ACC 310 ch 4 quiz

Distinguish between operating and nonoperating income in relation to the income statement.

-Operating income: includes revenues and expenses directly related to the primary revenue-generating activities of the company. -Nonoperating income: relates to peripheral or incidental activities of the

Define intraperiod tax allocation. Why is the process necessary?

-associates tax expense or benefits with continuing operations and any item reported below continuing operations -to report all of the income effects of a discontinued operation separately

What are the restructuring costs and where are they reported in the income statement?

-costs associated with shutdown or relocation of facilities or downsizing of operations. -expensed in the period(s) incurred

Distinguish between the direct method and the indirect method for reporting the results of operating activities in the statement of cash flows.

-direct method- the cash effect of each operating activity is reported directly in the statement -indirect method- starting with reported net income and working backwards to convert that amount to a cash basis

Explain what is meant by noncash investing and financing activities pertaining to the statement of cash flows. Give an example of one of these activities

-financing activities that do not involve cash flows -acquisition of equipment by: issuing a long-term note payable to the seller of the equipment

Identify and briefly describe the 3 categories of cash flows reported in the statement of cash flows.

-operating activities -Investing activities -financing activities- cash inflows and outflows from transactions with creditors and owners

Briefly explain the difference between the single-step and multi-step income statement formats.

-single step income statement- format groups all revenues and gains together and all expenses and losses together. -multi-step income statement- format includes a number of subtotals before arriving at income from continuing operations.

What is meant by a change in accounting principle? Describe the possible accounting treatments for a mandated change in accounting principle.

A change from one acceptable accounting method to another, sometimes required by FASB, sometimes companies voluntarily change them. -retrospective approach -modified retrospective approach -prospective approach

single continuous multi-step Statement of CI

After net income: OCI (net of tax)!!!!! Comprehensive income

EPS non-basic

Continued(Inc from Continuing)+Discontinued(loss on Discontinued)

Income Statement with discontinued operations

Income from continuing operations Discontinued operations +income tax benefit loss on discontinued operations net income

EPS basic

Net Income/# of shares(weighted common outstanding)

Calculate Operating Income

Operating revenues Operating expenses Net Operating Income

Single-step income statement

Revenues and Gains Expenses and losses Income before taxes Income tax expense Net Income

Multi-step income statement

Sales Rev COGS Gross Profit Operating Expenses =Operating Income Other income Income before taxes Income tax expense Net Income

Define earnings per share (EPS). For which income statement items must EPS be disclosed?

The amount of income achieved during a period for each share of common stock outstanding. Must be disclosed for Income from continuing operations, discontinued operations, and net income

The correction of a material error discovered in a year subsequent to the year the error was made is considered a prior period adjustment. Briefly describe the account treatment for prior period adjustments.

an addition to or reduction in beginning retained earnings and a restatement of previous years' financial statements.

financing activities

cash inflows and outflows from transactions with creditors and owners

Acid test ratio (quick ratio)

cash+ST investments+AR/current liabilities

Statement of cash flows

cf from operations cf from investments cf from financing net increase in cash cash & cash equiv (beg) cash & cash equiv (end)

current ratio

current assets divided by current liabilities

operating activities

inflows and outflows of cash related to the transactions entering into the determination of net operating income

The income statement is a change statement. Explain what is meant by this.

measures activity over a period of time

retrospective approach

new standard is applied to all periods presented in the financial statements as if the new accounting method had been used in prior periods

modified retrospective approach

new standard is applied to the adoption period only, and prior financial statement are not restated

prospective approach

no modification is made to prior period financial statements. Instead, the change is simply implemented in the current period and all future periods

How are discontinued tax operations reported in the income statement?

reported separately, below income from continuing operations

What transactions are included in income from continuing operations? Briefly explain why it is important to segregate income from continuing operations from other transactions affecting net income.

revenues, expenses, gains, and losses. Income from continuing operations arise from operations that will probably continue into the future.

Explain what is meant by the term earnings quality.

the ability of income to predict a company's future earnings

investing activities

the acquisition and sale of long-term assets used in the business, and nonoperating investment assets

Accountants very often are required to make estimates, and very often those statements prove incorrect. In what period(s) is the effect of a change in an accounting estimate reported?

the financial statements of the current period and future periods

Define comprehensive income. What are the two ways companies can present comprehensive income?

the total change in equity for a reporting period other than from transactions with owners. -Can be presented in a single continuous statement of comprehensive income, or in 2 consecutive statements; Income statement, statement of comprehensive income.

Describe the purpose of the statement of cash flows

to provide information about cash receipts and cash disbursements that occurred during a period