Deck 13: The Complete Income Statement

Question 1

On the income statement, interest revenue is found in

A)operating revenues and expenses.
B)other revenues or expenses.
C)the disposal of a business segment section.
D)the cost of goods sold section.

Answer 1

B

Question 2

Which one of the following events is an operating transaction?

A)Payment of utilities
B)Debt refinancing
C)Purchase of another company for stock
D)Property dividend

Answer 2

A

Question 3

On the income statement, the result of selling equipment is reported as a(n)

A)operating revenue or expense.
B)other revenue or expense.
C)disposal of a business segment.
D)cumulative effect of a change in accounting principle.

Answer 3

B

Question 4

Operating events include

A)the payment of dividends and accounting principle changes.
B)inflows and outflows of assets due to the generation of revenues.
C)purchases, sales, and exchanges of long-term assets.
D)expenses and costs of acquiring plant assets .

Question 5

On the income statement, the loss of equipment caused by the eruption of a volcano in the northeastern United States is found in

A)operating revenues and expenses.
B)cost of goods sold.
C)disposal of a business segment.
D)other revenues or expenses.

Question 6

On the income statement, persistent events are found in

A)operating revenues and expenses.
B)other revenues or expenses.
C)disposal of a business segment.
D)cumulative effects.

Question 7

A summary of operating events is found

A)only in the asset section of the balance sheet.
B)only in the cash flows from operations section of the cash flow statement.
C)only in the income statement.
D)in the cash flows from operations section of the cash flow statement, and in the income statement.

Question 8

On the income statement, interest expense is reported as a(n)

A)operating revenue or expense.
B)other revenue or expense.
C)disposal of a business segment.
D)cumulative effect of a change in accounting principle.

Question 9

On the income statement, the loss from selling an independent business component of the company is reported as a(n)

A)operating revenue or expense.
B)other revenue or expense.
C)disposal of a business segment.
D)sales revenue

Question 10

On the income statement, a gain from the sale of stock is reported as

A)operating revenues and expenses.
B)other revenues or expenses.
C)a disposal of a business segment.
D)a cumulative effect of a change in accounting principle.

Question 11

Which one of the following events is not an operating transaction?

A)Disposal of a business segment
B)Purchase of equipment
C)Payment for equipment maintenance
D)Purchase of inventory

Question 12

Which one of the following is a nonoperating event that must be reported on the income statement?

A)Acquisition of a plant asset to be used in operations
B)Interest revenue
C)Recognition of inventory expense
D)Consumption of office supplies

Question 13

Recognition of bad debt expense is an event considered to be

A)transitory.
B)nonoperating
C)persistent
D)a financing cash flow.

Question 14

Non-operating expenses are found in the

A)asset section of the balance sheet.
B)liability section of the balance sheet.
C)cash flows from financing section of the cash flow statement.
D)income statement.

Question 15

The result of changing from FIFO to average cost is

A)included in operating revenues and expenses.
B)included in other revenues or expenses.
C)handled retrospectively.
D)ignored.

Question 16

All of the following are considered to be operating revenues or expenses that are persistent except

A)the sale of furniture by a furniture company.
B)interest expense related to financing with bonds.
C)depreciation expense on machinery.
D)cost of delivering goods.

Question 17

Financing transactions include

A)exchanges with shareholders.
B)revenues.
C)expenses.
D)most transactions that impact the income statement.

Question 18

Which one of the following events is an operating transaction?

A)Purchase of equipment
B)Payment for equipment rental
C)Purchase of land
D)Issuing bonds for cash

Question 19

Which of the following statements is false regarding diluted earnings per share?

A)Reporting diluted earnings per share is required by GAAP when potentially significant dilution of EPS exists.
B)Diluted earnings per share can be used to reflect the extent of potential share dilution.
C)Diluted earnings per share is not reported by some companies.
D)Diluted earnings per share is always the same as basic earnings per share.

Question 20

On the income statement, marketing expenses are reported as

A)operating revenues and expenses.
B)other revenues or expenses.
C)the disposal of a business segment.
D)part of cost of goods sold.

Question 21

If a loss is unusual in nature but not infrequent in occurrence, the loss should be disclosed

A)net of taxes.
B)only in the footnotes.
C)as a separate component of income from continuing operations.
D)as a separate item after disposal of segment, net of taxes.

