ACCT 3023 Chapter 4 - Smartbook
To qualify as an operation for purposes of determining discontinued operations, which of the following must occur? - 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. - 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. (Select all that apply.)
- 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.
To qualify as an operation for purposes of determining discontinued operations, which of the following must occur? - A strategic shift is represented that will have a major effect on financial results. - The operation must have completed a separate tax return in the past 2 years. - A component of the entity has been sold, disposed of, or is held for sale. - The operation must have been in business for more than 3 years. (Select all that apply.)
- 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.
To qualify as an operation for purposes of determining discontinued operations, which of the following must occur? - The operation must have completed a separate tax return in the past 2 years. - A strategic shift is represented that will have a major effect on financial results. - The operation must have been in business for more than 3 years. - A component of the entity has been sold, disposed of, or is held for sale. (Select all that apply.)
- 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.
If a component of the business qualifies for discontinued operations treatment, which of the following statements are true? - All related revenues, expenses, gains, and losses must be removed from continuing operations. - Revenue from the discontinued operations is listed immediately below revenue in the operating section of the income statement. - The tax expense effect is removed from continuing operations. - Revenues and expenses are reported in continuing operations, but gains and losses are reported as discontinued operations. (Select all that apply.)
- All related revenues, expenses, gains, and losses must be removed from continuing operations. - The tax expense effect is removed from continuing operations.
If a component of the business qualifies for discontinued operations treatment, which of the following statements are true? - Revenues and expenses are reported in continuing operations, but gains and losses are reported as discontinued operations. - All related revenues, expenses, gains, and losses must be removed from continuing operations. - The tax expense effect is removed from continuing operations. - Revenue from the discontinued operations is listed immediately below revenue in the operating section of the income statement. (Select all that apply.)
- All related revenues, expenses, gains, and losses must be removed from continuing operations. - The tax expense effect is removed from continuing operations.
Which of the following are acceptable methods for reporting comprehensive income? - in one single statement of shareholders' equity - In one single statement of comprehensive income - in two consecutive statements - income statement and comprehensive income statement - in two consecutive statements - income statement and shareholders' equity statement (Select all that apply.)
- In one single statement of comprehensive income in two consecutive statements - income statement and comprehensive income statement
Which of the following are acceptable methods of presenting the income statement? - Multiple-step format - Direct format - Indirect format - Single-step format (Select all that apply.)
- Multiple-step format - Single-step format
Which of the following financial statement elements are measured and reported as a result of providing goods and services to customers?
- Revenues - Expenses
How are discontinued operations reported? - With separate reporting of the tax effect on the item of discontinued operations. - As a separate line item on the income statement. - With tax on the discontinued operation included in total income tax expense. - Below income from continuing operations. - Above income from continuing operations. (Select all that apply.)
- With separate reporting of the tax effect on the item of discontinued operations. - As a separate line item on the income statement. - Below income from continuing operations.
The three types of accounting changes are a change in
- accounting principle. - accounting estimate. - reporting entity.
Which of the following items are reported as components of operating income for most manufacturing and merchandising companies? - interest expense - administrative expenses - selling expenses - revenues (Select all that apply.)
- administrative expenses - selling expenses - revenues
What items must be removed from continuing operations and reported separately for a discontinued operation? - liabilities - assets - expenses - tax expense - Revenues - gains (Select all that apply.)
- expenses - tax expense - Revenues - gains
What items are included in calculating operating income?
- expenses related to primary revenue-generating activities - revenues related to primary revenue-generating activities
Which of the following items are included in calculating operating income? - expenses related to primary revenue-generating activities - expenses related to peripheral activities - revenues related to peripheral activities - revenues related to primary revenue-generating activities (Select all that apply.)
- expenses related to primary revenue-generating activities - revenues related to primary revenue-generating activities
The classifications on the statement of cash flows are cash flows from - financing activities. - business activities. - investing activities. - operating activities. - discontinued activities. (Select all that apply.)
- financing activities. - investing activities. - operating activities.
What items must be removed from continuing operations and reported separately for a discontinued operation? - liabilities - gains - expenses - Revenues - assets - tax expense (Select all that apply.)
