Question 1

Earnings management generally makes income statement information more useful for predicting future earnings and cash flows.

Accepted Answer

A) True 
 B)False

Question 2

A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to

Accepted Answer

A) beginning retained earnings for the earliest period presented. 
B) net income for the period in which the change occurred. 
C) comprehensive income for the earliest period presented. 
D) stockholders' equity for the period in which the change occurred. 
A) beginning retained earnings for the earliest period presented. 
B) net income for the period in which the change occurred. 
C) comprehensive income for the earliest period presented. 
D) stockholders' equity for the period in which the change occurred.

Question 3

The definition of expenses includes

Accepted Answer

A) losses only. 
B) expenses and losses. 
C) expenses only. 
D) expenses, losses and unrealized losses on available-for-sale securities. 
A) losses only. 
B) expenses and losses. 
C) expenses only. 
D) expenses, losses and unrealized losses on available-for-sale securities.

Question 4

Changes in estimates affect reported amounts

Accepted Answer

A) retrospectively only. 
B) prospectively only. 
C) currently and prospectively. 
D) currently and retrospectively. 
A) retrospectively only. 
B) prospectively only. 
C) currently and prospectively. 
D) currently and retrospectively.

Question 5

The nature-of-expense method identifies the major cost drivers and helps users to assess whether these amounts are appropriate for the revenue generated.

Accepted Answer

A) True 
 B)False

Question 6

Companies frequently report income tax as the last item before net income on the income statement.

Accepted Answer

A) True 
 B)False

Question 7

A company that reports a discontinued operation has the option of reporting per share amounts for this item.

Accepted Answer

A) True 
 B)False

Question 8

Comprehensive income can be reported in a statement of changes in equity.

Accepted Answer

A) True 
 B)False

Question 9

The IASB takes the position that both revenues and expenses and other income and expense should be reported as part of income from operations.

Accepted Answer

A) True 
 B)False

Question 10

The income statement presents subtotals for gross profit, income before continuing operations, income before income tax, and net income.

Accepted Answer

A) True 
 B)False

Question 11

The income statement information would help in which of the following tasks?

Accepted Answer

A) Evaluate the liquidity of a company. 
B) Evaluate the solvency of a company. 
C) Estimate future cash flows. 
D) Estimate future financial flexibility. 
A) Evaluate the liquidity of a company. 
B) Evaluate the solvency of a company. 
C) Estimate future cash flows. 
D) Estimate future financial flexibility.

Question 12

IFRS requires that a single amount be disclosed within the income statement for

Accepted Answer

A) the post-tax profit\loss on discontinued operations and the pre-tax gain\loss on the disposal of discontinued operational assets. 
B) the pre-tax profit\loss on discontinued operations and the post-tax gain\loss on the disposal of discontinued operational assets. 
C) the pre-tax profit\loss on discontinued operations and the pre-tax gain\loss on the disposal of discontinued operational assets. 
D) the post-tax profit\loss on discontinued operations and the post-tax gain\loss on the disposal of discontinued operational assets. 
A) the post-tax profit\loss on discontinued operations and the pre-tax gain\loss on the disposal of discontinued operational assets. 
B) the pre-tax profit\loss on discontinued operations and the post-tax gain\loss on the disposal of discontinued operational assets. 
C) the pre-tax profit\loss on discontinued operations and the pre-tax gain\loss on the disposal of discontinued operational assets. 
D) the post-tax profit\loss on discontinued operations and the post-tax gain\loss on the disposal of discontinued operational assets.

Question 13

If a company prepares a consolidated income statement, IFRS requires that net income be reported for

Accepted Answer

A) the majority interest only. 
B) the minority interest only. 
C) both the majority interest and the minority interest. 
D) as a single amount only. 
A) the majority interest only. 
B) the minority interest only. 
C) both the majority interest and the minority interest. 
D) as a single amount only.

Question 14

Which of the following is not an acceptable way of displaying the components of other comprehensive income?

Accepted Answer

A) Combined statement of retained earnings. 
B) Second income statement. 
C) Combined statement of comprehensive income. 
D) All of the above are acceptable. 
A) Combined statement of retained earnings. 
B) Second income statement. 
C) Combined statement of comprehensive income. 
D) All of the above are acceptable.

Question 15

Which of the following is not required to be presented on the income statement
Under IFRS?

Accepted Answer

A) Revenue. 
B) Other gains\losses. 
C) Finance costs. 
D) Tax expense. 
A) Revenue. 
B) Other gains\losses. 
C) Finance costs. 
D) Tax expense.

Question 16

Which of the following is an example of managing earnings up?

Accepted Answer

A) Decreasing estimated salvage value of equipment. 
B) Writing off obsolete inventory. 
C) Underestimating warranty claims. 
D) Accruing a contingent liability for an ongoing lawsuit. 
A) Decreasing estimated salvage value of equipment. 
B) Writing off obsolete inventory. 
C) Underestimating warranty claims. 
D) Accruing a contingent liability for an ongoing lawsuit.

Question 17

Information in the income statement helps users to

Accepted Answer

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. 
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.

Question 18

Prior years income statements are not restated for

Accepted Answer

A) changes in accounting principle. 
B) changes in estimates. 
C) corrections of errors. 
D) Any of the above. 
A) changes in accounting principle. 
B) changes in estimates. 
C) corrections of errors. 
D) Any of the above.

Question 19

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 other income item. 
B) Results of operations of a discontinued component should be disclosed immediately below income from operations. 
C) Earnings per share from both continuing 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 other income item. 
B) Results of operations of a discontinued component should be disclosed immediately below income from operations. 
C) Earnings per share from both continuing 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 20

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

Accepted Answer

A) Delay shipments to customers until after the end of the fiscal year. 
B) Relax credit policies for customers. 
C) Pay suppliers all amounts owed. 
D) Delay purchases from suppliers until after the end of the fiscal year. 
A) Delay shipments to customers until after the end of the fiscal year. 
B) Relax credit policies for customers. 
C) Pay suppliers all amounts owed. 
D) Delay purchases from suppliers until after the end of the fiscal year.

Exam 4: Income Statement and Related Information

Earnings management generally makes income statement information more useful for predicting future earnings and cash flows.

A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to

The definition of expenses includes

Changes in estimates affect reported amounts

The nature-of-expense method identifies the major cost drivers and helps users to assess whether these amounts are appropriate for the revenue generated.

Companies frequently report income tax as the last item before net income on the income statement.

A company that reports a discontinued operation has the option of reporting per share amounts for this item.

Comprehensive income can be reported in a statement of changes in equity.

The IASB takes the position that both revenues and expenses and other income and expense should be reported as part of income from operations.

The income statement presents subtotals for gross profit, income before continuing operations, income before income tax, and net income.

The income statement information would help in which of the following tasks?

IFRS requires that a single amount be disclosed within the income statement for

If a company prepares a consolidated income statement, IFRS requires that net income be reported for

Which of the following is not an acceptable way of displaying the components of other comprehensive income?

Which of the following is not required to be presented on the income statement Under IFRS?

Which of the following is an example of managing earnings up?

Information in the income statement helps users to

Prior years income statements are not restated for

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

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

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Statement of Financial Position 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, Provisions, and Contingencies

Non-Current Liabilities

Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Presentation and Disclosure in Financial Reporting

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