Question 22

Intraperiod tax allocation

A)is applied to each income statement item to provide creditors and investors a better indication of the company's true revenues and expenses.
B)is a method of allocating income taxes over multiple accounting periods.
C)is applied only to revenues since expenses are not taxed.
D)is applied to net income from continuing operations.

Question 23

An income statement prepared with separate components

A)enables users to distinguish transactions that are due to operations from those that are not useful as predictors of future performance.
B)is prepared only for income items that are frequent and usual.
C)is used primarily by companies involved with complex financing transactions.
D)may replace a statement of cash flows..

Question 24

Publicly held companies must disclose earnings per share for all of the following except for

A)income from continuing operations.
B)losses from discontinued segments of a business.
C)other revenue and expense items.
D)cumulative effects resulting from changes in accounting principles.

Question 25

One objective of financial reporting is to provide information that is

A)helpful in assessing the amounts, timing, and uncertainty of future cash flows.
B)useful for competitors who need to assess economic activities.
C)a forecast of future operations.
D)unavailable to management.

Question 26

Which one of the following items is considered part of comprehensive income but not reported as part of net income?

A)Accounting principle changes
B)Foreign currency translation adjustments
C)Gain on sale of land
D)Dividend revenue

Question 27

A company should report a cumulative effect of an accounting principle change when

A)consistency has been violated.
B)errors are made and subsequently corrected.
C)FASB mandates a change from one method to another.
D)international reporting standards differ from GAAP methods.

Question 28

Mountain Corp. experienced the following events and transactions during 2017:
$1 =$ Dividends declared and paid to Mountain's shareholders
$2 =$ Cost of goods sold
$3 =$ Gain on disposal of a major segment of the business
$4=$ Depreciation expense
$5=$ Gain from early debt retirement
Using the numbers of the events and transactions, identify which of the following sequences is the correct order for presenting the items on the income statement.

A)5, 1, 3, 2
B)2, 4, 5, 3
C)4, 5, 2, 3
D)2, 4, 3, 5, 1

Question 29

Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company's dividends in any one year. The 2017 income statement data for the company is as follows:
$\begin{array}{|l|r|}\hline \text { Net sales } & \$ 840,000 \\\hline \text { Less: Cost of goods sold } & 500,000 \\\hline \text { Gross profit } & \$ 340,000 \\\hline \text { Selling and administrative expenses } & 120,000 \\\hline \text { Net operating income } & \$ 220,000 \\\hline \text { Gain on sale of securities } & 24,000 \\\hline \text { Interest expense } & (4000) \\\hline \text { Net income from continuing operations before tax } & \$240,000 \\\hline \text { Less: Income tax } &51.200\\\hline \text { Net income from continuing operations } &\$188,800 \\\hline \text { Disposal of segment (net of tax) } & 22,000 \\\hline \text { Net income before change in accounting principle } & \$210,800\\\hline \text { Income effect due to change in accounting principle } & 52,000 \\\hline\text { Net income }&\$262,800\\\hline\end{array}$
What is the maximum amount of dividends Sunrise can pay if the covenant associated with the credit line is expressed as 20 percent of net income?

A)$55,000
B)$60,000
C)$52,560
D)$53,700

Question 30

Changes in accounting methods must be disclosed in three prominent places. These are

A)the auditor's report, financial statement notes, and the balance sheet.
B)financial statement notes, the income statement, and the auditor's report.
C)the balance sheet, the income statement, and the statement of cash flows.
D)notes to financial statements, the management letter, and the income statement.

Question 31

Why is income so important to both investors and stock analysts?

A)It is strongly correlated to the market price of stock and bond prices.
B)It is equal to the amount that shareholders will receive as dividends.
C)Income is tied directly to revenue, i.e., a company that reports a large amount of revenue will always report a large amount of income.
D)It identifies if the company will be able to pay its current debts when they become due.

Question 32

Paulson, Inc. reported net income of $60,000 during 2017. Throughout 2017, 20,000 shares of common stock and 5,000 shares of preferred stock were outstanding. The preferred stock has no dividend preference. Paulson reported earnings only for continuing operations items. How much is earnings per share for 2017?

A)$ 3.00
B)$12.00
C)$ 2.00
D)Not enough information is provided.

Question 33

On the income statement, infrequent expenses are found in

A)operating revenues and expenses.
B)other revenues or expenses.
C)disposal of a business segment.
D)cumulative effects.

