Deck 4: The Income Statement, comprehensive Income, and the Statement of Cash Flows

Question 1

Popson Inc.incurred a material loss that was unusual in character.This loss should be reported as:

A)A discontinued operation.
B)A line item between income from continuing operations and income from discontinued operations.
C)A line item within income from continuing operations.
D)A line item in the retained earnings statement.

Answer 1

C

Question 2

Intraperiod income tax presentation is primarily a matter of:

A)Valuation.
B)Going concern.
C)Periodicity.
D)Allocation.

Answer 2

D

Question 3

Earnings quality refers to the ability of reported earnings (income)to predict future earnings.

Answer 3

True

Question 4

Gains,but not losses,from discontinued operations must be separately reported in an income statement.

Question 5

Income statements prepared according to both U.S.GAAP and International Financial Reporting Standards require the separate reporting of discontinued operations.

Question 6

Intraperiod tax allocation is the process of associating income tax effects with the income statement components that create those effects.

Question 7

Freda's Florist reported the following before-tax income statement items for the year ended December 31,2016:

All income statement items are subject to a 40% income tax rate.In its 2016 income statement,Freda's separately stated income tax expense and total income tax expense would be:

A)$128,000 and $128,000,respectively.
B)$128,000 and $100,000,respectively.
C)$100,000 and $128,000,respectively.
D)$100,000 and $100,000,respectively.

Question 8

International Financial Reporting Standards require a company to classify expenses in an income statement by function.

Question 9

Provincial Inc.reported the following before-tax income statement items:

Provincial has a 30% income tax rate.
Provincial would report the following amount of income tax expense as a line item in the income statement:

A)$198,000.
B)$180,000.
C)$168,000.
D)$150,000.

Question 10

Pro forma earnings:

A)Could be considered management's view of permanent earnings.
B)Are needed for the correction of errors.
C)Are standardized under generally accepted accounting principles
D)Are useful to compare two different firms' performance.

Question 11

The direct and indirect methods of reporting the statement of cash flows present different information for investing and financing activities.

Question 12

Comprehensive income is the total change in shareholders' equity that occurred during the period.

Question 13

Comprehensive income reports an expanded version of income to include certain types of gains and losses not included in traditional income statements.

Question 14

Income from continuing operations sometimes includes gains from nonoperating activities.

Question 15

The difference between single-step and multiple-step income statements is primarily an issue of:

A)Consistency.
B)Presentation.
C)Measurement.
D)Valuation.

Question 16

Earnings per share disclosure is required only for income from continuing operations.

Question 17

In a statement of cash flows prepared under International Financial Reporting Standards,interest received is most often classified as an operating cash flow.

Question 18

The distinction between operating and nonoperating income relates to:

A)Continuity of income.
B)Primary activities of the reporting entity.
C)Consistency of income stream.
D)Reliability of measurements.

Question 19

Material restructuring costs are reported as an element of income from continuing operations.

Question 20

In a statement of cash flows prepared under International Financial Reporting Standards,interest paid is most often classified as a financing cash flow.

Question 21

Major Co.reported 2016 income of $300,000 from continuing operations before income taxes and a before-tax loss on discontinued operations of $80,000.All income is subject to a 30% tax rate.In the 2016 income statement,Major Co.would show the following line-item amounts for income tax expense and net income:

A)$66,000 and $210,000.
B)$90,000 and $154,000.
C)$90,000 and $276,000.
D)$66,000 and $220,000.

Question 22

What is Misty's income from continuing operations?

A)$198.
B)$210.
C)$330.
D)$360.

Question 23

In the 2016 income statement for Foxtrot Co. ,it would report income from discontinued operations of:

A)$ 9.2 million.
B)$13.2 million.
C)$ 22 million.
D)$ 26 million.

Question 24

The Maytag Corporation's income statement includes income from continuing operations and a loss on discontinued operations.Earnings per share information would be provided for:

A)Net income only.
B)Income from continuing operations and net income only.
C)Income from continuing operations,loss on discontinued operations,and net income only.
D)None of the other answers is correct.

