Deck 4: Reporting Financial Performance

Question 1

The concept of representational faithfulness requires that the financial statements

A) reflect the economic reality of running a business.
B) reflect everything no matter how small.
C) reflect the biases of management.
D) identify all risks that the entity faces.

Answer 1

reflect the economic reality of running a business.

Question 2

The business model may be broken down into three activities:

A) investing, operating, allocating.
B) investing, operating, financing.
C) financing, operating, and comprehensive income.
D) balance sheet, income statement, cash flow statement.

Answer 2

investing, operating, financing.

Question 3

Earnings management is

A) the process of managing a business.
B) the process of profit maximization.
C) always fraudulent.
D) manipulating income to meet a targeted earnings level.

Answer 3

manipulating income to meet a targeted earnings level.

Question 4

The concept of soft numbers reflects the fact that

A) financial statement numbers may be manipulated.
B) sometimes significant measurement uncertainty exists.
C) sometimes significant errors exist.
D) earnings numbers may not be sustainable.

Question 5

Accumulated other comprehensive income would be reported in

A) shareholders' equity.
B) retained earnings.
C) net income.
D) net income from continuing operations.

Question 6

The first step in the financial risk management process is

A) buying insurance.
B) identifying risks.
C) managing risks.
D) monitoring risks.

Question 7

At year end, other comprehensive income is closed out to

A) retained earnings.
B) share capital.
C) accumulated other comprehensive income.
D) net income.

Question 8

Segregating a company's recurring operating income from nonrecurring income sources is useful because

A) recurring income is constantly changing.
B) nonrecurring income is subject to greater management bias and uncertainty.
C) results from continuing operations have greater significance for predicting future performance.
D) nonrecurring income is irrelevant to stakeholders.

Question 9

All-inclusive income includes all of the following EXCEPT

A) investments by owners.
B) losses on disposal of assets.
C) dividend revenue.
D) gains on the expropriation of property by the government.

Question 10

A useful statement of income

A) has feedback value.
B) has predictive value.
C) helps stakeholders understand the business.
D) all of the above

Question 11

Limitations of the income statement include all of the following EXCEPT

A) items that cannot be measured reliably are not reported.
B) only actual amounts are reported in determining net income.
C) income measurement involves the use of estimates.
D) income numbers are affected by the accounting methods used.

Question 12

The "risk/return" trade-off means

A) using various techniques to manage risks.
B) the market demands a greater return when there is greater risk.
C) not investing in a risky business.
D) monitoring risks.

Question 13

Which of the following is INCORRECT regarding "quality of earnings"?

A) Quality of earnings refers to how solid the earnings numbers are.
B) Analysts use quality of earnings to assess how well the reported income reflects the underlying business and future potential.
C) If earnings quality is high, numbers are accepted as is.
D) If earnings quality is low, numbers are accepted as is.

Question 14

The income statement captures an entity's

A) financing activities.
B) investing activities.
C) operating activities.
D) interrelationship between activities.

Question 15

Comprehensive income includes all changes in equity during a period EXCEPT

A) gains and losses from discontinued operations.
B) unrealized gains and losses on available for sale securities.
C) those resulting from investments by owners and distributions to owners.
D) gains and losses from irregular items.

Question 16

Value creation refers to

A) generating the highest profits possible given available resources.
B) choosing the optimal business model for a given industry.
C) finding an optimal balance between managing risks and taking the right opportunities.
D) how a company creates value for its employees.

Question 17

Information in the income statement does NOT help users to

A) evaluate the past performance of the enterprise.
B) provide a basis for predicting future performance.
C) help assess the risk of not achieving future cash flows.
D) calculate the exact amount of future dividends.

Question 18

The view of income that IFRS generally supports is referred to as the

A) all-inclusive approach.
B) current operating performance approach.
C) other comprehensive income approach.
D) operating income approach.

Question 19

Net income represents

A) revenues and gains less expenses and losses from continuing operations only.
B) revenues and gains less expenses and losses from both continuing and discontinued operations.
C) net income plus/minus other comprehensive income.
D) ongoing revenues and expenses before gains, losses, and discontinued operations.

Question 20

Which of the following statements regarding high-quality earnings is NOT true?

A) The shares of companies with high-quality earnings are valued higher in capital markets.
B) High-quality earnings make verifiable promises about future performance.
C) High-quality earnings provide higher-quality information.
D) High-quality earnings have a lower likelihood of potential misstatement.