Question 34

Which one of the following is true concerning discontinued operations?

A)It relates primarily to product changes in a company.
B)The gain or loss associated with the disposal is shown separately as a component of continuing operations on the income statement.
C)It is reported with 'other revenues and losses' on the company's income statement.
D)One of two separate disclosures required is income or loss from the segment's operations from the beginning of the current accounting period to the date of disposal.

Question 35

Which one of the following should be NOT reported net of income taxes?

A)Loss on disposal of segment
B)Cumulative adjustments resulting from a change in principle
C)Bad debt expense associated with a bankrupt customer
D)Gains on disposal of segment

Question 36

Which one of the following is true about earnings per share?

A)Must be calculated as earnings per 'preferred' share
B)Must be calculated as earnings per 'common' share
C)May be increased or decreased because of outstanding stock options or convertible debt
D)Appears with the gross profit percentage on the income statement

Question 37

Comprehensive income

A)may be reported on a separate statement or on the face of the income statement.
B)is the same as net income.
C)does not include any revenue and expense items that are part of continuing operations.
D)can be presented instead of the shareholders' equity section of the balance sheet.

Question 38

Issuance and payment of debt

A)1 only.
B)3, 4, and 5.
C)1, 2, and 3.
D)2, 4, and 5.

Question 39

Diluted earnings per share

A)is required for companies that have the potential for liquidation.
B)is a financing and investing activity.
C)shows the effects of possible increases in the number of outstanding common shares.
D)is reported for the 'other revenues and expenses' category on the income statement.

Question 40

Carman, Inc. properly reported a change in accounting principle during 2017. This company must

A)have violated GAAP by not applying accounting principles consistently.
B)have convinced its auditors that the environment in which it operates has changed and another method is more appropriate.
C)be trying to cover up accounting errors.
D)have initially used the wrong method.

Question 41

On January 1, total assets and liabilities had a fair market value of $21,000 and $8,000, respectively. On December 31, total assets and liabilities were $30,000 and $7,000, respectively. During the year, $9,000 of dividends were declared and paid and $3,000 of stock was issued. Calculate net income for the year.

Question 42

Cabell Inc. reported 'income from operations before taxes' in the amount of $402,000 before including the following items for the year ending December 31, 2017:
.On December 31, 2017, borrowed long-term debt of $50,000 that limits dividends to 10 percent of net income from continuing operations
.$21,000 unrealized gain from fair value adjustment related to available-for-sale investments
.$30,000 loss recognized on the sale of a trading security
.$58,000 loss recognized on a lawsuit relating to patent violations
.$11,000 government fine for environmental violation
.$63,000 write-down of obsolete inventory
.$25,000 loss on the disposal of a segment.
The company's income tax rate is 30 percent. No taxes have been considered in any information provided. Prepare a calculation of income from operations starting with income from operations before taxes, as tentatively reported. Omit the heading. Be sure to label correctly.

Question 43

Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company's dividends in any one year. The 2017 income statement data for the company is as follows:
$$\begin{array} { | l | r | } \hline \text { Net sales } & \$ 840,000 \\\hline \text { Less: Cast of goads sald } & 500,000 \\\hline \text { Grass profit } & \$ 340,000 \\\hline \text { Selling and administrative expenses } & 120,000 \\\hline \text { Net aperating incame } & \$ 220,000 \\\hline \text { Gain an sale of securities } & \mathbf { 2 4 , 0 0 0 } \\\hline \text { Interest expense } & ( 4,000 ) \\\hline \text { Net income fram continuing aperations befare tax } & \$ 240,000 \\\hline \text { Less: Income tax } & \underline { 51,200 } \\\hline \text { Net income fram continuing aperations } & \$ 180,000 \\\hline \text { Dispasal of segment (net of tax) } & \mathbf { 2 2 , 0 0 0 } \\\hline \text { Net income before change in accounting principle } & \$ 210,000 \\\hline \text { Income effect due to change in accounting principle } & \underline { 52,000 } \\\hline \text { Net income } & \$ 262,000 \\\hline\end{array}$$
What is the maximum amount of dividends Sunrise can pay if the covenant is expressed as 20 percent of net operating income?

A)$44,000
B)$60,000
C)$47,200
D)$52,700

Question 44

On January 1 and December 31, 2017, retained earnings were $23,000 and $42,000, respectively. During the year, the only dividends were an ordinary stock dividend recorded at $11,000. Calculate net income for 2017.