- gains - expenses - Revenues - tax expense
The guidance on discontinued operations defines a discontinued operation as a component that either/or - has been sold - will likely be sold - is classified as held for sale (Select all that apply.)
- has been sold - is classified as held for sale
The statement of cash flows is useful because - it provides a more accurate prediction of the company's ability to generate future cash flows than income does - it provides information about liquidity - it reveals the company's ability to generate positive cash flow from its normal operations (select all that apply)
- it provides information about liquidity - it reveals the company's ability to generate positive cash flow from its normal operations
The statement of cash flows is useful because - it reveals the company's ability to generate positive cash flow from its normal operations - it provides information about liquidity - it provides a more accurate prediction of the company's ability to generate future cash flows than income does (select all that apply)
- it reveals the company's ability to generate positive cash flow from its normal operations - it provides information about liquidity
The statement of cash flows is useful because - it reveals the company's ability to generate positive cash flow from its normal operations - it provides information about liquidity - it provides a more accurate prediction of the company's ability to generate future cash flows than income does (select all that apply)
- it reveals the company's ability to generate positive cash flow from its normal operations - it provides information about liquidity
Investing activities involve the acquisition and sale of - long-lived assets used in business operations. - inventories sold in normal operations. - nonoperating investment assets. (Select all that apply.)
- long-lived assets used in business operations. - nonoperating investment assets.
Which of the following items are reported as components of operating income for most manufacturing and merchandising companies? - interest expense - revenues - administrative expenses - selling expenses (Select all that apply.)
- revenues - administrative expenses - selling expenses
Which of the following items are included in calculating operating income? - expenses related to peripheral activities - revenues related to primary revenue-generating activities - revenues related to peripheral activities - expenses related to primary revenue-generating activities (Select all that apply.)
- revenues related to primary revenue-generating activities - expenses related to primary revenue-generating activities
Which of the following items are reported as components of operating income for most manufacturing and merchandising companies? - interest expense - selling expenses - revenues - administrative expenses (Select all that apply.)
- selling expenses - revenues - administrative expenses
Which of the following is a category of accounting change?
Accounting principle
Compute the receivables turnover ratio using the following information: Net credit sales is $200,000 for year 2. Total assets at the end of years 1 and 2 were $800,000 and $1,200,000, respectively. Accounts receivable at the end of years 1 and 2 were $40,000 and $60,000, respectively. a. 0.20 b. 4 c. 0.25 d. 5
Answer: 4 Logic: Net credit sales/average accounts receivable = $200,000/((40,000+60,000)/2) = 4
Accumulated other comprehensive income (AOCI) is found on what financial statement? a. Balance sheet b. Income statement c. Statement of cash flows
Balance sheet
Accumulated other comprehensive income (AOCI) is found on what financial statement? a. Statement of cash flows b. Income statement c. Balance sheet
Balance sheet
Which of the following is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding? a. Diluted earnings per share b. Basic earnings per share c. Return on equity d. Price to earnings
Basic earnings per share
Which of the following is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding? a. Return on equity b. Diluted earnings per share c. Basic earnings per share d. Price to earnings
Basic earnings per share
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. (Enter only one word.)
Blank 1: accumulated
Companies have considerable flexibility in reporting income from _______________ operations, but the reporting of income from ____________________operations is strictly mandated. (Enter only one word per blank.)
Blank 1: continuing, continued, or continuous Blank 2: discontinued or discontinuing
Companies have considerable flexibility in reporting income from ___________________ operations, but the reporting of income from ____________________ operations is strictly mandated. (Enter only one word per blank.)
Blank 1: continuing, continued, or continuous Blank 2: discontinued or discontinuing
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 Blank 2: operation or operations
The three types of accounting changes are a change in accounting principle, a change in accounting _______________, and a change in reporting ___________________. (Enter one word per blank.)
Blank 1: estimate or estimates Blank 2: entity
The calculation of _________________ income omits certain gains and losses that are instead included in the broader perspective of other _______________ income. (Enter one word per blank.)
Blank 1: net Blank 2: comprehensive
In looking at earnings quality, analysts try to separate a company's __________________ earnings effects from its _________________ earnings. (Enter only one word per blank.)
