction in EPS that occurs as the number of common shares outstanding increases.

Diluted EPS

Two generally accepted formats can be used to report operating activities; ____________ and __________

Direct method ; Indirect method

Which type of activities involve cash inflows and outflows from transactions with creditors and owners?

Financing

Income statement date would be stated as....

For the year ended...

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

Gain

________ ___ _________ is reported in a separate line in the income statement.

Income Tax Expense

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

Income from continuing operations

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

Income; Loss

An income statement that classifies items and uses subtotals for gross profit, operating income, and income from continuing operations is called a(n) _____-step income statement.

Multi

GAAP requires that restructuring costs are recognized when?

Only in the period incurred.

Revenues and expenses are related to primary revenue- generating activities in calculating what?

Operating Income

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

Revenue

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

Statement of cash flows

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

Statement of cash flows

Prospective approach

This approach requires neither a modification of prior period financial statements nor an adjustment to account balances. Instead, the change is simple implemented in the current period and all future periods.

activity

Total sales divided by average total assets

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

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.

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

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 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

Return on assets is calculated as net income divided by

average total 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

The potential tax expense or benefits of items reported as components of Other Comprehensive Income

can be shown separately for each item or aggregated and reported as one line item

Deducting preferred stock from the denominator and preferred stock dividends from the numerator results in a return on equity that focuses on profits generated by

common shareholders

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.

continued ; discontinued

Changes in accounting estimates are reflected in the financial statements of the ______________ period and __________ periods.

current ; future

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

depreciation

Fill in the blanks to complete the sentence. 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

The two acceptable methods under U.S. GAAP for preparing the statement of cash flows are the __________ method and the __________ method.

direct ; indirect

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

dividends and interest

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

each dollar of sales

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.

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 depreciation method is treated as a change in accounting ___________ that is achieved by a change in accounting _______________.

estimate ; principle

The three types of accounting changes are a change in accounting principle, a change in accounting ____________ , and a change in reporting ______________.

estimate; entity

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

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

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.

gain/ income:loss

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.

The ___________ method of preparing the statement of cash flows begins with net income.

indirect

A high inventory turnover ratio indicates that

inventory was sold frequently during the year.

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

loss

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 __________, Incorrect Unavailable and are corrected in the year discovered.

material

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

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

operating

Repayment of long-term debt is a cash ______ from _________ activities.

outflow; financing

Payment of income taxes is a cash __________ from _________ activities.

outflow; operating

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

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

preferred

Which of the following is a category of accounting change?

reporting entity

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.

Costs that are planned and controlled by management that materially change the scope of the business undertaken or the manner in which the business is conducted are called__________ cost

restructuring

_____ costs include costs associated with shutdown or relocation of facilities.

restructuring

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

The average collection period is an estimate of

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

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

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 Reason: $20,000 - 14,000 + 100,000 = $106,000

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 $30,000 $20,000 $70,000

$40,000

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 ($20,000) $40,000 ($80,000)

$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 Reason: $5,000 - 3,000 + 50,000 = $52,000

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 Reason: The loss from operating the component is $100,000 - 160,000 = -$60,000. The loss from operating the discontinued operation is then netted against the gain on sale of the discontinued operations -$60,000 + $200,000 = $140,000. The gain net of tax is $140,000 x (1 - 0.40) = $84,000.

2 Acceptable methods of presenting the income statement?

- Multi-step format - Single-step format

Which of the following are significant noncash activities?

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

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

-Profit margin on sales -Return on assets -Return on equity

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

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

Which of the following are cash outflows from investing activities?

-Purchase of building -purchase of long-term investments -purchase of land

3 different approaches to changing the accounting principle.

-Retrospective approach - Modified retrospective approach - Prospective approach

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 reason for the discontinuance. -The identity of the component.

What items must be removed from continuing operations and reported separately for a discontinued operation?

-gains -Revenues -tax expense -expenses

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 debts.

The advantages of a multiple-step income statement is

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

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

A high inventory turnover ratio could be caused by

-low ending inventory levels. -a superior sales force.

Investing activities involve the acquisition and sale of

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

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

-operating activities. -financing activities. -investing activities.

According to IFRS, interest and dividends paid can be classified as a(n)

-operating activity -financing activity

According to IFRS, interest and dividends received can be classified as a(n)

-operating activity -investing activity

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

-sale of land -sale of investment securities

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

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

Income statement:20X2 Sales$2,500,000 Cost of goods sold 1,300,000 Net income 200,000 Balance sheets:20X2 20X1 Accounts receivable$300,000 $200,000 Total assets 2,000,000 1,800,000 Total shareholders' equity 900,000 700,000 The accounts receivable turnover for 20X2 is:

10.0

Gordon Company has the following information for year 2: Net sales $500,000 Gross profit 150,000 Net income 80,000 Gordon's balance sheet had the following balances: End of Year 1 End of Year 2 Total assets $600,000 $800,000 Total noncurrent assets 180,000 200,000 Total owners' equity 360,000 400,000 What is Gordon's return on assets for year 2? Multiple choice question. 10% 42.1% 21.4% 11.4%

11.4%

Lim Company has the following information: Profit margin 4% Asset turnover 1.4 Average total assets $600,000 Average total liabilities $400,000 Average total equity $200,000 What is Lim's return on equity? Multiple choice question. 5.6% 11.2% 16.8% 8.4%

16.8%

Compute the inventory turnover ratio using the following information: Net sales is $100,000 for the year, costs of goods sold are $40,000, 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. Inventory changed from $30,000 last year to $10,000 this year.

