Question 1

Prior period adjustments can either be added or subtracted in the Retained Earnings Statement.

Accepted Answer

A) True 
 B)False

Question 2

At Ruth Company, events and transactions during 2014 included the following. The tax rate for all items is 30%.(1) Depreciation for 2012 was found to be understated by $90,000.(2) A strike by the employees of a supplier resulted in a loss of $75,000.(3) The inventory at December 31, 2012 was overstated by $120,000.(4) A flood destroyed a building that had a book value of $1,500,000. Floods are very uncommon in that area.The effect of these events and transactions on 2014 net income net of tax would be

Accepted Answer

A)  ($52,500). 
B)  ($1,102,500). 
C)  ($1,165,500). 
D)  ($1,249,500). 
A)  ($52,500). 
B)  ($1,102,500). 
C)  ($1,165,500). 
D)  ($1,249,500).

Question 3

Which of the following items will not appear in the retained earnings statement?

Accepted Answer

A)  Net loss 
B)  Prior period adjustment 
C)  Discontinued operations 
D)  Dividends 
A)  Net loss 
B)  Prior period adjustment 
C)  Discontinued operations 
D)  Dividends

Question 4

Intraperiod tax allocation relates the income tax expense of a fiscal period to the specific items that give rise to the amount of the tax provision.

Accepted Answer

A) True 
 B)False

Question 5

The accountant for the Lintz Sales Company is preparing the income statement for 2014 and the balance sheet at December 31, 2014. The January 1, 2014 merchandise inventory balance will appear

Accepted Answer

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. 
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.

Question 6

Income statement relationships.Fill in the appropriate blanks for each of the independent situations below.

Accepted Answer

(a) $271,000 (d) $77,800 (g) $

Question 7

What might a manager do during the last quarter of a fiscal year if she wanted to improve current annual net income?

Accepted Answer

A)  Increase research and development activities. 
B)  Relax credit policies for customers. 
C)  Delay shipments to customers until after the end of the fiscal year. 
D)  Delay purchases from suppliers until after the end of the fiscal year. 
A)  Increase research and development activities. 
B)  Relax credit policies for customers. 
C)  Delay shipments to customers until after the end of the fiscal year. 
D)  Delay purchases from suppliers until after the end of the fiscal year.

Question 8

Which of the following items would be reported net of tax on the face of the income statement?

Accepted Answer

A)  Prior period adjustment 
B)  Unusual gain 
C)  Change in realizability of receivables 
D)  Discontinued operations 
A)  Prior period adjustment 
B)  Unusual gain 
C)  Change in realizability of receivables 
D)  Discontinued operations

Question 9

Which of the following is true of expense classification under IFRS?

Accepted Answer

A)  The nature-of-expense method identifies the major cost drivers of the company. 
B)  The nature-of-expense method does not classify the expenses into various subtotals. 
C)  The function-of-expense method is simple to apply because allocations of expense to different functions are not necessary. 
D)  IFRS allows only function-of-expense method for expense classification. 
A)  The nature-of-expense method identifies the major cost drivers of the company. 
B)  The nature-of-expense method does not classify the expenses into various subtotals. 
C)  The function-of-expense method is simple to apply because allocations of expense to different functions are not necessary. 
D)  IFRS allows only function-of-expense method for expense classification.

Question 10

Gains and losses identified as other comprehensive income have the same status as traditional gains and losses under

Accepted Answer

A)  both the one statement and two statement approaches. 
B)  neither the one statement or two statement approaches. 
C)  the one statement approach. 
D)  the two statement approach. 
A)  both the one statement and two statement approaches. 
B)  neither the one statement or two statement approaches. 
C)  the one statement approach. 
D)  the two statement approach.

Question 11

Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?

Accepted Answer

A)  The gain or loss on disposal should be reported as an extraordinary item. 
B)  Results of operations of a discontinued component should be disclosed immediately below extraordinary items. 
C)  Earnings per share from continuing operations, discontinued operations, and net income should be disclosed on the face of the income statement. 
D)  The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations. 
A)  The gain or loss on disposal should be reported as an extraordinary item. 
B)  Results of operations of a discontinued component should be disclosed immediately below extraordinary items. 
C)  Earnings per share from continuing operations, discontinued operations, and net income should be disclosed on the face of the income statement. 
D)  The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations.

