Chapter 4 Knowledge Check

Excerpts from Dowling Company's December 31, 2024 and 2023, financial statements and key ratios are presented below (all dollar values are in millions): 2024 2023 Accounts receivable (net) $ 20 $ 16 Net sales $ 115 $ 100 Cost of goods sold $ 60 $ 55 Net income $ 20 $ 17 Inventory turnover 5.22 Return on assets 10.3% Equity multiplier 2.36 Dowling's average inventory balance for 2024 is closest to: Multiple Choice $11.5. $12. $11. $12.5.

$11.5

Capsule Corporation reported the following in year 6: Beginning retained earnings $ 260,000 Ending retained earnings $ 290,000 Cash dividends declared $ 90,000 Beginning accumulated other comprehensive income $ 120,000 Ending accumulated other comprehensive income $ 115,000 What was Capstone's comprehensive income for year 6? Multiple Choice $115,000 $55,000 $125,000 $65,000

$115,000

Nevada Boot Company reported net income of $216,000 for its year ended December 31, 2024. Purchases totaled $152,000. Accounts payable balances at the beginning and end of the year were $36,000 and $33,000, respectively. Beginning and ending inventory balances were $44,000 and $46,000, respectively. Assuming that all relevant information has been presented, Nevada Boot would report operating cash flows of: Multiple Choice $221,000. $211,000. $155,000. $151,000.

$211,000

Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2024. Accounts receivable on December 31, 2023 and 2024, were $320,000 and $355,000, respectively. Using the direct method for reporting cash flows from operating activities, Hong Kong Clothiers would report cash collected from customers of: Multiple Choice $5,035,000. $5,000,000. $5,045,000. $4,965,000.

$4,965,000.

On November 1, 2024, Jamison Incorporated adopted a plan to discontinue its barge division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by April 30, 2025. On December 31, 2024, the company's year-end, the following information relative to the discontinued division was accumulated: Operating loss January 1-December 31, 2024 $ 65 million Estimated operating losses, January 1 to April 30, 2025 80 million Excess of fair value, less costs to sell, over book value on December 31, 2024 15 million In its income statement for the year ended December 31, 2024, Jamison would report a before-tax loss on discontinued operations of: Multiple Choice $130 million. $145 million. $50 million. $65 million.

$65 million.

On May 1, Tango Company agreed to sell the assets of its Formal Wear Division to Top Hat Incorporated. The following additional facts pertain to the transaction: The Formal Wear Division qualifies as a component of the entity according to GAAP regarding discontinued operations. The book value of Formal Wear's assets totaled $48 million on December 31, 2024. Formal Wear's operating income was a pre-tax loss of $10 million in 2024. Tango's income tax rate is 25%. Suppose that the Formal Wear Division's assets had not been sold by December 31, 2024, but were considered held for sale. Assume that the fair value of these assets was $80 million on December 31, 2024. In the income statement for the year ended December 31, 2024, Tango Company, would report discontinued operations of a: Multiple Choice None of the other answer choices are correct. $7.5 million loss. $10.0 million loss. $16.5 million income. Question 36 of 40 Total 36 of 40

$7.5 million loss.

Cendant Corporation's results for the year ended December 31, 2024, include the following material items: Sales revenue $ 6,200,000 Cost of goods sold 3,800,000 Selling and administrative expenses 1,300,000 Loss on sale of investments 200,000 Loss on discontinued operations 500,000 Loss on impairment from continuing operations 80,000 Cendant Corporation's income from continuing operations before income taxes for 2024 is: Multiple Choice $880,000. $320,000. $900,000. $820,000.

$820,000.

Rowdy's Restaurants Cash Flow ($ in millions) Cash received from: Customers $ 1,800 Interest on investments 200 Sale of land 100 Sale of Rowdy's common stock 600 Issuance of debt securities 2,000 Cash paid for: Interest on debt $ 300 Income tax 80 Debt principal reduction 1,500 Purchase of equipment 4,000 Purchase of inventory 1,000 Dividends on common stock 200 Operating expenses 500 Rowdy's would report net cash inflows (outflows) from financing activities in the amount of: Multiple Choice $1,100 million. $820 million. ($1,100) million. $900 million.

$900 million.

Excerpts from Hulkster Company's December 31, 2024 and 2023, financial statements are presented below: 2024 2023 Accounts receivable $ 40,000 $ 36,000 Merchandise inventory 28,000 35,000 Net sales 190,000 186,000 Cost of goods sold 114,000 108,000 Total assets 425,000 405,000 Total shareholders' equity 240,000 225,000 Net income 32,500 28,000 Hulkster's 2024 average days in inventory is closest to: Multiple Choice 61 days. 92 days. 101 days. 90 days.

101 days

Excerpts from Hulkster Company's December 31, 2024 and 2023, financial statements are presented below: 2024 2023 Accounts receivable $ 40,000 $ 36,000 Merchandise inventory 28,000 35,000 Net sales 190,000 186,000 Cost of goods sold 114,000 108,000 Total assets 425,000 405,000 Total shareholders' equity 240,000 225,000 Net income 32,500 28,000 Hulkster's 2024 inventory turnover is closest to: Multiple Choice 3.96. 3.62. 6.03. 4.07.

3.62

Intraperiod income tax presentation is primarily a matter of: Multiple Choice Allocation. Valuation. Periodicity. Going concern.

Allocation.