2 Reason: Cost of goods sold/average inventory = $40,000/[($30,000 + 10,000)/2] = 2

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? Multiple choice question. 11.11 8.89 7.27 5.71

7.27 Reason: Cost of goods sold/average inventory = $800,000/[($80,000 + $140,000)/2] = 7.27

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.

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 estimate.

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

False Reason: Net cash flows from investing activities is the cash inflow minus the cash outflows.

True or false: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements.

False Reason: Income tax expense must be disclosed as a separate line item on the income statement.

Based on the DuPont model an equity multiplier greater than 1 will produce a return on equity that is higher than the return on assets. What is the trade-off to this effect?

Higher leverage results in higher probability of default.

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

When are restructuring costs recognized on the income statement?

In the period the exit or disposal obligation is incurred.

Earnings per share is disclosed at the bottom of the _________ _______.

Income statement

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 Reason: ($200,000 - 60,000) x 40%

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

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

Indirect method

Net cash flow is derived indirectly by starting with reported net income and working backwards to convert that amount to a cash basis.

What is the formula for the profit margin ratio?

Net income divided by net sales

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

Return on assets

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

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.

Which is a significant noncash activity?

Signing a note payable in exchange for land.

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

What does the inventory turnover ratio measure?

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

Comprehensive income equals

The change in equity from transactions with nonowners

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.

Which of the following describes the modified retrospective approach to implementing a change in accounting principle?

The new standard is applied only to the current period and all future periods, and the cumulative effects of prior periods is shown as an adjustment to retained earnings.

Modified retrospective approach

The new standard is applied to the adoption period only. Prior period financial statements are not restated. The cumulative effect of the change on prior periods' net income is shown as an adjustment to the beginning balance of retained earning in the adoption period.

True or false: If a causal relationship can be established, expenses are reported in the same period that the related revenue is recognized.

True

The Dupont framework calculates return on equity as profit margin times asset turnover times the equity multiplier. The equity multiplier is defined as

average total assets divided by average total equity.

Asset turnover ratio is net sales divided by

average total assets.

The operating activities section on the statement of cash flows includes the elements of net income on a(n) ___________ basis rather than a(n) __________ basis.

cash ; accrual

The direct method for preparing the statement of cash flows reports

cash received and cash paid from operating activities.

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

collect its accounts receivable.

The two generally accepted formats for preparing the statement of cash flows under U.S. GAAP are the

direct and indirect method

Separate reporting as a(n) ___________ 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

What basis is used for estimated restructuring costs?

fair value

A(n) _______________ 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

A multiple-step income statement and a single-step income statement would report the same subtotal for which of the following amounts?

income before taxes

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

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

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

Cash flows from ____________ activities are related to the purchase and sale of long-term assets used in business operations.

investment

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

net income less any preferred stock dividends

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

notes

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

When a company changes from one acceptable accounting method to another, this is treated as a change in accounting

principle

A change in depreciation method is accounted for by

prospectively applying the new method

An item typically included in the income from continuing operations section of the income statement is:

restructuring costs

The two approaches most commonly used to prepare an income statement are

single-step and multiple-step

Earnings quality refers to

the ability of reported earnings to predict future earnings.

A prior period adjustment requires an adjustment to

the beginning balance of retained earnings.

Accumulated other comprehensive income represents

the total of other comprehensive income to date.

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 Reason: beginning AOCI + OCI for 2017 ($10 mill. + ($15 - 12 mill).

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 loss Reason: (-$40,000 - $160,000) x (1 - 0.30) = $140,000 loss net-of-tax.

Selected information from the accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash$8,000Proceeds from bank loan 100,000Repayment of bank loan (includes interest of $4,000) 44,000Proceeds from sale of equipment 5,000Cash collected from customers 320,000Purchase of stock of another corporation as an investment 20,000Common stock issued for cash 200,000 In its statement of cash flows, Dunn's should report net cash outflows from investing activities of:

$23,000 Reason: $5,000 (proceeds from sale of equipment) − $8,000 (cost of furniture purchased for cash) − $20,000 (purchase of stock of another corporation as an investment) = $23,000.

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 Reason: Beginning A/R + sales on account - Ending A/R = credit sales collected. $20,000 + $200,000 - $30,000 = $190,000 of the sales on account were collected in cash during the period + the $50,000 cash sales.

