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Which of the following is not a selling expense? a. Advertising expense b. Office salaries expense c. Freight-out d. Store supplies consumed

b. Office salaries expense

Which of the following is not an acceptable way of displaying the components of other comprehensive income? a. Combined statement of retained earnings b. Second income statement c. Combined statement of comprehensive income d. As part of the statement of stockholders' equity

a. Combined statement of retained earnings

Which of the following is not a generally practiced method of presenting the income statement? a. Including prior period adjustments in determining net income b. The single-step income statement c. The consolidated statement of income d. Including gains and losses from discontinued operations of a component of a business in determining net income

a. Including prior period adjustments in determining net income

Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes? a. Only if floods in the geographical area are unusual in nature and occur infrequently. b. Only if the flood damage is material in amount and could have been reduced by prudent management. c. Under any circumstances as an extraordinary item. d. Flood damage should never be classified as an extraordinary item.

a. Only if floods in the geographical area are unusual in nature and occur infrequently.

How should an unusual event not meeting the criteria for an extraordinary item be disclosed in the financial statements? a. Shown as a separate item in operating revenues or expenses if material and supple-mented by a footnote if deemed appropriate. b. Shown in operating revenues or expenses if material but not shown as a separate item. c. Shown net of income tax after ordinary net earnings but before extraordinary items. d. Shown net of income tax after extraordinary items but before net earnings.

a. Shown as a separate item in operating revenues or expenses if material and supple-mented by a footnote if deemed appropriate.

In order to be classified as an extraordinary item in the income statement, an event or transaction should be a. unusual in nature, infrequent, and material in amount. b. unusual in nature and infrequent, but it need not be material. c. infrequent and material in amount, but it need not be unusual in nature. d. unusual in nature and material, but it need not be infrequent.

a. unusual in nature, infrequent, and material in amount.

Which of the following is included in comprehensive income? a. Investments by owners. b. Unrealized gains on available-for-sale securities. c. Distributions to owners. d. Changes in accounting principles.

b. Unrealized gains on available-for-sale securities.

The occurrence which most likely would have no effect on 2012 net income (assuming that all amounts involved are material) is the a. sale in 2012 of an office building contributed by a stockholder in 1983. b. collection in 2012 of a receivable from a customer whose account was written off in 2011 by a charge to the allowance account. c. settlement based on litigation in 2012 of previously unrecognized damages from a serious accident which occurred in 2010. d. worthlessness determined in 2012 of stock purchased on a speculative basis in 2008.

b. collection in 2012 of a receivable from a customer whose account was written off in 2011 by a charge to the allowance account.

Limitations of the income statement include all of the following except a. items that cannot be measured reliably are not reported. b. only actual amounts are reported in determining net income. c. income measurement involves judgment. d. income numbers are affected by the accounting methods employed.

b. only actual amounts are reported in determining net income.

The accountant for the Lintz Sales Company is preparing the income statement for 2012 and the balance sheet at December 31, 2012. The January 1, 2012 merchandise inventory balance will appear a. only as an asset on the balance sheet. b. only in the cost of goods sold section of the income statement. c. as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet. d. as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

b. only in the cost of goods sold section of the income statement.

The single-step income statement emphasizes a. the gross profit figure. b. total revenues and total expenses. c. extraordinary items and accounting changes more than these are emphasized in the multiple-step income statement. d. the various components of income from continuing operations.

b. total revenues and total expenses.

The income statement information would help in which of the following tasks? a. Evaluate the liquidity of a company. b. Evaluate the solvency of a company c. Estimate future cash flows d. Estimate future financial flexibility

c. Estimate future cash flows

A material item which is unusual in nature or infrequent in occurrence, but not both should be shown in the income statement Net of Tax Disclosed Separately a. No No b. Yes Yes c. No Yes d. Yes No

c. No Yes

Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles? a. On the face of the statement of retained earnings (or, statement of stockholders' equity.) b. In the footnotes to the financial statements. c. On the face of the income statement. d. Either (a) or (c).

c. On the face of the income statement.