Question 21

The single-step income statement emphasizes

A) the gross profit figure.
B) total revenues and total expenses.
C) discontinued operations and accounting changes.
D) the various components of income from continuing operations.

Question 22

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

A) The gain or loss on disposal should be reported as an unusual item.
B) Results of operations of a discontinued segment should be disclosed in other comprehensive income.
C) Earnings per share from both continuing operations and for the discontinued segment should be disclosed either on the face of the statement or in the notes.
D) The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations.

Question 23

Sesame Corp.'s adjusted trial balance at December 31, 2020 included the following:
$\begin{array}{llcc} & \text { }& \text { } \\ \text { Sales..................................................................... } &&\$170,000\\ \text { Cost of goods sold.................................................. } &\$70,000&\\ \text { Administrative expenses........................................... } &28,000&\\ \text {Loss on sale of equipment........................................ } &11,000\\ \text {Sales commissions.................................................... } &9,000\\ \text {Interest revenue....................................................... } &&6,000\\ \text {Loss of warehouse due to flood.................................. } &15,000&\\ \text {Loss from operation of discontinued division.............. } &24,000&\\ \text {Bad debt expense....................................................... } &\underline{5,000}&\underline{\quad}\\ \text { Totals....................................................................... } &\underline{\underline{\$162,000}}&\underline{\underline{\$176,000}}\\\end{array}$

Sesame uses the perpetual system, and their income tax rate is 30%. On Sesame’s multiple-step income statement for 2020, income from discontinued operations is

A) $10,500.
B) $16,800.
C) $24,000.
D) $24,500.

Question 24

Unusual gains and losses are items on the income statement that

A) are typical of everyday activities but do not occur frequently.
B) are not typical of everyday activities or do not occur frequently.
C) include write down of inventories and write off of bad debts.
D) are not usually disclosed separately.

Question 25

If the value of an asset that has been written down later increases, to what extent may the related gain be recognized?

A) up to the amount of the original loss
B) no remeasurements may be recognized
C) none of the gain may be recognized
D) up to the fair market value of the asset

Question 26

The following information is available for Pear Limited for 2020: $\begin{array}{llcc} \text {Accounts payable, beginning.................................................................... } &\$14,000 \\ \text { Cash payments on account during year.................................................... } &54,000\\ \text {Purchase discounts taken during year on 2020 purchases.......................... } &1,200\\ \text {Accounts payable, ending.......................................................................... } &7,000\\\end{array}$
Assuming the company records purchases at gross amounts, the total purchases for 2020 would be

A) $48,200.
B) $61,000.
C) $55,200.
D) $59,800.

Question 27

The following information is available for Excelsior Corp for 2020: $\begin{array}{llcc} \text { Payment for goods during year................................. } &\$104,000 \\ \text { Accounts payable, beginning ................................... } &14,000\\ \text {Inventory, beginning ................................................. } &28,000\\ \text { Accounts payable, ending........................................ } &12,600\\ \text { Inventory, ending.................................................... } &16,200\\\end{array}$

Cost of goods sold for 2020 is

A) $102,600.
B) $132,000.
C) $105,400.
D) $114,400.

Question 28

Papaya Inc. has 100,000 common shares outstanding and has a policy of paying a $1.30 annual dividend for each of these shares. Papaya has an income tax rate of 35%, and its retained earnings statement for 2020 reported a closing balance of $1,452,000. Assuming an opening retained earnings balance of zero, dividend payments according to its usual policy, and no other adjustments, Papaya's 2020 net income was

A) $1,536,500.
B) $2,364,846.
C) $1,452,000.
D) $1,582,000.

Question 29

Under IFRS, which of the following is NOT required to be presented separately in the statements of income/comprehensive income?

A) revenues
B) discontinued operations
C) tax expense
D) depreciation/amortization

Question 30

If an asset is to be classified as held for sale, which of the following conditions does NOT apply?

A) The sale has been authorized by the company's management.
B) Changes to the sale plan are likely.
C) It is probable that the asset will be sold within one year.
D) There is an active program to find a buyer.

