Chapter 4 SmartBook

To qualify as an operation for purposes of determining discontinued operations, which of the following must occur? (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.

Which of the following is a category of accounting change?

Accounting principle

Which of the following are significant noncash activities? (Select all that apply.)

Acquiring equipment by issuing a long-term note. Acquiring land by issuing common stock.

Income tax expense is reported in what way on the income statement?

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.)

Expenses Revenues

Which type of activities involve cash inflows and outflows from transactions with creditors and owners?

Financing

Which of the following is disclosed on the balance sheet?

accumulated other comprehensive incom

Revenues, expenses, gains, losses, and income tax related to a(n) _____ _____ must be removed from continuing operations and reported separately on the income statement.

discontinued operations

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.

Discontinued operations should be reported on the income statement

net of tax below income from continuing operations.

In order to provide more complete information, U.S. GAAP allows that any significant noncash investing and financing activities may be reported (Select all that apply.)

on the face of the statement of cash flows. in the notes to financial statements.

The inflows and outflows of cash that result from activities reported in the income statement are classified as cash flows from _____ activities.

operating

What is the formula for the asset turnover ratio?

Net sales divided by average total assets.

The three types of accounting changes are a change in

accounting estimate. reporting entity. accounting principle.

The statement of cash flows is useful because

accrual-based income is not an indication of cash flows.

Which of the following items are reported as components of operating income for most manufacturing and merchandising companies? (Select all that apply.)

administrative expenses selling expenses revenues

What items must be removed from continuing operations and reported separately for a discontinued operation? (Select all that apply.)

expenses tax expense gains Revenues

If a company reorganizes its operation to gain efficiency, the cost associated with this reorganization is classified as

restructuring costs.

In looking at earnings quality, analysts try to separate a company's _____ earnings effects form its ____ earnings.

temporary permanent

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

Significant noncash investing and financing activities are disclosed because they

provide more complete information.

Inflows and outflows of cash related to the transactions used to determine net operating income are what type of activities?

Operating

Asset turnover ratio is net sales divided by

average total assets.

Net income is a part of

comprehensive income

Companies have considerable flexibility in reporting income from _____ operations, but the reporting of income from _____ operations is strictly mandated.

continuous discontinuing

The classifications on the statement of cash flows are cash flows from (Select all that apply.)

investing activities. financing activities. operating activities.

An inflow of resources resulting from providing goods or services to customers is a(n) ______.

revenue

Which of the following items are included in calculating operating income? (Select all that apply.)

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

Accumulated other comprehensive income (AOCI) is found on what financial statement?

Balance sheet

Which of the following is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding?

Basic earnings per share

How are discontinued operations reported? (Select all that apply.)

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

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

False

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?

Investing

Which of the following are accounting errors? (Select all that apply.)

Making a mistake in calculating depreciation expense. Forgetting to accrue salary expense.

The purpose of the statement of cash flows includes which of the following? (Select all that apply.)

Provide information about cash receipts during a period. Provide information about cash disbursements during a period.

_____ costs include costs associated with shutdown or relocation of facilities.

Restructuring

Operating, investing, and financing activities are found on which financial statement?

Statement of cash flows

If a component of the business qualifies for discontinued operations treatment, which of the following statements are true? (Select all that apply.)

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

Cash flows from investing activities include inflows and outflows of cash related to the acquisition and disposition of long-term _____ used in operations.

asset

The potential tax expense or benefits of items reported as components of Other Comprehensive Income

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.

component

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.

discontinued

U.S. GAAP requires that a statement of cash flows must be presented for

each period for which a balance sheet and income statement are prepared.

When a transaction is recorded incorrectly or is not recorded at all, this is treated as an accounting _____.

error

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

estimates entity

Cash borrowed or paid to a creditor is an example of a(n) _____ activity.

financing

The type of activities related to the external financing of the company are _____ activities.

financing

Cash flows from _____ activities are related to the purchase and sale of long-term assets used in business operations.

investing

The guidance on discontinued operations defines a discontinued operation as a component that either/or (Select all that apply.)

is classified as held for sale has been sold

The statement of cash flows is useful because (select all that apply)

it provides information about liquidity it reveals the company's ability to generate positive cash flow from its normal operations

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

In calculating basic earnings per share, ______ is divided by the weighted average common shares outstanding.

net income less any preferred stock dividends

The statement of cash flows classifies items as

operating, investing, and financing.

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows

Where on the income statement is income tax expense reported?

In a separate line.

Which is a significant noncash activity?

Signing a note payable in exchange for land.

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

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

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.

restructuring

The inflow of resources resulting from providing goods or services to customers is referred to as _____.

revenue

The two approaches for preparing an income statement are the _____ steps and _____ steps approaches.

single multiple

The two approaches most commonly used to prepare an income statement are

single-step and multiple-step

Earnings quality refers to

the ability of reported earnings to predict future earnings.

Gains and losses from the sale of investments can affect earnings quality because

they are often nonrecurring.

Gulf Corp. has the following information: End of Year 1 End of Year 2 Net sales $ 80,000 $100,000 Total assets 600,000 800,000 Accounts receivable 30,000 50,000 What is the asset turnover ratio for year 2 rounded to the nearest 1/1000?

0.143

Management's assessment of permanent earnings are referred to as what?

Non-GAAP earnings

Which of the following are acceptable methods of presenting the income statement? (Select all that apply.)

Single-step format Multiple-step format

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

True

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

True