Question 45

A $31,000 gain was recognized due to the adoption of a new FASB statement
The company's tax rate is 30 percent.
A. Which items should not be reported as a component of income from continuing operations?
B. Suppose management decided to exclude all of the above items from income from continuing operations. What effect might this have on investor and creditor decisions?

Question 46

Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company's dividends in any one year. The 2017 income statement data for the company is as follows:
$$\begin{array} { | l | r | } \hline \text { Net sales } & \$ 840,000 \\\hline \text { Less: Cast of goads sald } & 500,000 \\\hline \text { Grass profit } & \$ 340,000 \\\hline \text { Selling and administrative expenses } & 120,000 \\\hline \text { Net aperating incame } & \$ 220,000 \\\hline \text { Gain an sale of securities } & \mathbf { 2 4 , 0 0 0 } \\\hline \text { Interest expense } & ( 4,000 ) \\\hline \text { Net income fram continuing aperations befare tax } & \$ 240,000 \\\hline \text { Less: Income tax } & \underline { 51,200 } \\\hline \text { Net income fram continuing aperations } & \$ 180,000 \\\hline \text { Dispasal of segment (net of tax) } & \mathbf { 2 2 , 0 0 0 } \\\hline \text { Net income before change in accounting principle } & \$ 210,000 \\\hline \text { Income effect due to change in accounting principle } & \underline { 52,000 } \\\hline \text { Net income } & \$ 262,000 \\\hline\end{array}$$
What is the maximum amount of dividends Sunrise can pay if the covenant is expressed as 20 percent of income before disposal of segment and change in accounting principle?

A)$37,760
B)$60,000
C)$65,700
D)$52,700

Question 47

Hubbell Service showed the following information for 2017: Net sales revenue, $410,000; interest revenue, $11,000; cost of goods sold, $220,000; operating expense, $15,000, gain on disposal of segment, $30,000; and dividends declared, $14,000. Calculate operating income for 2017.

Question 48

The measurement of income does not affect

A)stock prices.
B)bond prices.
C)management contracts.
D)estimate of uncollectibles.

Question 49

The management of Hammer Enterprises shares in a bonus that is determined and paid at the end of each year. The amount of the bonus is based on 12% of income from continuing operations after tax. The bonus is not used in the calculation of income from continuing operations. During 2017, Hammer was sued and was ordered to pay $480,000 over and above the amount covered by insurance. The loss is tax deductible and the company's tax rate is 35%. The company was last involved in a lawsuit five years ago. Income from continuing operations before tax for 2017, excluding the lawsuit loss, was $750,000.
What would management's 2017 bonus be if the lawsuit is considered unusual but not infrequent?

A)$175,500
B)$ 32,400
C)$ 21,060
D)$ 20,160

Question 50

The fair market value of Borke Company's net assets was $250,000 and $325,000 at the beginning and end of the year. The book value of the same net assets was $200,000 and $260,000. Revenues for the year were $317,000, and there were no transactions with owners. What is net income for the current year?

A)$ 60,000
B)$ 75,000
C)$377,000
D)$392,000

Question 51

The following income statement was reported by Snappy Seacraft Company for the year ending December 31, 2017:
$\begin{array}{|l|r|r|}\hline \text { Sales } & \$ 85,000 & \\\hline \text { Rent revenue } & 23,000 & \\\hline \text { Interest income } & 7,000 & \\\hline \text { Total revenues } & & \$ 115,000 \\\hline \text { Cost of goods sold } & \$52,000& \\\hline \text { Operating expenses } & 24,000& \\\hline \text { Interest expense } &12,000 & \\\hline \text { Loss on sale of fixed asset } & 6,000 & \\\hline \text { Total expenses } & &94,000 \\\hline \text { Income from continuing operations (before tax) } &&\$ 21,000 \\\hline \text { Less: Income tax } & & 10,000\\\hline \text { Income from continuing operations } & &\$ 11,000 \\\hline \text { Income from disposed segment (net of tax) } & & 3,000\\\hline \text { Gain on sale of disposed segment (net of tax) } & & 2,000 \\\hline \text { Net income } & &\$ 16,000 \\\hline & & \\\hline & & \\\hline\end{array}$
Assume Snappy has an average of 25,000 shares of common stock outstanding during 2017. Based on this information, what amount of earnings per share would be reported on the income statement for the disposal of the business segment?