Question 25

Suppose that the Footwear Division's assets had not been sold by December 31,2016,but were considered held for sale.Assume that the fair value of these assets at December 31 was $40 million.In the 2016 income statement for Foxtrot Co. ,it would report a loss from discontinued operations of:

A)$ 3 million loss.
B)$ 10 million loss.
C)$10.8 million loss.
D)$ 18 million loss.

Question 26

Cendant Corporation's results for the year ended December 31,2016,include the following material items:
Cendant Corporation's income from continuing operations before income taxes for 2016 is:

A)$900,000.
B)$880,000.
C)$820,000
D)$320,000.

Question 27

The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,500,000,respectively.What before-tax amount(s)should Mercedes report as loss on discontinued operations in its 2016 income statement?

A)$2,000,000 loss.
B)$2,500,000 loss.
C)No loss would be reported.
D)$500,000 gain included in continuing operations and a $2,000,000 loss from discontinued operations.

Question 28

Each of the following would be reported as items of other comprehensive income except:

A)Foreign currency translation gains.
B)Unrealized gains on investments accounted for as securities available for sale.
C)Deferred gains from derivatives.
D)Gains from the sale of equipment.

Question 29

On November 1,2016,Jamison Inc.adopted a plan to discontinue its barge division,which qualifies as a separate component of the business according to GAAP regarding discontinued operations.The disposal of the division was expected to be concluded by April 30,2017.On December 31,2016,the company's year-end,the following information relative to the discontinued division was accumulated:

In its income statement for the year ended December 31,2016,Jamison would report a before-tax loss on discontinued operations of:

A)$ 65 million.
B)$ 50 million.
C)$130 million.
D)$145 million.

Question 30

Suppose that the Footwear Division's assets had not been sold by December 31,2016,but were considered held for sale.Assume that the fair value of these assets at December 31 was $80 million.In the 2016 income statement for Foxtrot Co. ,under discontinued operations it would report a:

A)$ 6 million loss.
B)$ 10 million loss.
C)$13.2 million income.
D)None of the other answers is correct.

Question 31

Reporting comprehensive income can be accomplished by each of the following methods except:

A)In the statement of shareholders' equity.
B)A single,continuous statement of comprehensive income.
C)In two separate,but consecutive statements.
D)All of the above are acceptable methods.

Question 32

On August 1,2016,Rocket Retailers adopted a plan to discontinue its catalog sales division,which qualifies as a separate component of the business according to GAAP regarding discontinued operations.The disposal of the division was expected to be concluded by June 30,2017.On January 31,2017,Rocket's fiscal year-end,the following information relative to the discontinued division was accumulated:

In its income statement for the year ended January 31,2017,Rocket would report a before-tax loss on discontinued operations of:

A)$115,000.
B)$195,000.
C)$ 65,000.
D)$125,000.

Question 33

Which of the following is not true about EPS?

A)It must be reported by all corporations whose stock is publicly traded.
B)It must be reported separately for discontinued operations.
C)It must be reported on operating income.
D)None of the other answers is correct.

Question 34

The principal benefit of separately reporting discontinued operations is to enhance:

A)Predictive ability of future profitability.
B)Consistency in reporting.
C)Intraperiod continuity.
D)Comprehensive reporting.

Question 35

In the 2016 income statement for Foxtrot Co. ,it would report:

A)All income taxes combined into one line item.
B)Income taxes separated for continuing and discontinued operations.
C)Income taxes reported for income and gains only.
D)None of the other answers is correct.

Question 36

Howard Co.'s 2016 income from continuing operations before income taxes was $280,000.Howard Co.reported before-tax income on discontinued operations of $50,000.All tax items are subject to a 40% tax rate.In its income statement for 2016,Howard Co.would show the following line-item amounts for net income and income tax expense:

A)$198,000 and $112,000.
B)$230,000 and $92,000.
C)$330,000 and $132,000.
D)$198,000 and $79,000.

Question 37

The Claxton Company manufactures children's toys and also has a division that makes automobile parts.Due to a change in its strategic focus,the company sold the automobile parts division.The division qualifies as a component of the entity according to GAAP.How should Claxton report the sale in its 2016 income statement?