If a causal relationship cannot be established between revenues and expenses, which of the following occurs?

- Allocate the expenses over several periods - Relate the expense to a particular period - Record the expense as incurred

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

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

Which of the following activities would constitute discontinued operations?

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

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.

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

-Apply the new standard to all periods presented in the 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 in the current period and all future periods with no change to prior financial statements.

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 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?

-Average collection period -Receivable turnover ratio

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

-Change in estimate of uncollectible - Change in depreciation method

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.

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?

-Gain or loss on disposal of the component's assets. -Operating income or loss of the component from the beginning of the reporting period to the disposal date.

Which of the following are cash inflows from financing activities?

-Issuance of common stock to investors -Borrowing from bank

Which information regarding the receivable turnover ratio is true?

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

How are discontinued operations reported?

-With separate reporting of the tax effect on the item of discontinued operations. -As a separate line item on the income statement. -Below income from continuing operations.

The three key components to the DuPont framework include

-activity. -financial leverage. -profitability.

When calculating profitability ratios, analysts often adjust net income by

-adding in one-time losses. -subtracting out one-time gains. -excluding transitory earnings effects.

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.

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

-asset turnover -profit margin

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.

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

-convertible securities -options that can be converted to common stock

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

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

Income statement:20X2 Sales$2,500,000 Cost of goods sold 1,300,000 Net income 200,000 Balance sheets:20X2 20X1 Accounts receivable$300,000 $200,000 Total assets 2,000,000 1,800,000 Total shareholders' equity 900,000 700,000 The asset turnover for 20X2 is:

1.32

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% Reason: Net sales/average total assets = $100,000/[($900,000 + $1,100,000)/2] = 10%

The formula for average collection period is

365 divided by the receivable turnover ratio.

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

365/inventory turnover ratio

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

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 Multiple choice question. 0.67 0.60 3 0.23 5

5

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.

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

Earnings per share

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

Expenses

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

IFRS

profitability

Net income divided by total sales

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

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

In the current year, a company has a gain of $50,000. The company's accountant is deciding whether to report this gain as part of nonoperating income in the income statement or as part of other comprehensive income. Which of the following is true?

Retained earnings will be greater if the gain is reported as part of net income.

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

Retrospectively

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

Retrospectively

Which of the following financial statement elements are measured and reported as a result of providing goods and services to customers?

Revenues and Expenses

Operating and nonoperating items are not separately classified in a ______-step income statement.

Single

Retrospective approach

The new standard is applied to all periods presented in the financial statements. That is, we restate prior period financial statements as if the new accounting method had been used in those prior periods. We revise the balance of each account affected to make those statements appear as if the newly adopted accounting method had been applied all along.

True or false: Net income is a portion of comprehensive income.

True Reason: Comprehensive income includes gains and losses that are required to be measured but GAAP does not allow to be reported in the determination of net income.

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

True Reason: GAAP allows one income statement that includes comprehensive income or a separate statement.

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

assets

Direct method

cash effect on each operating activity is reported directly in the statement

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

disclosure

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

expense ; savings

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

function (ex: cost of goods sold, general and administrative ) or natural description (ex: salaries, rent)

Comprehensive income includes net income as well as other ___________ and ____________ that change shareholders' equity but are not included in traditional net income.

gains ; losses

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

higher ; lower

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

include them in the company's permanent earnings stream.

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

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.

inflow ; outflow

If discontinued operations have a _____ effect on the income statement, they must be reported separately.

material

The asset turnover ratio

measures a company's efficiency in using assets to generate revenue. =net sales/average total assets

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.

multi-step

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

net 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

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.

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

profit

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.

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

the same as

Gains and losses from the sale of investments can affect earnings quality because

they are often nonrecurring.

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

Basic earnings per share is calculated as net income available to common shareholders divided by

weighted average common shares outstanding.

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

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. By the end of the year, the assets have not been sold. The book value of those assets equals $850,000, and the company estimates their fair value to be $1,100,000. The component generated operating income of $450,000 for the year. In its income statement for the year ended December 31, 20X1, for what amount would the company report income from operations of a discontinued component (ignoring taxes).

$450,000

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? Multiple choice question. $140,000 ($60,000) ($90,000) ($20,000)

($60,000)

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? Multiple choice question. ($90,000) ($60,000) $140,000 ($20,000)

($60,000)

When a component classified as a discontinued operation is sold, what two elements are included in calculating the total gain or loss from discontinued operations displayed on the income statement?

-Operating income or loss for the period and gain or loss on disposal. -Estimated impairment loss expected from the sale of the component.

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.

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

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

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.

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

-high asset turnover -high profit margin

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

-interest received on notes receivable -collection on account

Which of the following ratios are activity ratios?

-inventory turnover -receivables turnover -asset turnover

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.

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

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

selling expense revenues administrative expense

Analyzing earnings quality requires an analyst to

separate a company's temporary and permanent earnings.

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

single-step