Question 1

Phasing out of a product line or class of service is a disposal of assets that qualifies as a disposal of a component of a business.

Accepted Answer

A) True 
 B)False  False

Question 2

The multiple-step income statement recognizes a separation of operating transactions from nonoperating transactions and matches costs and expenses with related revenues.

Accepted Answer

A) True 
 B)False  True

Question 3

The following items were among those that were reported on Nen Co.'s income statement for the year ended December 31, 2008:
  The office space is used equally by Nen's sales and accounting departments. What amount of the above-listed items should be classified as general and administrative expenses in Nen's multiple-step income statement?

Accepted Answer

A)  $220,000 
B)  $255,000 
C)  $310,000 
D)  $430,000 
A)  $220,000 
B)  $255,000 
C)  $310,000 
D)  $430,000 A

Question 4

Silas Company reported the following information for 2008:
  For 2008, Silas would report comprehensive income of

Accepted Answer

A)  $117,000. 
B)  $115,000. 
C)  $97,000. 
D)  $20,000. 
A)  $117,000. 
B)  $115,000. 
C)  $97,000. 
D)  $20,000.

Question 5

Any gain or loss experienced by a concern, whether directly or indirectly related to operations, contributes to the long-run profitability and should be included in the computa-tion of net income. Those who favor such a philosophy adhere to the

Accepted Answer

The answer of Any gain or loss experienced by a...

Question 6

An example of an extraordinary loss is a large write-down of accounts receivable caused by the unexpected bankruptcy of a major customer.

Accepted Answer

A) True 
 B)False

Question 7

One of the primary benefits of the multiple-step income statement over the single-step income statement is that the multiple-step income statement

Accepted Answer

A)  shows gross margin and recognizes different types of costs and expenses. 
B)  shows last year's figures in comparison with the current year. 
C)  discriminates between administrative and selling expenses. 
D)  recognizes no distinction in types of costs or expenses. 
A)  shows gross margin and recognizes different types of costs and expenses. 
B)  shows last year's figures in comparison with the current year. 
C)  discriminates between administrative and selling expenses. 
D)  recognizes no distinction in types of costs or expenses.

Question 8

Carpino Corporation has an extraordinary loss of $200,000, an unusual gain of $140,000, and a tax rate of 40%. At what amount should Carpino report each item?

Accepted Answer

$200,000

Question 9

Changing the basis of inventory pricing from FIFO to average cost is an example of a(n)

Accepted Answer

A)  extraordinary item. 
B)  change in accounting principle. 
C)  change in estimate 
D)  discontinued operation. 
A)  extraordinary item. 
B)  change in accounting principle. 
C)  change in estimate 
D)  discontinued operation.

Question 10

Simmons Corporation reports the following information:
  Simmons should report retained earnings, 12/31/08, as adjusted at

Accepted Answer

A)  $1,570,000. 
B)  $2,250,000. 
C)  $2,680,000. 
D)  $3,110,000. 
A)  $1,570,000. 
B)  $2,250,000. 
C)  $2,680,000. 
D)  $3,110,000.

Question 11

To be classified on an income statement as an extraordinary item, the transaction or event must be material in nature and

Accepted Answer

The answer of To be classified on an income statement...

Question 12

When a company changes from one accounting principle to another, the income statement for the year of change

Accepted Answer

A)  will normally not be affected, as this event is taken directly to Retained Earnings. 
B)  should include only footnote disclosure so readers will be aware of the change. 
C)  should include the cumulative effect, based on a retroactive computation, disclosed as a separate-line item. 
D)  should include the effect of the change related to the current year only and be disclosed as a separate line item. 
A)  will normally not be affected, as this event is taken directly to Retained Earnings. 
B)  should include only footnote disclosure so readers will be aware of the change. 
C)  should include the cumulative effect, based on a retroactive computation, disclosed as a separate-line item. 
D)  should include the effect of the change related to the current year only and be disclosed as a separate line item.

Question 13

In general, the basic difference between the concepts of revenues and gains concerns

Accepted Answer

A)  the materiality of the item being considered. 
B)  whether the event giving rise to the item relates to the typical activity of the enterprise. 
C)  whether the item is taxable in the current year. 
D)  the effect on total assets of the enterprise. 
A)  the materiality of the item being considered. 
B)  whether the event giving rise to the item relates to the typical activity of the enterprise. 
C)  whether the item is taxable in the current year. 
D)  the effect on total assets of the enterprise.

Question 14

Which of the following asset disposals would qualify as a disposal of a component of a business?