Question 31

The following information is available for Royal Corp. for 2020: $\begin{array}{llcc} \text {Accounts payable, beginning............................................................ } &\$14,000 \\ \text {Cash payments on account during year............................................. } &7,000\\ \text {Purchase discounts taken during year on 2020 purchases ................ } &1,200\\ \text { Purchases....................................................................................... } &10,000\\\end{array}$
Assuming that all purchases are made on account, accounts payable at the end of the year are

A) $17,000
B) $22,800
C) $15,800
D) $24,000

Question 32

When an asset is held for sale

A) it must relate to a discontinued operation.
B) the entity must continue to record depreciation for the asset.
C) the asset is remeasured to the lower of carrying (book) value and fair value less costs to sell.
D) the asset is remeasured to the lower of fair value and carrying (book) value.

Question 33

During 2020, Door Inc. decided to dispose of Bell Division, considered a separate reportable segment. Door estimates it can sell Bell at a loss of $30,000, which it does on May 1, 2020. Bell's operating income from January 1 to April 30 was $23,000. Ignoring taxes, and assuming statements are prepared under ASPE, the discontinued operations section of Door's income statement for the year ended December 31, 2020 should report

A) the $23,000 operating income and the $30,000 loss in the discontinued operations section of the income statement.
B) the $23,000 operating income in the body of the income statement and the $30,000 loss in the discontinued operations section of the income statement.
C) the $23,000 operating income and the $30,000 loss in the body of the income statement.
D) only the income from Door's other divisions. Since it no longer owns Bell at December 31, Door does not need to report anything relating to Bell's operations during the year.

Question 34

On January 1, 2020, Bellair Ltd. decided to discontinue its plastics making division. The division, considered a reportable segment, was sold on June 1, 2020. Division assets with a carrying value of $812,500 were sold for $625,000. Operating income from January 1 to May 31 for the division was $62,500. Ignoring taxes, what amount should be reported on Bellair's income statement for the year ended December 31, 2020, under the caption "discontinued operations"?

A) $250,000 gain
B) $187,500 loss
C) $62,500 gain
D) $125,000 loss

Question 35

Which of the following is NOT a generally practiced method of presenting the income statement?

A) including corrections of errors made in a prior period
B) the single-step income statement
C) the multiple-step income statement
D) including gains and losses from discontinued operations

Question 36

When a company disposes of a discontinued operation (segment), the transaction should be included in the income statement as a gain or loss on disposal, and reported as

A) a prior period adjustment.
B) other comprehensive income.
C) an amount after continuing operations.
D) a bulk sale of plant assets included in income from continuing operations.

Question 37

The calculation of earnings per share is generally based on which income figure?

A) Other comprehensive income
B) Income from discontinued operations
C) Net income
D) All-inclusive income

Question 38

During 2020, Honeydew Corp disposed of Blackberry Division, a major segment of its business. Honeydew realized a gain of $1,500,000, net of taxes, on the sale of Blackberry's assets. During 2020, Blackberry's operating losses, net of taxes, were $1,800,000. How should these facts be reported in Honeydew's income statement for 2020?

Question 39

For purposes of discontinued operations, the key elements in determining that a separate segment exists are that the component is

A) a separate business and a separate legal entity.
B) a separate legal entity and generates its own net cash flows.
C) in a separate geographic region and can be sold.
D) a separate business and generates its own cash flow.

Question 40

IFRS requires that expenses be presented in the income statement

A) by amount or in alphabetical order.
B) by geographical area or by the single-step method.
C) by nature or by function.
D) by current or non-current.

Question 41

Meg Inc. incurred the following infrequent losses during 2020: A $\$ 135,000$ write down of equipment leased to others (net of tax)
$A \$60,000$ adjustment of accruals on long-term contracts (net of tax)
A $90,000 write off of obsolete inventory (net of tax) Of those losses, what amount should be included in Meg's 2020 income from continuing operations?

A) $285,000
B) $225,000
C) $195,000
D) $150,000

Question 42

Groucho Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 2020, included the following accounts: $\begin{array}{llcc} \text { Accounting and legal fees......................... } & \$140,000 \\ \text {Advertising............................................... } &160,000\\ \text { Freight-out............................................... } &80,000\\ \text { Interest.................................................... } &70,000\\ \text { Loss on sale of long-term investments......... } &30,000\\ \text {Officers' salaries.......................................... } &225,000\\ \text { Rent for office space................................... } &220,000\\ \text { Sales salaries and commissions................... } &170,000\\ \text { } &\\\end{array}$

One-half of the rented premises is occupied by the sales department. Groucho's total selling expenses for 2020 are

A) $520,000.
B) $440,000.
C) $410,000.
D) $350,000.

