Deck 13: The Corporate Income Statement and the Statement of Stockholders Equity

Question 1

Income tax allocation procedures are applied to comply with the matching principle.

Answer 1

True

Question 2

Write-downs and restructurings are often an indication of bad management decisions in the past.

Answer 2

True

Question 3

Both restructurings and write-downs reduce current operating income.

Answer 3

True

Question 4

A write-down is another term for a restructuring.

Question 5

The write-off of goodwill that has been impaired is a component of income from operations.

Question 6

Extraordinary gains and losses are a component of income from operations.

Question 7

A gain on the sale of an asset is a component of income from operations.

Question 8

The quality of earnings is an indication of the sustainability of earnings into future accounting periods.

Question 9

The amount of income taxes expense appearing on a corporation's income statement must be calculated in accordance with the matching principle.

Question 10

A company with a high quality of earnings is one that has earned a substantial profit for the period.

Question 11

The only possible change in the Deferred Income Taxes account balance for a period is due to the difference between the amount of income taxes expense for that period and the amount of income taxes actually payable to the IRS for the period.

Question 12

If the amount of income taxes expense exceeds the amount of actual income taxes payable for a year,the difference is recorded by a debit to a balance sheet account called Deferred Income Taxes.

Question 13

Non-operating items will generally reduce a company's quality of earnings.

Question 14

The quality of a company's earnings is affected by the accounting estimates chosen by the company's management.

Question 15

An analysis of the nature of non-operating items is important in judging the quality of the net income figure.

Question 16

The recognition point for revenues,expenses,gains and losses is the same for tax and financial reporting purposes.

Question 17

"Big baths" commonly occur when a company is having a good year.

Question 18

In general,an accounting method or estimate that results in a higher current earnings produces a better quality of operating income.

Question 19

Discontinued operations are considered non-operating items.

Question 20

Corporate income statements must be prepared in multistep form.

Question 21

Gains and losses from the sale of plant assets should be classified as extraordinary on the income statement.

Question 22

The results of discontinued operations are excluded from operating income on the income statement.

Question 23

A company with a simple capital structure is required to report both basic and diluted earnings per share.

Question 24

On the income statement,all income taxes should be centralized in the Income Taxes Expense account.

Question 25

Extraordinary gains and losses must be shown in the financial statements "net of tax."

Question 26

Earnings per share information need not be shown for extraordinary gains and losses.

Question 27

Deferred Income Taxes is classified as an asset when it has a debit balance.

Question 28

The discrepancy between methods used for accounting purposes and methods used for tax purposes causes items in the financial statements to be shown "net of tax."

Question 29

For an item to be treated as extraordinary,it must be unusual in nature and occur infrequently.

Question 30

Gains and losses caused by the passage of a new law should be classified as extraordinary on the income statement.

Question 31

Income tax allocation is necessary because tax rates differ at different levels of income.

Question 32

One objective of the corporate income statement is to separate the results of continuing operations from those of discontinued operations.

Question 33

The federal income tax is progressive in nature.

Question 34

Gains and losses from the takeover of property by a foreign government are treated as discontinued operations.

Question 35

Discontinued operations and extraordinary items should be reported in the financial statements "net of tax."

Question 36

The results of discontinued operations appear below extraordinary gains and losses in the income statement.

Question 37

An extraordinary loss of $250,000 that results in income tax savings of $60,000 should be reported as an extraordinary loss (net of tax)of $190,000 on the income statement.

Question 38

A large uninsured loss from a fire is treated on the income statement as an extraordinary item.

Question 39

A corporation is subject to a federal flat income tax rate of 34 percent.

Question 40

The income statement's bottom-line figure (net income or loss)must be shown "net of tax."

Question 41

A person owning stock on the date of record will receive stock dividends that have been declared.

Question 42

A synonymous phrase for retained earnings is accumulated earnings.

Question 43

The date on a statement of stockholders' equity is for a period of time rather than for a specific point in time.

Question 44

A statement of retained earnings is not as informative as a statement of stockholders' equity.

Question 45

Net income is a component of comprehensive income.

Question 46

A convertible bond is a potentially dilutive security.

Question 47

A convertible preferred stock will be included in the denominator of diluted earnings per common share.

Question 48

A statement of stockholders' equity cannot take the place of a statement of retained earnings.

Question 49

Investments by owners are contained in comprehensive income.

Question 50

A business with a simple capital structure would present only basic earnings per share information in its financial statements.

Question 51

A company with convertible bonds is considered to have a complex capital structure.

Question 52

Diluted earnings per share should be a more conservative (lower)figure than basic earnings per share.

Question 53

A stock dividend is a pro rata distribution of cash to a corporation's stockholders.

Question 54

A business with 100,000 shares of stock outstanding for three months would use a weighted-average 25,000 shares in its earnings per share calculation.

Question 55

Retained earnings represent cash readily available for dividends.

Question 56

A company with no potentially dilutive securities is considered to have a complex capital structure.

Question 57

A liability arises when the board of directors declares a stock dividend.

Question 58

Comprehensive income includes net income,changes in unrealized investment gains and losses,and other items affecting equity,such as foreign currency translation adjustments.

Question 59

A debit balance in the Retained Earnings account is referred to as a deficit.

Question 60

A company with stock options is considered to have a simple capital structure.

Question 61

The write-down of an asset will affect

A) neither total assets nor net income.
B) net income, but not total assets.
C) both total assets and net income.
D) total assets, but not net income.

Question 62

A 2-for-1 stock split will have the same effect on the number of shares outstanding as a 200 percent stock dividend.

Question 63

When alternative acceptable accounting methods exist,a better quality of earnings generally is produced from selecting an accounting method that has the effect of reporting the

A) lowest amount of future earnings.
B) greatest amount of retained earnings currently.
C) lowest amount of current earnings.
D) greatest amount of assets currently.

Question 64

A small stock dividend normally results in a transfer from Retained Earnings to Contributed Capital of an amount equal to the par value of the stock.

Question 65

Par value or stated value is arbitrarily set when stock is authorized.

Question 66

Book value per share of stock represents the amount the shareholder will receive per share if the company is sold or liquidated.

Question 67

A stock split results in a transfer of the market value of the stock from Retained Earnings to Contributed Capital.

Question 68

The declaration of cash dividends will decrease the book value per share of common stock.

Question 69

The book value of one share of callable preferred stock is equal to the call value of the preferred share minus any dividends in arrears.

Question 70

When common stock is originally issued,its market value per share should approximate its par or stated value per share.

Question 71

The consistency convention requires that

A) a company use the same independent auditors year after year.
B) all companies operating in the same industry use the same accounting methods.
C) the selection of a company's accounting policies be disclosed in its financial statements.
D) a company use the same accounting procedures year after year.

Question 72

The account Common Stock Distributable is classified as a current liability.

Question 73

In computing book value per share of common stock,common stock distributable is included in the divisor.

Question 74

The quality of a company's earnings may be affected by the

A) industry in which the company operates.
B) choice of independent auditors.
C) accounting methods the company uses.
D) countries in which the company operates.

Question 75

A stock split normally increases total stockholders' equity.

Question 76

A stock dividend does not affect the total amount of stockholders' equity.

Question 77

A stock dividend will cause an increase in total contributed capital at the date the dividend is declared.

Question 78

A stock dividend exceeding 20 to 25 percent is properly treated as a stock split.

Question 79

Which of the following is not a component of income from operations?

A) Costs and expenses
B) Write-downs of assets
C) Extraordinary losses
D) Restructurings

Question 80

A stock dividend will cause an increase in the total number of shares issued and outstanding.