Accepted Answer

A)  Phasing out a product line or class of service 
B)  Changes occasioned by a technological improvement 
C)  Sale by an auto parts manufacturer of one of its five parts-manufacturing subsidiaries 
D)  Sale by a transportation company of its bus operations but not its airline operations 
A)  Phasing out a product line or class of service 
B)  Changes occasioned by a technological improvement 
C)  Sale by an auto parts manufacturer of one of its five parts-manufacturing subsidiaries 
D)  Sale by a transportation company of its bus operations but not its airline operations

Question 15

At Hall Company, events and transactions during 2008 included the following. The tax rate for all items is 30%.
(1) Depreciation for 2006 was found to be understated by $30,000.
(2) A strike by the employees of a supplier resulted in a loss of $25,000.
(3) The inventory at December 31, 2006 was overstated by $40,000.
(4) A flood destroyed a building that had a book value of $500,000. Floods are very uncommon in that area.
-The effect of these events and transactions on 2008 net income net of tax would be

Accepted Answer

A)  $17,500. 
B)  $367,500. 
C)  $388,500. 
D)  $416,500. 
A)  $17,500. 
B)  $367,500. 
C)  $388,500. 
D)  $416,500.

Question 16

Edmonds Corporation reports the following information:
 
Edmonds should report earnings per share of

Accepted Answer

A)  $1.50. 
B)  $1.80. 
C)  $2.20. 
D)  $2.50. 
A)  $1.50. 
B)  $1.80. 
C)  $2.20. 
D)  $2.50.

Question 17

The advocates of the current operating performance approach include extraordinary items in the calculation of net income.

Accepted Answer

A) True 
 B)False

Question 18

For Garret Wolfe Company, the following information is available:
  
-In Garret Wolfe's multiple-step income statement, gross profit

Accepted Answer

A)  should not be reported 
B)  should be reported at $13,500. 
C)  should be reported at $40,000. 
D)  should be reported at $42,500. 
A)  should not be reported 
B)  should be reported at $13,500. 
C)  should be reported at $40,000. 
D)  should be reported at $42,500.

Question 19

A prior period adjustment results from the correction of an error in the financial statements of a prior period discovered subsequent to their issuance.

Accepted Answer

A) True 
 B)False

Question 20

Intraperiod tax allocation causes a reduction in total income tax expense for the period in which it is used.

Accepted Answer

A) True 
 B)False

Exam 5: Income Statement and Related Information

Phasing out of a product line or class of service is a disposal of assets that qualifies as a disposal of a component of a business.

The multiple-step income statement recognizes a separation of operating transactions from nonoperating transactions and matches costs and expenses with related revenues.

Silas Company reported the following information for 2008: For 2008, Silas would report comprehensive income of

Any gain or loss experienced by a concern, whether directly or indirectly related to operations, contributes to the long-run profitability and should be included in the computa-tion of net income. Those who favor such a philosophy adhere to the

An example of an extraordinary loss is a large write-down of accounts receivable caused by the unexpected bankruptcy of a major customer.

One of the primary benefits of the multiple-step income statement over the single-step income statement is that the multiple-step income statement

Carpino Corporation has an extraordinary loss of $200,000, an unusual gain of $140,000, and a tax rate of 40%. At what amount should Carpino report each item?

Changing the basis of inventory pricing from FIFO to average cost is an example of a(n)

Simmons Corporation reports the following information: Simmons should report retained earnings, 12/31/08, as adjusted at

To be classified on an income statement as an extraordinary item, the transaction or event must be material in nature and

When a company changes from one accounting principle to another, the income statement for the year of change

In general, the basic difference between the concepts of revenues and gains concerns

Which of the following asset disposals would qualify as a disposal of a component of a business?

Edmonds Corporation reports the following information: Edmonds should report earnings per share of

The advocates of the current operating performance approach include extraordinary items in the calculation of net income.

For Garret Wolfe Company, the following information is available: -In Garret Wolfe's multiple-step income statement, gross profit

A prior period adjustment results from the correction of an error in the financial statements of a prior period discovered subsequent to their issuance.

Intraperiod tax allocation causes a reduction in total income tax expense for the period in which it is used.

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Balance Sheet

Statement of Cash Flows

Revenue Recognition

Cash and Receivables

Accounting for Inventories

Accounting for Property, Plant, and Equipment

Intangible Assets

Accounting for Liabilities

Stockholders Equity

Investments

Accounting for Income Taxes

Accounting for Compensation

Accounting for Leases

Additional Reporting Issues

Appendix A: Accounting and the Time Value of Money

Appendix B: Reporting Cash Flows

Appendix D: Retail Inventory Method

Appendix E: Accounting for Natural Resources

Appendix G: Accounting for Troubled Debt

Appendix H: Accounting for Derivative Instruments

Appendix I: Error Analysis

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