A)$0.12
B)$0.20
C)$0.08
D)$0.60

Question 52

On January 1, total assets and liabilities had a fair market value of $30,000 and $12,000, respectively. On December 31, total assets and liabilities were $28,000 and $20,000, respectively. During the year, $7,000 of dividends were declared and paid and no stock was purchased or issued. Calculate the amount of net income or loss for the year.

Question 53

Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company's dividends in any one year. The 2017 income statement data for the company is as follows:
$\begin{array}{|l|r|}\hline \text { Net sales } & \$ 840,000 \\\hline \text { Less: Cost of goods sold } & 500,000 \\\hline \text { Gross profit } & \$ 340,000 \\\hline \text { Selling and administrative expenses } & 120,000 \\\hline \text { Net operating income } & \$ 220,000 \\\hline \text { Gain on sale of securities } & 24,000 \\\hline \text { Interest expense } & (4000) \\\hline \text { Net income from continuing operations before tax } & \$240,000 \\\hline \text { Less: Income tax } &51.200\\\hline \text { Net income from continuing operations } &\$188,800 \\\hline \text { Disposal of segment (net of tax) } & 22,000 \\\hline \text { Net income before change in accounting principle } & \$210,800\\\hline \text { Income effect due to change in accounting principle } & 52,000 \\\hline\text { Net income }&\$262,800\\\hline\end{array}$
What is the maximum amount of dividends Sunrise can pay if the covenant is expressed as 20 percent of income before change in accounting principle?

A)$55,000
B)$60,000
C)$65,700
D)$42,160

Question 54

Gleeson Industries consists of four separate divisions: compressed wood products, chemicals, stone products, and plastics. On March 15, 2017, Gleeson sold the chemicals division for $625,000 cash. Financial information related to the chemicals division follows:
$$\begin{array}{l}\text { Peried from } 1/1/17 \text { to } 3/15/17\\\begin{array} { | l | r | } \hline \text { Sales } & \$ 175,000 \\\hline \text { Operating expenses } & 160,000 \\\hline \text { Net aperating income (1055) } & \$ 15,000 \\\hline & \\\hline \text { As of 3/15/17 } & \\\hline \text { Assets } & \$ 1,850,000 \\\hline \text { Liabilities } & 1,400,000 \\\hline\end{array}\end{array}$$
If the income tax rate for the company is 35%, what amount of income tax liability on the disposal of the business segment will be recognized?

A)$218,750
B)$ 61,250
C)$ 5,250
D)$157,500

Question 55

Gleeson Industries consists of four separate divisions: compressed wood products, chemicals, stone products, and plastics. On March 15, 2017, Gleeson sold the chemicals division for $625,000 cash. Financial information related to the chemicals division follows:
$$\begin{array}{l}\text { Peried from } 1/1/17 \text { to } 3/15/17\\\begin{array} { | l | r | } \hline \text { Sales } & \$ 175,000 \\\hline \text { Operating expenses } & 160,000 \\\hline \text { Net aperating income (1055) } & \$ 15,000 \\\hline & \\\hline \text { As of 3/15/17 } & \\\hline \text { Assets } & \$ 1,850,000 \\\hline \text { Liabilities } & 1,400,000 \\\hline\end{array}\end{array}$$
The journal entry to record the sale of the chemicals division will include:

A)a debit to Loss on Disposal of Segment for $175,000.
B)a debit to Net Assets of Chemicals Division for $450,000.
C)a debit to Unusual Gain for $175,000.
D)a credit to Gain on Disposal of Segment for $175,000.

Question 56

"Decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from expenses or distributions to owners" defines

A)liabilities
B)distributions to owners.
C)expenses.
D)losses.

Question 57

Hamilton Corp. had the following infrequent income statement items during 2016:
.$45,000 of dividends received from a stock investment
.$20,000 gain on the sale of a plant asset which became outdated because of new technology
.$19,000 loss due to the sale of treasury stock at a price less than its original cost
.$34,000 fair value adjustment increase to market for available-for-sale investments
.$50,000 interest expense for the year of which only $42,000 was actually paid
How much should Hamilton report as part of 'income from continuing operations'?

Question 58

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events are

A)assets.
B)investments by owners.
C)revenues.
D)gains.