Blank 1: temporary Blank 2: permanent
In looking at earnings quality, analysts try to separate a company's ____________________ earnings effects from its _________________ earnings. (Enter only one word per blank.)
Blank 1: temporary Blank 2: permanent
The operating activities section on the statement of cash flows includes the elements of net income on a(n) ______________ basis rather than a(n) _________________ basis. (Enter one word per blank.)
Cash, Accrual
The operating activities section on the statement of cash flows includes the elements of net income on a(n) ________________ basis rather than a(n) __________________ basis. (Enter one word per blank.)
Cash, Accrual
When a company discovers an immaterial error in a year subsequent to the year the error is made, what is the proper course of action?
Correct the error in the year discovered.
Separate reporting as a(n) _____________________ operation is required when the disposal of a component represents a strategic shift that has, or will have, a major effect on a company's operations and financial results. (Enter only one word.)
Discontinued
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.)
Discontinued Operation
True or false: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements.
False
True or False: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements.
False Income tax expense must be disclosed as a separate line item on the income statement.
True or false: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements.
False Income tax expense must be disclosed as a separate line item on the income statement.
True or false: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements.
False Income tax expense must be disclosed as a separate line item on the income statement.
Where on the income statement is income tax expense reported?
In a separate line.
Statement of operations and statement of earnings are additional titles for the
Income Statement
Inflows and outflows of cash related to the acquisition and disposition of long-lived assets used in operations and investment assets are what type of cash flow? a. Investing b. Operating c. Financing
Investing
The calculation of ______________ income omits certain gains and losses that are instead included in the broader perspective of other ___________________ income. (Enter one word per blank.)
Net Comprehensive
What is the formula for the asset turnover ratio? a. Average assets divided by net sales. b. Net sales divided by average accounts receivable. c. Net sales divided by average total assets.
Net sales divided by average total assets.
Inflows and outflows of cash related to the transactions used to determine net operating income are what type of activities? a. Operating b. Financing c. Investing d. Income
Operating
Where are the elements of net income found on a cash basis rather than an accrual basis? a. In the statement of earnings b. Investing activities section of the statement of cash flows c. Operating activities section of the statement of cash flows d. In the statement of operations
Operating activities section of the statement of cash flows
Where are the elements of net income found on a cash basis rather than an accrual basis? a. Investing activities section of the statement of cash flows b. In the statement of operations c. In the statement of earnings d. Operating activities section of the statement of cash flows
Operating activities section of the statement of cash flows
The ability of reported earnings to predict a company's future earnings is referred to as earnings __________________. (Enter only one word.)
Quality
Which of the following is a category of accounting change? a. Reporting class b. Liability classification c. Entity classification d. Reporting entity
Reporting entity
_____ costs include costs associated with shutdown or relocation of facilities.
Restructuring
When an immaterial error is discovered in the same year it is made before the financial statements are issued, what is the appropriate course of action?
Reverse the erroneous journal entry and record the correct entry.
When an immaterial error is discovered in the same year it is made before the financial statements are issued, what is the appropriate course of action? a. Reverse the erroneous journal entry, record the correct entry, include a note to the financial statements, and report the error to the authorities. b. Reverse the erroneous journal entry, record the correct entry, and include a note to the financial statements. c. Reverse the erroneous journal entry and record the correct entry.
Reverse the erroneous journal entry and record the correct entry.
Which is a significant noncash activity? a. Signing a note payable in exchange for land. b. Repurchasing common stock. c. Collecting on customer accounts. d. Receiving proceeds from sale of stock.
Signing a note payable in exchange for land.
The two approaches for preparing an income statement are the __________ step and _________________ step approaches.
Single Multi
The two approaches most commonly used to prepare an income statement are ________________ and __________________
Single Step Multi Step
Which of the following terms is also used as a heading for an income statement?
Statement of Operations
Operating, investing, and financing activities are found on which financial statement? a. Balance Sheet b. Income statement c. Statement of cash flows d. Statement of operations
Statement of cash flows
Operating, investing, and financing activities are found on which financial statement? a. Balance Sheet b. Statement of cash flows c. Income statement d. Statement of operations
Statement of cash flows
True or false: Net income is a portion of comprehensive income.
