Chapter 4 SB Accounting

ABC Tax Advisors-____________ Best Buy-________________ Service revenue Sales revenue

ABC Tax Advisors-Service revenue Best Buy-Sales revenue

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

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

If discontinued operations have a _____ effect on the income statement, they must be reported separately. Multiple choice question. minimal positive negative material

material

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

Which of the following items may be included in nonoperating income for a company that manufactures televisions? (Select all that apply.) Multiple select question. selling expenses gain from sale of land interest income sales revenue

gain from sale of land interest income

The potential tax expense or benefits of items reported as components of Other Comprehensive Income Multiple choice question. must be aggregated for all items and reported as one line item must be presented separately for each item can be shown separately for each item or aggregated and reported as one line item

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

Income smoothing describes the concept that Multiple choice question. income is averaged over a 10-year moving average. income is not reported until approved by the board of directors. managers manipulate the pattern of income to not vary much between years.

managers manipulate the pattern of income to not vary much between years.

If a causal relationship cannot be established between revenues and expenses, which of the following occurs? (Select all that apply.) Multiple select question. Allocate the expense over several periods. Relate the expense to a particular period. Match the revenue with the expense. Record the expense as incurred.

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

Accumulated other comprehensive income (AOCI) is found on what financial statement? Multiple choice question. Balance sheet Income statement Statement of cash flows

Balance sheet

When are restructuring costs recognized on the income statement? Multiple choice question. In the period included in management's budget. In the period the exit or disposal obligation is incurred. In the period the exit or disposal obligation is paid. In the period following the disposal of the assets.

In the period the exit or disposal obligation is incurred.

Gains and losses are increases or decreases in equity from which type of transactions? (Select all that apply.) Multiple select question. Incidental Causal Peripheral Primary

Incidental Peripheral

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

Reason: True 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.

___ costs include costs associated with shutdown or relocation of facilities. Multiple choice question. Moving Restructuring Closing Refunding

Restructuring

What items must be removed from continuing operations and reported separately for a discontinued operation? (Select all that apply.) Multiple select question. assets Revenues expenses gains liabilities tax expense

Revenues expenses gains tax expense

Which of the following items are reported as components of operating income for most manufacturing and merchandising companies? (Select all that apply.) Multiple select question. administrative expenses selling expenses interest expense revenues

administrative expenses selling expenses revenues

Some types of gains and losses are excluded from the determination of net income on the income statement, but are included in the broader concept of _______ income. (Enter only one word.)

comprehensive

Net income is a part of Multiple choice question. comprehensive income gross income gross margin cost of goods sold

comprehensive income

Comprehensive income is defined as the total change in ______ for a reporting period other than transactions with owners. Multiple choice question. equity net income retained earnings net assets

equity

If a company frequently uses restructuring charges in its income statement, an analyst should Multiple choice question. ignore restructuring charges in ratio analysis. include them in the company's permanent earnings stream. reclassify the charges as discontinued operations.

include them in the company's permanent earnings stream.

Categorizing operating expenses as nonoperating expenses is an example of Multiple choice question. channel stuffing unauthorized income recognition. income statement classification shifting. an illegal act.

income statement classification shifting.

When a company uses a special charge such as restructuring costs and shows a loss on the income statement, income may be manipulated through Multiple choice question. an illegal act. channel stuffing income statement classification shifting. unauthorized income recognition.

income statement classification shifting.

Janex Company manufactures refrigerators. Which of the following items would likely be included in the determination of nonoperating income on Janex's income statement? Multiple choice question. cost of goods sold manufacturing overhead interest expense general and administrative expenses

interest expense

The guidance on discontinued operations defines a discontinued operation as a component that either/or (Select all that apply.) Multiple select question. is classified as held for sale will likely be sold has been sold

is classified as held for sale has been sold

Identify which items on an income statement are included in calculating income from continuing operations. (Select all that apply.) Multiple select question. loss revenue discontinued operations income tax

loss revenue income tax

Which of the following are used in the computation of comprehensive income? Multiple choice question. net assets. retained earnings. common stock. net income.

net income.

An inflow of resources resulting from providing goods or services to customers is a(n) ______. Multiple choice question. expense gain revenue loss

revenue

Nonoperating items that are not expected to continue into the future are considered a ______ component of earnings and should be __________ when forecasting future performance. Multiple choice question. permanent; included permanent; excluded temporary; included temporary; excluded

temporary; excluded

In looking at earnings quality, analysts try to separate a company's ______________earnings effects from its ___________earnings. (Enter only one word per b

Blank 1: temporary Blank 2: permanent

_____ long-lived assets should have their balance reduced if there has been a significant impairment of value.

Both tangible and intangible

Comprehensive income includes net income as well as other ___________ and ______ that change shareholders' equity but are not included in traditional net income. (Enter one word per blank.)

