Chapter 4

In its statement of cash flows, Dunn's should report net cash outflows from investing activities of:

$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

In a statement of cash flows, International Financial Reporting Standards allow companies to report interest paid as:

Either an operating or a financing cash flow.

In its statement of cash flows, Dunn's should report net cash inflows from financing activities of:

$100,000 (proceeds from bank loan) − $40,000 (repayment of bank loan principal) + $200,000 (common stock issued for cash) = $260,000

Laser World's income statement reported total revenues of $850,000 and total expenses (including $40,000 depreciation) of $720,000. The balance sheet reported the following: Accounts Receivable—beginning balance, $50,000 and ending balance, $60,000; Accounts Payable—beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this information, the net cash flows from operating activities were:

$130,000 (net income) + $40,000 (depreciation expense) − $10,000 (increase in accounts receivable) + $6,000 (increase in accounts payable) = $166,000

Income tax expense has not yet been accrued. The company's income tax rate is 25%. What amount should be reported in the company's income statement as income from continuing operations?

$600,000 (revenues) - $420,000 (operating expenses) - $100,000 (restructuring costs) - $20,000 (interest expense) + $30,000 (gain on sale of investments)] × [1.0 - 0.25 (income tax rate)] = $67,500.

The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of:

A change in accounting principle

For a manufacturing company, each of the following items would be considered nonoperating income for income statement purposes except:

Cost of goods sold

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

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 20X1, for $1,120,000. The component generated operating income of $300,000 from January 1, 20X1, through disposal. In its income statement for the year ended December 31, 20X1, the company reported before-tax income from operations of a discontinued component of $620,000. What was the book value of the assets of the cosmetics component?

Of the $620,000 pretax income from discontinued operations, $300,000 was from income from operations. The remaining $320,000 was therefore gain on sale of the assets. If the assets were sold for $1,120,000, their book value must have been $800,000.

Earnings per share should be reported for each of the following income statement captions except:

Operating income

The application of intraperiod income taxes requires that income taxes be apportioned to each of the following items except:

Operating income

Which of the following captions would more likely be found in a multiple-step income statement?

Operating income

What amount will the company report for operating income?

Operating income = $800,000 − $420,000 − $170,000 = $210,000.

Which of the following items would not be included as a cash flow from operating activities in a statement of cash flows?

Purchase of equipment

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

Restructuring costs.

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 many of these items would be added to net income when using the indirect method to prepare the operating activities section of the statement of cash flows?

The decrease in accounts receivable and depreciation expense are added.

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 20X1, for $1,200,000. The book value of those assets equaled $1,000,000 at the time of the sale. The component generated an operating loss of $300,000 from January 1, 20X1, through disposal. The company's tax rate is 25%. For what amount would the company report income from discontinued operations?

The gain on the sale of assets of $200,000 ($1,200,000 - $1,000,000) minus the operating loss of $300,000 equals pretax loss on discontinued operations of $100,000. Net of a 25% tax benefit ($25,000 = $100,000 × 25%), the loss reduces to $75,000.

How many of these items would be subtracted from net income when using the indirect method to prepare the operating activities section of the statement of cash flows?

The increase in interest receivable, decrease in accounts payable, gain on the sale of equipment, decrease in utilities payable, and increase in inventory would be subtracted.

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.

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).

The operating income of the component ($450,000) would be reported as part of discontinued operations. The amount by which the assets' fair value exceeds their book value is not included

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 $1,100,000, and the company estimates their fair value to be $850,000. The component generated operating income for the year of $450,000. 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).

The operating income of the component ($450,000) would be reported as part of discontinued operations. The amount by which the assets' fair value is less than their book value is included as an impairment loss (−$250,000). Income from discontinued operations = $450,000 − $250,000 = $200,000.

The Compton Press Company reported income before taxes of $250,000. This amount included a $50,000 loss on discontinued operation. The amount reported as income from continuing operations, assuming a tax rate of 25%, is:

[$250,000 (income before income taxes) + $50,000 (loss on discontinued operations)] × [1.0 − 0.25 (tax rate)] = $225,000.

Comprehensive income equals:

net income + other comprehensive income. The change in equity from transactions with nonowners.