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.
True or false: Reporting comprehensive income can be done with a single, continuous statement or in two separate, but consecutive statements.
True GAAP allows one income statement that includes comprehensive income or a separate statement.
True or False: The single-step and the multiple-step formats are most commonly used in income statement preparation; however, there are no specific standards on how income from continuing operations must be displayed.
True These 2 methods are most common, but GAAP does not dictate any certain methods.
The statement of cash flows is useful because a. accrual-based income is not an indication of cash flows. b. it provides more accurate information than the balance sheet. c. it is prepared on an accrual basis. d. it is more accurate in measuring net income for the period.
accrual-based income is not an indication of cash flows.
The statement of cash flows is useful because a. it provides more accurate information than the balance sheet. b. accrual-based income is not an indication of cash flows. c. it is more accurate in measuring net income for the period. d. it is prepared on an accrual basis.
accrual-based income is not an indication of cash flows.
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. (Enter only one word.)
accumulated
Which of the following is disclosed on the balance sheet? a. other comprehensive income b. earnings per share c. accumulated other comprehensive income d. net income
accumulated other comprehensive income
Non-GAAP earnings are calculated
based on management's assumptions of permanent earnings.
The potential tax expense or benefits of items reported as components of Other Comprehensive Income - 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
The potential tax expense or benefits of items reported as components of Other Comprehensive Income a. must be presented separately for each item b. must be aggregated for all items and reported as one line item c. 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
A discontinued operation is reported when a ___________________ of an entity either (a) has been disposed of or (b) is classified as held for sale. (Enter one word per blank)
component
U.S. GAAP requires that a statement of cash flows must be presented for a. each period for which a balance sheet and income statement are prepared. b. every reporting period to date. c. each period in which an income statement is not prepared.
each period for which a balance sheet and income statement are prepared.
The evidence that a financial statement user or analyst might use as evidence to suggest that earnings have been smoothed is
earnings have a steady stream over time.
Cash borrowed or paid to a creditor is an example of a(n) _____ activity. a. financing b. investing c. operating
financing
The type of activities related to the external financing of the company are _____ activities. a. investing b. operating c. financing
financing
The majority of ________________ errors discovered are not and are corrected in the year discovered. (Enter only one word.)
immaterial
Non-GAAP earnings are
management's estimates and view of earnings.
Income smoothing describes the concept that
managers manipulate the pattern of income to not vary much between years.
If discontinued operations have a ______________ effect on the income statement, they must be reported separately.
material
The majority of errors discovered are not _______________, and are corrected in the year discovered.
material
In calculating basic earnings per share, ______ is divided by the weighted average common shares outstanding.
net income less any preferred stock dividends
Discontinued operations should be reported on the income statement
net of tax below income from continuing operations.
Investing activities involve the acquisition and sale of - nonoperating investment assets. - inventories sold in normal operations. - long-lived assets used in business operations. (Select all that apply.)
nonoperating investment assets. long-lived assets used in business operations.
The statement of cash flows classifies items as
operating, investing, and financing.
The statement of cash flows classifies items as a. current and noncurrent. b. operating, investing, and financing. c. operating and nonoperating. d. recurring and nonrecurring.
operating, investing, and financing.
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.)
restructuring
If a company reorganizes its operation to gain efficiency, the cost associated with this reorganization is classified as
restructuring costs.
Analyzing earnings quality requires an analyst to
separate a company's temporary and permanent earnings.
The financial statement that provides information about cash receipts and cash disbursements for the period is the a. balance sheet. b. income statement. c. statement of cash flows. d. statement of retained earnings.
statement of cash flows.
Nonoperating items that are not expected to continue into the future are considered a ______ component of earnings and should be __________ when forecasting future performance.
temporary; excluded
Earnings quality refers to
the ability of reported earnings to predict future earnings.
Accumulated other comprehensive income represents a. gains and losses reported in net income for the period. b. the change in retained earnings from net income of the period. c. the total of other comprehensive income to date. d. 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
they are often nonrecurring.