Question 12

Which of the following should be reported as a prior period adjustment?

Accepted Answer

The answer of Which of the following should be reported...

Question 13

Under IFRS, a company may classify expenses by function, but must also disclose theclassification of expenses by nature.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is an advantage of the single-step income statement over the multiple-step income statement?

Accepted Answer

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. 
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.

Question 15

Boston Company owns more than 50 percent of the ordinary shares of Dynamic Company. Assume Boston net income of $225,000 is allocated as $180,000 to Boston and $45,000 to noncontrolling interest. In Boston's consolidated income statement that includes Dynamic, under IFRS, how will the amount of non-controlling interest be reported?

Accepted Answer

A)  $45,000 will be presented as an item of expense below the net income. 
B)  $45,000 will be presented as an item of expense above the net income. 
C)  $45,000 will be presented as an allocation to net income below the net income. 
D)  $45,000 will not be presented on the face of the income statement. 
A)  $45,000 will be presented as an item of expense below the net income. 
B)  $45,000 will be presented as an item of expense above the net income. 
C)  $45,000 will be presented as an allocation to net income below the net income. 
D)  $45,000 will not be presented on the face of the income statement.

Question 16

Comprehensive income includes all of the following except

Accepted Answer

A)  dividend revenue. 
B)  losses on disposal of assets. 
C)  investments by owners. 
D)  unrealized holding gains. 
A)  dividend revenue. 
B)  losses on disposal of assets. 
C)  investments by owners. 
D)  unrealized holding gains.

Question 17

Definitions.Provide clear, concise answers for the following.
1. What are revenues?
2. What are expenses?
3. What are gains?
4. What are losses?
5. What are the criteria (in addition to materiality) that must be met to classify an event or transaction as extraordinary?
6. When does a discontinued operation occur?
7. Indicate how earnings per share is computed.
8. State the primary category of prior period adjustments and indicate how they are reported in the financial statements.

Accepted Answer

1. Revenues are increases in net assets

Question 18

The major elements of the income statement are

Accepted Answer

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)  revenues, irregular items, and general expenses. 
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)  revenues, irregular items, and general expenses.

Question 19

Which one of the following types of losses is excluded from the determination of net income in income statements?

Accepted Answer

A)  Material losses resulting from transactions in the company's investments account. 
B)  Material losses resulting from unusual sales of assets not acquired for resale. 
C)  Material losses resulting from the write-off of intangibles. 
D)  Material losses resulting from correction of errors related to prior periods. 
A)  Material losses resulting from transactions in the company's investments account. 
B)  Material losses resulting from unusual sales of assets not acquired for resale. 
C)  Material losses resulting from the write-off of intangibles. 
D)  Material losses resulting from correction of errors related to prior periods.

Exam 4: Income Statement and Related Information

Prior period adjustments can either be added or subtracted in the Retained Earnings Statement.

Which of the following items will not appear in the retained earnings statement?

Intraperiod tax allocation relates the income tax expense of a fiscal period to the specific items that give rise to the amount of the tax provision.

The accountant for the Lintz Sales Company is preparing the income statement for 2014 and the balance sheet at December 31, 2014. The January 1, 2014 merchandise inventory balance will appear

Income statement relationships.Fill in the appropriate blanks for each of the independent situations below.

What might a manager do during the last quarter of a fiscal year if she wanted to improve current annual net income?

Which of the following items would be reported net of tax on the face of the income statement?

Which of the following is true of expense classification under IFRS?

Gains and losses identified as other comprehensive income have the same status as traditional gains and losses under

Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?

Which of the following should be reported as a prior period adjustment?

Under IFRS, a company may classify expenses by function, but must also disclose theclassification of expenses by nature.

Which of the following is an advantage of the single-step income statement over the multiple-step income statement?

Comprehensive income includes all of the following except

The major elements of the income statement are

Which one of the following types of losses is excluded from the determination of net income in income statements?

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

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