AC 300 Ch 4 extra practice

Comprehensive income can be reported in one of two ways:

1. in a single, continuous statement of comprehensive income or 2. in two separate but consecutive statements -- an income statement and a statement of comprehensive income that begins with net income and then reports OCI items to combine for comprehensive income.

Indicate the section of the income statement where each item is found. Discontinued operations Restructuring costs

Discontinued operations - Separately reported items at the bottom of the income statement Restructuring costs - Operating income

_____ activities relate to the external financing of the company.

Financing

True or false: Many investors and creditors perceive the income statement as the statement most useful for predicting future profitability (future cash-generating ability).

True

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

Which of the following are acceptable methods of presenting the income statement? a) Direct format b) Indirect format c) Multi-step format d) Single-step format

c) Multi-step format d) Single-step format

The statement of cash flows also is a change statement, disclosing the events that caused _____ to change during the period.

cash

The purpose of the _____ _____, sometimes called the statement of operations or statement of earnings, is to summarize the profit-generating activities that occurred during a particular reporting period.

income statement

The _____ method of preparing the statement of cash flows begins with net income.

indirect

Unlike the balance sheet, which is a _____ statement, the income statement and the statement of cash flows are _____ statements.

position, change

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.

restructuring

The income statement reports the changes in _____ _____ (_____ _____) that occurred during the reporting period as a result of revenues, expenses, gains, and losses.

shareholders' equity (retained earnings)

The purpose of _____ _____ _____ _____ is to provide information about the cash receipts and cash disbursements of an enterprise that occurred during a period.

statement of cash flows

Which of the following is required to correct a material error in the financial statements? a) Adjust the beginning balance in retained earnings for the earliest period presented. b) Restate the financial statements of all years presented. c) Treat the change on a prospective basis in the current and future years. d) Recalculate the amounts as if the error had not occurred and correct retained earnings in the current year. e) Include a disclosure note explaining the impact of the error on income.

a) Adjust the beginning balance in retained earnings for the earliest period presented. b) Restate the financial statements of all years presented. e) Include a disclosure note explaining the impact of the error on income.

If a component of the business qualifies for discontinued operations treatment, which of the following statements are true? a) All revenues, expenses, gains, and losses must be removed from continuing operations. b) The tax expense effect is removed from continuing operations. c) Revenue from the discontinued operations is listed immediately below revenue in the operating section of the income statement. d) Revenues and expenses are reported in continuing operations, but gains and losses are reported as discontinued operations.

a) All revenues, expenses, gains, and losses must be removed from continuing operations. b) The tax expense effect is removed from continuing operations.

How are discontinued operations reported? a) As a separate line item on the income statement. b) Above income from continuing operations. c) Below income from continuing operations. d) With tax on the discontinued operation included in total income tax expense. e) With tax applied to the discontinued operation.

a) As a separate line item on the income statement. c) Below income from continuing operations. e) With tax applied to the discontinued operation.

_____ is the total change in equity for a reporting period other than from transactions with owners. a) Comprehensive income b) Other comprehensive income c) Net income d) Income before taxes

a) Comprehensive income

Which of the following occur as a result of providing goods and services to customers? a) Expenses b) Revenues c) Losses d) Gains

a) Expenses b) Revenues

Gains and losses are increases or decreases in equity from which type(s) of transactions? a) Incidental b) Primary c) Causal d) Peripheral

a) Incidental d) Peripheral

Which of the following is a decrease in equity due to an incidental transaction? a) Loss b) Expense c) Gain d) Revenue

a) Loss

What items must be removed from continuing operations for a discontinued operation? a) Revenues b) gains c) assets d) expenses e) tax expense

a) Revenues b) gains d) expenses e) tax expense

Pro forma earnings are calculated a) based on management's assumptions of permanent earnings. b) based on historical cost assumptions. c) based on statistical analysis of time series data. d) based on assets that are expected to be converted to cash in the next operating cycle.

a) based on management's assumptions of permanent earnings.

Identify which items on an income statement are included in calculating income from continuing operations. a) interest expense b) revenue c) loss d) discontinued operations

a) interest expense b) revenue c) loss

Investing activities involve the acquisition and sale of a) nonoperating investing assets. b) inventories sold in normal operations. c) long-lived assets used in business operations.

a) nonoperating investing assets. c) long-lived assets used in business operations.

Which of the following are cash outflows from financing activities? a) repayment of note payable b) payment of income taxes c) payment of dividends d) purchase of equipment e) issuance of common stock

a) repayment of note payable c) payment of dividends

Which of the following items are reported in operating income? a) selling expenses b) revenues c) interest expense d) research and development expenses

a) selling expenses b) revenues d) research and development expenses

Basic earnings per share is calculated as net income available to common shareholders divided by a) weighted average common shares outstanding. b) average stockholders' equity. c) ending retained earnings. d) average total assets.

a) weighted average common shares outstanding.

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

b) As a separate line item.

GAAP requires that restructuring costs are recognized when? a) Allocated over several periods. b) Only in the period incurred.

b) Only in the period incurred.

Where is earnings per share disclosed in the financial statements? a) on the statement of owners' equity b) on the income statement c) on the balance sheet d) on the statement of cash flows

b) on the income statement

A component is qualified as a discontinued operation. What are the two elements that may be reported in discontinued operation on the income statement if the component is not sold by the end of the reporting period? a) Revenues and gains of the component for the period. b) Tax expense and tax benefit related to the income and loss of the component. c) Operating income or loss from the component and an impairment loss. d) Estimated gain on sale of the component and the related tax effects.

c) Operating income or loss from the component and an impairment loss.

The purpose of the statement of cash flows includes which of the following? a) Provide information about cash receipts on a specific date. b) Provide information about cash disbursements on a specific date. c) Provide information about cash disbursements during a period. d) Provide information about cash receipts during a period.

c) Provide information about cash disbursements during a period. d) Provide information about cash receipts during a period.

A change in accounting principle should be accounted for a) regressively. b) prospectively. c) retrospectively. d) currently.

c) retrospectively.

Analyzing earnings quality requires an analyst to a) score a company based on its historical earnings. b) combine all earnings for analysis. c) separate a company's recurring and nonrecurring earnings. d) determine whether the auditor was correct in calculating earnings.

c) separate a company's recurring and nonrecurring earnings.

Net income is a part of _____ income

comprehensive

Expenses represent the _____ of providing goods and services to customers.

cost

The three types of accounting changes are a change in accounting principle, a change in accounting _____, and a change in reporting _____.

estimate, entity

When a discontinued 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 reported income.

gain, loss

The _____ principle establishes a causal relationship between revenues and expenses of the same period.

matching

A few types of gains and losses are excluded from the determination of net income and the income statement but are included in the broader concept of comprehensive income. We refer to these as items of _____ _____ _____ (OCI) or _____.

other comprehensive income, loss

A multiple-step income statement includes a number of _____ before arriving at income from continuing operations.

subtotals