When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as a. a prior period adjustment. b. an extraordinary item. c. an amount after continuing operations and before extraordinary items. d. a bulk sale of plant assets included in income from continuing operations.

c. an amount after continuing operations and before extraordinary items.

Comprehensive income includes all of the following except a. dividend revenue. b. losses on disposal of assets. c. investments by owners. d. unrealized holding gains.

c. investments by owners.

The major elements of the income statement are a. revenue, cost of goods sold, selling expenses, and general expense. b. operating section, nonoperating section, discontinued operations, extraordinary items, and cumulative effect. c. revenues, expenses, gains, and losses. d. all of these.

c. revenues, expenses, gains, and losses.

The approach most companies use to provide information related to the components of other comprehensive income is a a. second separate income statement. b. combined income statement of comprehensive income. c. separate column in the statement of changes in stockholders' equity. d. footnote disclosure.

c. separate column in the statement of changes in stockholders' equity.

Which of the following is an acceptable method of presenting the income statement? a. A single-step income statement b. A multiple-step income statement c. A consolidated statement of income d. All of these

d. All of these

Which disclosure method do most companies use to display the components of other comprehensive income? a. Combined statement of retained earnings b. Second income statement c. Combined statement of comprehensive income d. As part of the statement of stockholders' equity

d. As part of the statement of stockholders' equity

Which of the following items would be reported net of tax on the face of the income statement? a. Prior period adjustment b. Unusual gain c. Cumulative effect of a change in an accounting principle d. Discontinued operations

d. Discontinued operations

Which of these is generally an example of an extraordinary item? a. Loss incurred because of a strike by employees. b. Write-off of deferred marketing costs believed to have no future benefit. c. Gain resulting from the devaluation of the U.S. dollar. d. Gain resulting from the state exercising its right of eminent domain on a piece of land used as a parking lot.

d. Gain resulting from the state exercising its right of eminent domain on a piece of land used as a parking lot.

Which of the following is an advantage of the single-step income statement over the multiple-step income statement? a. It reports gross profit for the year. b. Expenses are classified by function. c. It matches costs and expenses with related revenues. d. It does not imply that one type of revenue or expense has priority over another.

d. It does not imply that one type of revenue or expense has priority over another.

Which of the following is never classified as an extraordinary item? a. Losses from a major casualty. b. Losses from an expropriation of assets. c. Gain on a sale of the only security investment a company has ever owned. d. Losses from exchange or translation of foreign currencies.

d. Losses from exchange or translation of foreign currencies.

Which of the following items would be reported at its gross amount on the face of the income statement? a. Extraordinary loss b. Prior period adjustment c. Cumulative effect of a change in an accounting principle d. Unusual gain

d. Unusual gain

Which of the following would represent the least likely use of an income statement prepared for a business enterprise? a. Use by customers to determine a company's ability to provide needed goods and services. b. Use by labor unions to examine earnings closely as a basis for salary discussions. c. Use by government agencies to formulate tax and economic policy. d. Use by investors interested in the financial position of the entity.

d. Use by investors interested in the financial position of the entity.

Information in the income statement helps users to a. evaluate the past performance of the enterprise. b. provide a basis for predicting future performance. c. help assess the risk or uncertainty of achieving future cash flows. d. all of these.

d. all of these.

An item that should be classified as an extraordinary item is a. write-off of goodwill. b. gains from transactions involving foreign currencies. c. losses from moving a plant to another city. d. gains from a company selling the only investment it has ever owned.

d. gains from a company selling the only investment it has ever owned.

The income statement reveals a. resources and equities of a firm at a point in time. b. resources and equities of a firm for a period of time. c. net earnings (net income) of a firm at a point in time. d. net earnings (net income) of a firm for a period of time.

d. net earnings (net income) of a firm for a period of time.

Classification as an extraordinary item on the income statement would be appropriate for the a. gain or loss on disposal of a component of the business. b. substantial write-off of obsolete inventories. c. loss from a strike. d. none of these.

d. none of these.


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