Question 59

The matching process measures net income by comparing

A)the fair market value of net assets at two points in time.
B)assets and liabilities..
C)revenues and expenses.
D)gains and losses.

Question 60

The following income statement was reported by Snappy Seacraft Company for the year ending December 31, 2017:
$\begin{array}{|l|r|r|}\hline \text { Sales } & \$ 85,000 & \\\hline \text { Rent revenue } & 23,000 & \\\hline \text { Interest income } & 7,000 & \\\hline \text { Total revenues } & & \$ 115,000 \\\hline \text { Cost of goods sold } & \$52,000& \\\hline \text { Operating expenses } & 24,000& \\\hline \text { Interest expense } &12,000 & \\\hline \text { Loss on sale of fixed asset } & 6,000 & \\\hline \text { Total expenses } & &94,000 \\\hline \text { Income from continuing operations (before tax) } &&\$ 21,000 \\\hline \text { Less: Income tax } & & 10,000\\\hline \text { Income from continuing operations } & &\$ 11,000 \\\hline \text { Income from disposed segment (net of tax) } & & 3,000\\\hline \text { Gain on sale of disposed segment (net of tax) } & & 2,000 \\\hline \text { Net income } & &\$ 16,000 \\\hline & & \\\hline & & \\\hline\end{array}$
Assume Snappy has an average of 15,000 shares of common stock outstanding during 2017. Based on this information, what amount of earnings per share would be reported on the income statement for the disposal of the business segment?

A)$0.33
B)$0.20
C)$1.00
D)$0.73

Question 61

The following information was taken from the accounting records of ABCO Corporation for the year ending December 31, 2017.
$\begin{array}{lr}\text { Cost of sales } & \$ 342,000 \\\text { Loss on sale of business segment } & 23,000 \\\text { Profit from operations of discontinued business segment } & 19,000 \\\text { Operating expenses } & 176,000 \\\text { Revenue from sales } & 690,000 \\\text { Number of shares of common stock outstanding } & 100,000 \\\text { Income tax rate } & 30 \% \\\text { Appropriated retained earnings for plant expansion } & 176,000 \\\text { Dividends } & 130,000 \\\text { Gain on sale of plant asset } & 24,000\end{array}$
A. In good form, prepare the section of the income statement that begins immediately under 'income from continuing operations'. Do not be concerned with calculating the amount reported as 'income from continuing operations.'
B. List all the items that would appear in the 'Other Revenue/Other Expenses' section of the income statement.
C. How is the number of shares of common stock outstanding used on the income statement?

Question 62

How does diluted earnings per share differ from the traditional basic earnings per share?

Question 63

Nichol Corp. has 20,000 shares of common stock outstanding. For the year ending December 31, 2017, the company tentatively reported income from continuing operations before taxes of $320,000. Nichol Corp. has a 30 percent tax rate. The additional information given below has not been recorded in the accounts unless specifically stated.
.The company is located in Cheyenne, Wyoming. During the year, an earthquake destroyed some of Nichol's assets amounting to a loss of $120,000.
.The company's employees went on strike for six weeks in March of 2017. Revenues would have been about $23,000 more had the strike not occurred. No adjustment was recorded.
.During 2017, the company changed its method of accounting for inventories from FIFO to weighted average. Cost of goods sold related to prior years would have been $39,000 greater.
.The company's accounts include $47,000 as Unrealized Holding Gain from Trading Investments at December 31, 2017.
(a) Calculate how much should be reported on Nichol's income statement as 'Income from Continuing Operations' for the period ended December 31, 2017.
(b) How much should be reported for the year ended December 31, 2017, as 'Cumulative
Effect of a Change in Accounting Principle'?

Question 64

What is the definition of a business segment and what special reporting is required for discontinued segments?

Question 65

What is 'pro forma' as it relates to the income statement?

Question 66

The following are some accounts for Marvell Corp. for 2017:
$\begin{array}{lr}\text { Sales revenue } & \$ 102,000 \\\text { Cost of goods sold } & 85,000 \\\text { Administrative expense } & 34,000 \\\text { Interest expense } & 3,000 \\\text { Loss from disposal of segment } & 21,000 \\\text { Gain from sale of land } & 4,000 \\\text { Stock dividends declared } & 9,000 \\\text { Loss due to permanent value decline of plant asset } & 6,000 \\\text { Unrealized gain from trading securities } & 5,000 \\\text { Interest revenue } & 1,000\end{array}$
All amounts are before income taxes. Marvell has a 30% tax rate. Determine the amount of Marvell' 'other revenue' and 'other expenses' for 2017. List all non-income statement items and indicate on which financial statement they are reported.

