Acct. 3010 Chapter 4 part 2

Carol Corp. Has a component that is a discontinued operation. The revenue 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 ($200,000-$60,000 (loss)=$140,000 X 40%(tax)=$56,000)—->$140,000-$56,000(tax)=$84,000

The indirect method of statement of cash flow preparation (select all that apply)

-Adjusts for changes in my 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 -Adjusts for changes in assets to reconcile the difference between accrual net income and cash paid or received

If a component of the business qualifies for a discontinued operations treatment, which of the following statements are true? (Select all that apply)

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

If they discontinued operation is held for sale and there is an impairment loss, what are the acceptable methods for disclosing the impairment loss? (Select all that apply.)

-As a disclosure note in the notes to the financial statements -Parenthetically on the face of the income statement in discontinued operations

How are discontinued operations reported?

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

what affects the revenues

-Earnings quality/losing a major customers -Intentional miss statement of revenue -Accelerating the timing of its recognition

When a component has been sold and qualifies for treatment as a discontinued operation, they reported income effects disclose will include which of the following items? (Select all that apply)

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

Income statement presentation

-International standards require certain minimum information to be reported on the face of the income statement -U.S. GAAP has no minimum requirements

The guidance on discontinued operations defines a discontinued operation as a component that either/ or (select all that apply.)

-Is classified as held for sale -Has been sold

When a component that qualifies as a discounted operation is held for sale, what are the two elements that may be reported in a discontinued operations?

-Operating income or loss of the components during the reporting period -Estimated impairment loss expected from the sale of the component

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

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

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

multiple-step income statement

An income statement that shows several steps in determining net income.

Non-GAAP

Are controversial because determining which expenses to exclude is at the discretion of management

Which of the following is computed by dividing income available to come and shareholders by the weighted average number of common shares outstanding?

Basic earnings per share

The purpose of a statement of cash flow's is to provide information about the

Cash receipts and cash disbursement during a period

Net income is part of

Comprehensive income

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

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

Function, nature

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

Gain

Which standards require certain minimum information to be reported on the face of the income statement?

IFRS

Unusual items

Included in operating income require investigation to determine their permanent or temporary nature -Goodwill and Assets impairments -Any long-live assets, whether tangible or intangible, should have its balance reduce if there has been a significant impairment of value

A multiple step income statement includes which of the following? (Select all that apply)

Income before taxes Gross profit Operating income

Revenues, expenses, gains, and losses that will likely continue in the future period Make up what?

Income from continuing operations

Statement of operations and statement of earnings are additional titles for the

Income statement

Which financial statement summarizes the profit generating activities that occurred during the reporting period?

Income statement

single-step income statement

Income statement format that groups all revenues together and then lists and deducts all expenses together without calculating any subtotals.

Janex's company manufactures refrigerators. Which of the following items would likely be included in the determination of non-operating income on Janex's income statement?

Interest expense

Which of the following items may be included in an operating income for a company that manufactures televisions? (Select all that apply.)

Interest income Gain from sale of land

The process of associating income tax effects with the income statement components that create those effects is referred to as ____tax allocation.

Intraperiod

The type of income statement that reports a series of subtotal such as gross profit, operating income, and income before taxes is a ______income statement.

Multiple-step

The profit margin ratio is defined as _____ divided by net sales

Net income

Management assessment of permanent earnings are referred to as what?

Non-GAAP earnings

Where is earnings per share disclose in the financial statements?

On the income statement

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

Operating

Component is qualified as a discontinued operation. What are the two elements that may be reported in discontinued operations on the income statement in the component is not sold by the end of the reporting period?

Operating income or loss from the component in an impairment lost both reported on a net of tax basis

The Sarbanes-Oxley Act

Requires reconciliation between non-GAAP earnings and earnings determine according to GAAP

Classification shifting

Shifting operating expenses to a non-operating expense classification to report fewer operating expenses and higher operating income -Inflates core performance

The type of income statement that does not classify items as operating and non-operating is the _____income statement.

Single-step

Which of the following are acceptable methods of presenting the income statement?

Single-step format Multiple-step format

Which of the following terms is also used as a heading for an income statement?

Statement of operation

At what amount are the liabilities of a discontinued operation held for sale reported in the balance sheet?

The lower of the book value or fair value less cost to sell

Net income using the multiple step income statement presentation is ____net income using the single step income statement presentation.

The same as

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

True

When a discounted operation is sold before the end of the reporting period, the income or loss from operations and the ____ or ____ on the disposal of assets is included in the report the income.

gain, loss

A(n) ____loss is reported if a discontinued operation is held for sale and the book value of the assets is more than a fair value minus cost to sell

impairment

Restructuring costs

include costs associated with shutdown or relocation of facilities or downsizing of operations -reorganization costs or realignment costs -I recognize in the period The exit or disposal cost obligation actually is incurred. (required by GAAP) ex: severance pay, relocation cost

Component of an entity

includes activities and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the company

Strategic shift

includes the disposal of a major line of business, a major geographical area, or a major equity method investment

Financial statements covering period of less than one year are called____reports.

interim

Income Smoothing

may help investors to predict future performance but it could also hide underlying risk

The calculation of ____income omit certain gains and losses that are instead included in the broader perspective of other _____income.

net, comprehensive

The average collection period is calculated as 365 divided by

receivables turnover ratio

Earnings Quality

refers to the ability of reported earnings (income) to predict a company's future earnings

Permanent earnings

relate to operations that are expected to generate similar profits in the future

Temporary Earnings

result from transactions or events that are not likely to occur again in the foreseeable future or that are likely to have a different impact on earnings in the future

Where on the income statement is income tax expense reported?

separate line

The purpose of an income statement is to

summarize the profit-generating activities that occurred during a particular reporting period