Question 43

The following items were among those reported on Harry's Ltd.'s income statement for the year ended December 31, 2020: $\begin{array}{llcc} \text {Legal and audit fees........................... } &\$200,000 \\ \text { Rent for office space.......................... } &470,000\\ \text {interest on inventory loan.................... } &496,000\\ \text { Loss on abandoned equipment used in operations....... } &82,000\\\end{array}$
The office space is used equally by Harry's sales and accounting departments. What amount should be classified as general and administrative expenses in Harry's multiple-step income statement for 2020?

A) $235,000
B) $435,000
C) $670,000
D) $931,000

Question 44

Unsure Inc. made a very large arithmetical error in the preparation of its year-end financial statements by incorrect placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the correct amount. When Unsure discovered the error in the following year, correction of the error should be treated as a(n)

A) adjustment to beginning retained earnings, net of tax.
B) increase in depreciation expense for the year in which the error is discovered.
C) gain for the year in which the error was made.
D) component of income for the year in which the error is discovered, but separately listed on the income statement and fully explained in a note to the financial statements.

Question 45

Intraperiod tax allocation

A) allocates tax balances between fiscal years.
B) allocates tax balances within a fiscal period.
C) is used for income from continuing operations but not for income from discontinued operations.
D) is used for other comprehensive income but not for income from discontinued operations.

Question 46

Use the following information for the following questions:
Sesame Corp.'s adjusted trial balance at December 31, 2020, included the following:
$\begin{array}{c}\begin{array}{lll}\\\text {Sales......................................................................}\\\text {Cost of goods sold..................................................}\\\text {Administrative expenses........................................}\\\text {Loss on sale of equipment.......................................}\\\text {Sales commissions..................................................}\\\text {Interest revenue.....................................................}\\\text {Loss of warehouse due to flood...............................}\\\text {Loss from operation of discontinued division.........}\\\text {Bad debt expense....................................................}\\\text {Totals.....................................................................}\end{array}\begin{array}{lll}\underline{\text {Debit}}\\\\\$ 70,000 \\28,000 \\11,000 \\9,000\\\\15,000 \\24,000 \\\underline{5,000} \\\underline{ \$ 162,000 }\\\end{array}\begin{array}{lll}\underline{\text {Credit}}\\\$170,000\\\\ \\ \\\\6,000\\ \\ \\\underline{\quad\quad} \\\underline{ \$ 176,000 }\\\end{array}\end{array}$

Sesame uses the perpetual system, and their income tax rate is $30 \%$ .

-On Sesame's multiple-step income statement for 2020, net income is

A) $9,800.
B) $15,000.
C) $16,800.
D) $24,000.

Question 47

Honeysuckle Inc. reported the following information for 2020: $\begin{array}{llcc} \text { Sales revenue............................................................ } & \$780,000 \\ \text {Cost of goods sold....................................................... } &525,000\\ \text { Operating expenses.................................................... } &82,500\\ \text { Gain on the sale of equipment.................................... } &105,000\\ \text {Cash dividends received on investment securities............ } &4,500\\\end{array}$
For 2020, on a multiple-step income statement, Honeysuckle would report other income of

A) $277,500.
B) $109,500.
C) $105,000.
D) $4,500.

Question 48

Regarding presentation of expenses by nature versus function, function refers to

A) the type of expense, such as depreciation, purchases, or employee benefits.
B) whether the expense actively contributed to the generation of income.
C) the business activity to which the expense relates.
D) the name of the cost centre responsible for the expense.

Question 49

Use the following information for the following questions:
Sesame Corp.'s adjusted trial balance at December 31, 2020, included the following:
$\begin{array}{c}\begin{array}{lll}\\\text {Sales......................................................................}\\\text {Cost of goods sold..................................................}\\\text {Administrative expenses........................................}\\\text {Loss on sale of equipment.......................................}\\\text {Sales commissions..................................................}\\\text {Interest revenue.....................................................}\\\text {Loss of warehouse due to flood...............................}\\\text {Loss from operation of discontinued division.........}\\\text {Bad debt expense....................................................}\\\text {Totals.....................................................................}\end{array}\begin{array}{lll}\underline{\text {Debit}}\\\\\$ 70,000 \\28,000 \\11,000 \\9,000\\\\15,000 \\24,000 \\\underline{5,000} \\\underline{ \$ 162,000 }\\\end{array}\begin{array}{lll}\underline{\text {Credit}}\\\$170,000\\\\ \\ \\\\6,000\\ \\ \\\underline{\quad\quad} \\\underline{ \$ 176,000 }\\\end{array}\end{array}$

Sesame uses the perpetual system, and their income tax rate is $30 \%$ .