Question 67

Jarvis Company provided the following information for the year ending December 31, 2017:
$\begin{array}{lr}\text { Cost of goods sold } & \$ 400,000 \\\text { Gain on sale of business segment } & 20,000 \\\text { Income tax rate } & 30 \% \\\text { Interest income } & 5,000 \\\text { Interest expense } & 7,000 \\\text { Loss from operation of discontinued business segment } & 12,000 \\\text { Operating expenses } & 23,000 \\\text { Revenue from sales } & 730,000 \\\text { Number of shares of common stock outstanding } & 100,000\end{array}$
Prepare an income statement in good form. You may omit the heading. Include all earnings per share amounts required for the year ending December 31, 2017.

Question 68

Discuss the reasons for and the financial statement effects of intraperiod tax allocation.

Question 69

How are operating transactions that are not part of the normal operations of a company reported on the financial statements?

Question 70

Hilton Corporation's income statement for the year ending December 31, 2017, appears below.
$\begin{array}{lr}\text { Net sales } & \$ 810,000 \\\text { Cost of goods sold } & \underline{(610,000)} \\\text { Gross profit } & 200,000 \\\text { Selling and administrative expenses } & \underline{(90,000)} \\\text { Net operating income } & 110,000 \\\text { Gain on sale of land } & 112,000 \\\text { Interest expense } & \underline{(5,000)} \\\text { Income from continuing operations before tax } &{217,000}\\\text { Income tax expense } & \underline{(48,900)} \\\text { Net income } & \underline{\$ 168,100 }\end{array}$
Compute the maximum amount of dividends Hilton can pay if it has a debt covenant expressed as 20 percent of net income, and as 20 percent of net operating income. Which amount would a creditor more likely use as the restriction on dividends? Explain.

Question 71

Identify types of transactions that are considered exchanges of liabilities and shareholders' equity. Why are these transactions considered 'financing'?

Question 72

Identify the GAAP requirements of comprehensive income.

Question 73

What is earnings persistence?

Question 74

One of the three objectives of financial reporting directly relates to the income statement and measurement of income. Indicate the context of this objective, and explain how it relates to the earnings process.

Question 75

Why are losses resulting from employee layoffs and write-downs such as inventory and receivables reported as 'other expenses and losses'?

Question 76

The following are the revenue and expense accounts of the current year for ABCO Corporation:
$\begin{array}{lr}\text { Sales revenue } & \$ 200,000 \\\text { Interest revenue } & 3,000 \\\text { Interest expense } & 6,000 \\\text { Gain from sale of land } & 2,700 \\\text { Cost of goods sold } & 120,000 \\\text { Administrative expense } & 39,000 \\\text { Loss on disposal of segment } & 45,000\end{array}$

All items are before income taxes. The income tax rate is 20%. Calculate the gross profit that should be disclosed on the income statement.

Question 77

How do items at the top of the income statement differ from items at the bottom of the income statement?

Question 78

On January 1 and December 31, retained earnings were $40,000 and $53,000, respectively. During the year, $21,000 of dividends were declared. Calculate net income during the year.

Question 79

Is consistency violated when a company changes accounting principles?

Question 80

Balance sheet information of Digital Solutions, Inc. at December 31, 2016, is provided below.
$\begin{array}{lr}\text { Assets } & \$ 100,000 \\\text { Liabilities } & 34,000 \\\text { Shareholders' equity } & 66,000\end{array}$

During 2017, the company entered into the following transactions:
1. Common stock was issued for $\$ 12,000$ cash.
2. Services were performed for $\$ 45,000$ cash.
3. Cash expenses of $\$ 31,000$ were incurred.
4. Long-term liabilities of $\$ 18,000$ were paid.
5. The market value of an available-for-sale investment owned at yearend exceeded its cost by $\$ 6,000$ .
6. Dividends of $\$ 9,000$ were declared and paid.

A. Which transactions are operating?
B. Compute net income for the year ending December 31, 2017.
C. Compute comprehensive income for the year ending December 31, 2017.