Blank 1: gains or gain Blank 2: losses or loss

Which of the following activities would constitute discontinued operations? (select all that apply) Multiple select question. A large equipment manufacturer sells some idle machinery at one of its facilities. A U.S. cereal manufacturer commits to a plan to dispose of its operations in the EU. A toy company decides to stop production on one of its less popular products. 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. A retail company, like Target, sells its financial services (credit card) business.

Select all that apply To qualify as an operation for purposes of determining discontinued operations, which of the following must occur? (Select all that apply.) Multiple select question. The operation must have completed a separate tax return in the past 2 years. The operation must have been in business for more than 3 years. A strategic shift is represented that will have a major effect on financial results. A component of the entity has been sold, disposed of, or is held for sale

A strategic shift is represented that will have a major effect on financial results. A component of the entity has been sold, disposed of, or is held for sale.

Any long-lived asset, whether tangible or intangible, should have its balance reduced if there has been a significant _______ of value. (Enter only one word.)

Blank 1: impairment, decline, decrease, reduction, or loss

Income tax expense is reported in what way on the income statement? Multiple choice question. As part of general expenses. As part of other expenses. As a separate line item.

As a separate line item.

Which of the following financial statement elements are measured and reported as a result of providing goods and services to customers? (Select all that apply.) Multiple select question. Expenses Losses Revenues Gains

Expenses Revenues

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

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

Under which of the following conditions is a statement of comprehensive income not required? Multiple choice question. When a company has no other comprehensive income items for all years presented. When net income and comprehensive income are identical in the current period. For the first year of the company's operations. If a company has a comprehensive loss.

When a company has no other comprehensive income items for all years presented.

When net income and comprehensive income are identical for all years presented in a company's income statement, which of the following is true? Multiple choice question. A statement of comprehensive income is only required if the company incurs a loss. A statement of comprehensive income is not required. A statement of comprehensive income is still required to be consistent with GAAP.

A statement of comprehensive income is not required.

How are discontinued operations reported? (Select all that apply.) Multiple select question. With tax on the discontinued operation included in total income tax expense. Below income from continuing operations. With separate reporting of the tax effect on the item of discontinued operations. Above income from continuing operations. As a separate line item on the income statement.

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

Revenues, expenses, gains, losses, and income tax related to a(n) _______ ______ must be removed from continuing operations and reported separately on the income statement. (Enter only one word per blank.)

Blank 1: discontinued or discontinuing Blank 2: operation or operations

The outflows of resources incurred while generating revenue are referred to as ________ . (Enter only one word.)

Blank 1: expenses or expense

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.

Blank 1: multi or multiple

The more frequently a company incurs restructuring costs, the more appropriate it is for financial statement users to include those costs in estimates of company's __________________ earnings when forecasting future performance.

Blank 1: permanent

The ability of reported earnings to predict a company's future earnings is referred to as earnings_________

Blank 1: quality

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 _______________costs. (Enter only one word.)

Blank 1: restructuring

A multiple-step income statement includes which of the following? (Select all that apply.) Multiple select question. Gross profit Operating income Total expenses Income before taxes Total revenues

Gross profit Operating income Income before taxes

Where on the income statement is income tax expense reported? Multiple choice question. In other expenses. In a separate line. In extraordinary gains and losses. In other comprehensive income.

In a separate line.

Revenues, expenses, gains, and losses that will likely continue in future periods make up what? Multiple choice question. Gross revenue Gross margin Income from discontinued operations Income from continuing operations

Income from continuing operations

Which of the following is a decrease in equity due to an incidental transaction? Multiple choice question. Revenue Loss Expense Gain

Loss

GAAP requires that restructuring costs are recognized when? Multiple choice question. The period incurred and the following period. Allocated over several periods. Only in the period incurred.

Only in the period incurred.

The evidence that a financial statement user or analyst might use as evidence to suggest that earnings have been smoothed is Multiple choice question. income is averaged with historical numbers. earnings have a steady stream over time. earnings may not increase more than 10% without a penalty. income is deferred until contractual relations are negotiated.

earnings have a steady stream over time.

If a company reorganizes its operation to gain efficiency, the cost associated with this reorganization is classified as Multiple choice question. expense from unusual operations. cost of goods sold. extraordinary loss. restructuring costs.

restructuring costs.

Which of the following items are included in calculating operating income? (Select all that apply.) Multiple select question. expenses related to peripheral activities revenues related to primary revenue-generating activities revenues related to peripheral activities expenses related to primary revenue-generating activities

revenues related to primary revenue-generating activities expenses related to primary revenue-generating activities

Accumulated other comprehensive income represents Multiple choice question. gains and losses reported in net income for the period. the total of other comprehensive income to date. the change in retained earnings from net income of the period. extraordinary items reported in earnings of the period.

the total of other comprehensive income to date.

Gains and losses from the sale of investments can affect earnings quality because Multiple choice question. they are often recurring. they are netted against cost of goods sold. they are often nonrecurring. the gains were included in revenues.

they are often nonrecurring.