-On Sesame's multiple-step income statement for 2020, income from continuing operations is

A) $17,500.
B) $52,800.
C) $24,500.
D) $26,600.

Question 50

Regarding earnings per share (EPS) data

A) both public and private corporations are required to report EPS on the face of the income statement.
B) although public corporations are required to report EPS, private corporations are not.
C) EPS related to comprehensive income is required.
D) financial analysts do not attach much importance to EPS data.

Question 51

The following information is available for Quiny Inc. for 2020: $\begin{array}{llcc} \text { Disbursements for purchases........................ } &\$715,000 \\ \text {Increase in trade accounts payable................. } &63,800\\ \text { Decrease in merchandise inventory.............. } &30,800\\\end{array}$
Cost of goods sold for 2020 was

A) $715,000.
B) $778,800.
C) $770,000.
D) $809,600.

Question 52

Which of the following is a change in accounting principle?

A) a change in the estimated service life of machinery
B) a change from FIFO to weighted average for inventory costing
C) a change in the estimated allowance for bad debts
D) a change in estimated future warranty expense

Question 53

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

A) material losses resulting from correction of errors related to prior periods
B) material losses resulting from sale of assets not originally acquired for resale
C) material losses resulting from write off of intangibles
D) material losses resulting from sale of investments

Question 54

Use the following information for the following questions. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 2020, included the following expense accounts:
$\begin{array}{llcc} \text { Accounting and legal fees......................... } & \$120,000 \\ \text {Advertising............................................... } &150,000\\ \text { Freight-out............................................... } &75,000\\ \text { Interest.................................................... } &60,000\\ \text { Loss on sale of long-term investments......... } &30,000\\ \text {Officers' salaries.......................................... } &180,000\\ \text { Rent for office space................................... } &160,000\\ \text { Sales salaries and commissions................... } &110,000\\ \text { } &\\\end{array}$
One-half of the rented premises is occupied by the sales department.

-How much of the expenses listed above should be included in Oskar's selling expenses for 2020?

A) $260,000
B) $335,000
C) $340,000
D) $415,000

Question 55

Rudolph Corporation reports the following information: $\begin{array}{llcc} \text { Net income............................................................. } & \$900,000 \\ \text {Dividends on common shares...................................... } &\$252,000\\ \text { Dividends on preferred shares............................................ } &\$90,000\\ \text { Weighted average common shares outstanding....................... } &300,000\\\end{array}$
Rudolph should report earnings per share of

A) $1.86.
B) $2.16.
C) $2.70.
D) $3.00.

Question 56

When reporting a change in accounting principle, required disclosure(s) on the income statement include

A) a per share amount for the cumulative effect of the change.
B) the cumulative effect on prior years, net of tax.
C) the cumulative effect be disclosed immediately after discontinued operations.
D) a change in accounting principle is not reported on the income statement.

Question 57

When expenses are presented by function in the income statement,

A) they should be presented by type of expense (e.g., depreciation, purchases, salaries).
B) they should be reported as part of other comprehensive income.
C) their cash flow predictive value is increased.
D) more professional judgment is required to allocate expenses between functions.

Question 58

Intraperiod tax allocation

A) arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return.
B) is required for the cumulative effect of changes in accounting principles but not for discontinued operations.
C) allocates income tax expense evenly over a number of accounting periods.
D) relates income tax expense to the items that affect the amount of tax.

Question 59

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

A) net loss
B) correction of an error
C) change in accounting estimates
D) stock dividends

Question 60

Use the following information for the following questions. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 2020, included the following expense accounts:
$\begin{array}{llcc} \text { Accounting and legal fees......................... } & \$120,000 \\ \text {Advertising............................................... } &150,000\\ \text { Freight-out............................................... } &75,000\\ \text { Interest.................................................... } &60,000\\ \text { Loss on sale of long-term investments......... } &30,000\\ \text {Officers' salaries.......................................... } &180,000\\ \text { Rent for office space................................... } &160,000\\ \text { Sales salaries and commissions................... } &110,000\\ \text { } &\\\end{array}$
One-half of the rented premises is occupied by the sales department.