On a statement of cash flows prepared in conformity with GAAP, which of the following would not be included as a financing activity? Multiple Choice Dividends paid to shareholders Cash used to repay a loan Cash received from the issuance of common stock Dividends received from an investment

Dividends received from an investment

Which of the following profit amounts usually will be listed in both the single-step and multiple-step formats of the income statement? Multiple Choice Net nonoperating income Operating income Income before taxes Gross profit

Income before taxes

Shively Manufacturing Company sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report: Multiple Choice Operating cash inflows of $18,000. Financing cash inflows of $18,000. Operating cash inflows of $8,000. Investing cash inflows of $18,000.

Investing cash inflows of $18,000.

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows? Multiple Choice Salaries payable decrease Loss on the sale of equipment Accounts receivable increase Gain on the sale of land

Loss on the sale of equipment

The measure of profit reported on a multiple-step income statement that represents the primary-revenue generating activities of the company is: Multiple Choice Operating income. Income before taxes. Net income. Gross profit.

Operating income.

During the year ended December 31, year 8, Dalgiesh Company had sales of $1,500, cost of goods sold of $800, and sales, general and administrative expenses of $200. In addition, Dalgiesh is involved in a restructuring process expected to last several years, and incurred restructuring costs in year 8 of $125. During the year the company also sold various investments for a net pre-tax gain of $125, and received $40 in dividends from investments. What amount of operating and nonoperating income will Dalgiesh present in its year 8 income statement? Operating Nonoperating a. $ 500 $ 40 b. $ 225 $ 165 c. $ 375 $ 165 d. $ 300 $ 40 Multiple Choice Option b Option a Option d Option c

Option c

The difference between single-step and multiple-step income statements is primarily an issue of: Multiple Choice Valuation. Consistency. Presentation. Measurement.

Presentation

Which of the following most likely would be classified as restructuring costs? Multiple Choice Severance pay for employee layoffs associated with facility closings Brokerage fees from the issuance of additional shares of stock Advertising costs to sell a product recently developed by a company Acquisition fees associated with the purchase of land and buildings

Severance pay for employee layoffs associated with facility closings

During the year, a company's investment in debt securities increases in fair value, resulting in an unrealized gain on the investment. The investment is not sold by the end of the year. The company is considering whether to report the unrealized gain as a component of net income or as a component of other comprehensive income. Under which reporting requirement would the company have a higher ending balance of total shareholders' equity? Multiple Choice Total stockholders' equity would be higher if the unrealized gain is reported as a component of other comprehensive income Total stockholders' equity would be higher if the unrealized gain is reported as a component of net income None of the other answer choices are correct. Total shareholders' equity would be the same under either reporting requirement

Total shareholders' equity would be the same under either reporting requirement

Temporary earnings are best characterized as earnings that: Multiple Choice do not conform to Generally Accepted Accounting Principles (GAAP). arise from events that are not likely to recur in the foreseeable future. do not have corresponding cash flows. are from nonoperating activities.

arise from events that are not likely to recur in the foreseeable future.

Expenses in an income statement prepared under International Financial Reporting Standards (IFRS): Multiple Choice can be classified either by function or by natural description. must be classified by function. must be classified by natural description. None of these answer choices are correct.

can be classified either by function or by natural description.

Non-GAAP earnings: Multiple Choice could be considered management's view of permanent earnings. are standardized under generally accepted accounting principles. are useful to compare two different firms' performance. are needed for the correction of errors.

could be considered management's view of permanent earnings.

The FASB's stated preference for reporting operating cash flows is the: Multiple Choice Working capital method. Indirect method. All financial resources method. Direct method.

direct method

Comprehensive income is the total change in shareholders' equity for a reporting period from transactions with owners and nonowners. true or false

false

Earnings per share disclosure is required only for income from continuing operations. True or false

false

In a statement of cash flows prepared under International Financial Reporting Standards (IFRS), interest received is most often classified as an operating cash flow. true or false

false

Income from continuing operations consists only of those items expected to be permanent components of earnings. true or false

false

Popson Incorporated incurred a material loss that was unusual in character. This loss should be reported as a: Multiple Choice line item in the retained earnings statement. line item within income from continuing operations. discontinued operation. line item between income from continuing operations and income from discontinued operations.

line item within income from continuing operations.

In comparing the direct method with the indirect method of preparing the statement of cash flows: Multiple Choice only investing activities are presented differently. only operating activities are presented differently. all activities are presented differently. only financing activities are presented differently.

only operating activities are presented differently.

The principal benefit of separately reporting discontinued operations is to enhance: Multiple Choice consistency in reporting. intraperiod continuity. predictive ability of future profitability. comprehensive reporting.

predictive ability of future profitability.

The distinction between operating and nonoperating income relates to: Multiple Choice reliability of measurements. continuity of income. primary activities of the reporting entity. consistency of income stream.

primary activities of the reporting entity.

A company is effectively leveraging when the: Multiple Choice return on equity exceeds the return on assets. return on assets exceeds the return on equity. return on assets is increasing. return on equity is increasing.

return on equity exceeds the return on assets.

A change in accounting principle that is implemented using the retrospective approach includes restating financial statements of all periods presented as if the new standard had been used in those periods. true or false

true

Income statements prepared according to either U.S. GAAP or International Financial Reporting Standards (IFRS) require the separate reporting of discontinued operations. true or false

true

Intraperiod tax allocation is the process of associating income tax effects with the income statement components that create those effects. true or false

true

Material errors in prior periods' income statements are corrected by making an adjustment to the beginning balance of the current period's retained earnings. true or false

true

Material restructuring costs are reported as an element of income from continuing operations. true or false

true

Revenues and expenses typically occur as a result of normal operating activity. true or false

true

The decomposition of return on assets illustrates why some companies with low profit margins can be very profitable if their asset turnover is high. true or false

true