-How much of the expenses listed above should be included in Oskar's general and administrative expenses for 2020?

A) $380,000
B) $410,000
C) $440,000
D) $470,000

Question 61

Use the following information for the following questions:
Ignore taxes.
Peach Inc.'s financial statements for the years 2019 and 2020 contained errors as follows:
$\begin{array}{c}\begin{array}{lll}\\\text {Ending inventory}\\\text { Depreciation Expense}\end{array}\begin{array}{c}\underline{2019}\\\text {\$ 3,000 \quad understated}\\\text {5,500 \quad overstated }\end{array}\begin{array}{c}\underline{2020}\\\text { \$ 5,000 \quad overstated}\\\text {3,500 \quad overstated}\end{array}\end{array}$


-Assuming that none of the errors were detected or corrected, by what amount will retained earnings at December 31, 2020 be overstated or understated?

A) $4,000 understated
B) $5,000 overstated
C) $8,500 understated
D) $11,500 understated

Question 62

Use the following information for the following questions:
Ignore taxes.
Peach Inc.'s financial statements for the years 2019 and 2020 contained errors as follows:
$\begin{array}{c}\begin{array}{lll}\\\text {Ending inventory}\\\text { Depreciation Expense}\end{array}\begin{array}{c}\underline{2019}\\\text {\$ 3,000 \quad understated}\\\text {5,500 \quad overstated }\end{array}\begin{array}{c}\underline{2020}\\\text { \$ 5,000 \quad overstated}\\\text {3,500 \quad overstated}\end{array}\end{array}$


-Assuming that none of the errors were detected or corrected, and that no additional errors were made in 2019, by what amount will current assets at December 31, 2020 be overstated or understated?

A) $2,000 overstated
B) $10,000 understated
C) $10,000 overstated
D) $5,000 overstated

Question 63

Use the following information for questions. The tax rate for all items is 30%.
1. Depreciation for 2019 was found to be understated by $30,000.
2. A 2020 strike by the employees of a supplier resulted in a loss of $20,000.
3. The inventory at December 31, 2018 was overstated by $40,000.
4. A 2020 flood destroyed a building that had a book value of $400,000. Floods are very uncommon in that area.
The effect of these events and transactions on the balance of retained earnings at January 1, 2020 would be

A) $14,000.
B) $21,000.
C) $294,000.
D) $343,000.

Question 64

The accrual basis of accounting

A) must be used by all taxpayers.
B) recognizes revenue when earned and expenses when incurred.
C) does not record depreciation.
D) records depreciation but expenses all inventory purchases.

Question 65

Changes in accounting principle are allowed where

A) they are required by a primary source of GAAP.
B) they result in reliable and more relevant information.
C) the company reports less favourable results under the new policy.
D) both a and b are correct.

Question 66

Portland Corporation reports the following information: $\begin{array}{llcc} \text {Correction of understatement of depreciation expense } & \\ \text {in prior years, net of tax........................................ } &\$1,376,000\\ \text { Dividends declared..............................................} &1,024,000\\ \text { Net income......................................................... } &3,200,000\\ \text { Retained earnings, January 1,2020 , as reported........................ } &6,400,000\\\end{array}$ Portland should report retained earnings at January 1, 2020, as adjusted at

A) $5,024,000.
B) $7,200,000.
C) $8,576,000.
D) $9,952,000.

Question 67

To assess the quality of earnings, financial statement users should look at

A) the income statement only.
B) the statement of cash flows.
C) the level of business risk.
D) the whole set of financial statements, including the notes, as well as environmental factors.

Question 68

Assuming that none of the errors were detected or corrected, by what amount will 2020 income before taxes be overstated or understated?

A) $28,600 understated
B) $23,800 understated
C) $13,400 understated
D) $13,400 overstated

Question 69

The statement of changes in shareholders' equity

A) is a required statement under ASPE.
B) is a required statement under IFRS.
C) is a required statement under both IFRS and ASPE.
D) is an optional statement under both IFRS and ASPE.

Question 70

Use the following information for the following questions:
The 2019 and 2020 financial statements of Banana Inc. contained the following errors:
$\begin{array}{c}\begin{array}{lll}\\\text {Ending inventory}\\\text { Insurance expense}\end{array}\begin{array}{c}\underline{2019}\\\text {\$ 10,000 \quad overstated}\\\text {4,800 \quad understated}\end{array}\begin{array}{c}\underline{2020}\\\text { \$ 16,000 \quad understated}\\\text {2,600 \quad overstated}\end{array}\end{array}$


-Assuming that none of the errors were detected or corrected, by what amount will 2019 income before taxes be overstated or understated?

A) $5,200 understated
B) $5,200 overstated
C) $14,800 overstated
D) $14,800 understated

Question 71

When looking to the statement of financial position for an assessment of earnings quality, stakeholders should pay particular attention to

A) a proportionately high cash balance, as this signifies high-quality earnings.
B) how the company is financed and what the revenue-generating assets are.
C) a proportionately low liability balance, as this signifies high-quality earnings.
D) The statement of financial position is not a reflection of earnings quality.

Question 72

Which of the following should be reported as an adjustment to retained earnings?

Question 73

Which of the following is(are) NOT recommended to be included in notes to the financial statements?

A) accounting policies
B) information about the capital structure of the company
C) individual salaries of top management
D) sources of estimation uncertainty

Question 74

Use the following information for questions. The tax rate for all items is 30%.
1. Depreciation for 2019 was found to be understated by $30,000.
2. A 2020 strike by the employees of a supplier resulted in a loss of $20,000.
3. The inventory at December 31, 2018 was overstated by $40,000.
4. A 2020 flood destroyed a building that had a book value of $400,000. Floods are very uncommon in that area.
The effect of these events and transactions on 2020 income from continuing operations net of tax would be

A) $14,000.
B) $35,000.
C) $63,000.
D) $294,000.

Question 75

In 2020, Junction Corporation has cash receipts from customers of $270,000 and cash payments for operating expenses of $168,000. At January 1, 2020, accounts receivable were $30,000; at December 31, 2020 they were $34,400. Total service revenue is

A) $270,000.
B) $274,400.
C) $106,400.
D) $265,600.

Question 76

Regarding classification of expenses by nature versus function, under ASPE, an entity is required to

A) present an analysis of expenses based on their nature.
B) present their expenses according to their nature.
C) present expenses in a manner that is most transparent.
D) present their expenses according to their function.

Question 77

Which of the following is INCORRECT regarding differences between IFRS and ASPE?

A) Both IFRS and ASPE mandate a list of required items that must be presented.
B) IFRS requires that held-for-sale assets be reclassified as current assets.
C) Comprehensive income is not recognized under ASPE.
D) Both IFRS and ASPE require presentation of both basic and diluted EPS.

Question 78

Use the following information for the following questions:
Ignore taxes.
Peach Inc.'s financial statements for the years 2019 and 2020 contained errors as follows:
$\begin{array}{c}\begin{array}{lll}\\\text {Ending inventory}\\\text { Depreciation Expense}\end{array}\begin{array}{c}\underline{2019}\\\text {\$ 3,000 \quad understated}\\\text {5,500 \quad overstated }\end{array}\begin{array}{c}\underline{2020}\\\text { \$ 5,000 \quad overstated}\\\text {3,500 \quad overstated}\end{array}\end{array}$


-Assuming that the errors made in 2019 were corrected, but that the errors made in 2020 were not detected, by what amount will 2020 income before taxes be overstated or understated?

A) $5,000 overstated
B) $8,500 overstated
C) $1,500 understated
D) $1,500 overstated

Question 79

The following information was extracted from the accounts of Tomato Corporation at December 31, 2020: $\begin{array}{llcc}& \underline{ \text { CR (DR) }}\ \\ \text { Total reported income since incorporation................... } &\$1,540,000\\ \text {Total cash dividends paid ............................................ } &(550,000)\\ \text { Cumulative effect of changes in accounting principle............. } &(154,000)\\ \text {Total stock dividends distributed ......................................... } &(330,000)\\ \text {Correction of an error, recorded January 1, 2020 ............... } &84,700\\\end{array}$
What should be the balance of retained earnings at December 31, 2020?

A) $465,300
B) $550,000
C) $590,700
D) $506,000

Question 80

Regarding presentation of discontinued operations, under IFRS, on the balance sheet, an entity must classify held-for-sale assets as

A) current assets.
B) current or non-current, depending on their nature.
C) available for sale assets.
D) Assets held for sale do not appear on the balance sheet.