A)Report it as restructuring costs.
B)Report it as a discontinued operation.
C)Report the income or loss from operations of the division in discontinued operations.
D)Report it as a gain on sale of investments included in income from continuing operations.

Question 38

The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $2,500,000,respectively.What before-tax amount(s)should Mercedes report as loss on discontinued operations in its 2016 income statement?

A)$2,000,000 loss.
B)$2,500,000 loss.
C)No loss would be reported.
D)$500,000 impairment loss included in continuing operations and a $2,000,000 loss from discontinued operations.

Question 39

In the 2016 income statement for Foxtrot Co. ,it would report:

A)Income (loss)on its total operations for the year without separation.
B)Income (loss)on its continuing operation only.
C)Income (loss)from its continuing and discontinued operations separately.
D)Income and gains separately from losses.

Question 40

What is Misty's net income for the current year?

A)$148.
B)$168.
C)$112.
D)None of the amounts given are correct.

Question 41

In the operating activities section of the statement of cash flows,we start with net income:

A)In the direct method.
B)In the indirect method.
C)In both the direct and the indirect methods.
D)In neither the direct nor the indirect methods.

Question 42

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

A)Salaries payable decrease.
B)Gain on the sale of land.
C)Loss on the sale of equipment.
D)Accounts receivable increase.

Question 43

Comprehensive income is the change in equity from:

A)Owner transactions.
B)Nonowner transactions.
C)Owner or nonowner transactions.
D)Capital transactions.

Question 44

Schneider Inc.had salaries payable of $60,000 and $90,000 at the end of 2015 and 2016,respectively.During 2016,Schneider recorded $620,000 in salaries expense in its income statement.Cash outflows for salaries in 2016 were:

A)$590,000.
B)$620,000.
C)$650,000.
D)$530,000.

Question 45

Reconciliation between net income and comprehensive income would include:

A)Unrealized losses but not unrealized gains on available for sale securities.
B)Unrealized gains but not unrealized losses on available for sale securities.
C)Unrealized losses and unrealized gains on available for sale securities.
D)Neither unrealized losses nor unrealized gains on available for sale securities.

Question 46

In comparing the direct method with the indirect method of preparing the statement of cash flows:

A)Only operating activities are presented differently.
B)Only investing activities are presented differently.
C)Only financing activities are presented differently.
D)All activities are presented differently.

Question 47

Cash flows from investing activities do not include:

A)Proceeds from issuing bonds.
B)Payment for the purchase of equipment.
C)Proceeds from the sale of marketable securities.
D)Cash outflows from acquiring land.

Question 48

The FASB's stated preference for reporting operating cash flows is the:

A)Indirect method.
B)Direct method.
C)Working capital method.
D)All financial resources method.

Question 49

Operating cash outflows would include:

A)Purchase of investments.
B)Purchase of equipment.
C)Payment of cash dividends.
D)Purchases of inventory.

Question 50

Tropical Tours reported revenue of $400,000 for its year ended December 31,2016.Accounts receivable at December 31,2015 and 2016,were $35,000 and $32,000,respectively.Using the direct method for reporting cash flows from operating activities,Tropical Tours would report cash collected from customers of:

A)$400,000.
B)$397,000.
C)$403,000.
D)$365,000.

Question 51

Reporting comprehensive income according to International Financial Reporting Standards can be accomplished by each of the following methods except:

A)In the statement of shareholders' equity.
B)A combined statement of income and comprehensive income.
C)In two separate statements.
D)The entity may choose either a combined statement of income and comprehensive income or two separate statements.

Question 52

Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31,2016.Accounts receivable at December 31,2015 and 2016,were $320,000 and $355,000,respectively.Using the direct method for reporting cash flows from operating activities,Hong Kong Clothiers would report cash collected from customers of:

A)$4,965,000.
B)$5,000,000.
C)$5,035,000.
D)$5,045,000.

Question 53

Cash flows from investing do not include cash flows from:

A)Lending money to another corporation.
B)The sale of equipment.
C)Borrowing.
D)The purchase of other corporation's securities.

Question 54

The statement of cash flows reports cash flows from the activities of:

A)Operating,purchasing,and investing.
B)Borrowing,paying,and investing.
C)Financing,investing,and operating.
D)Using,investing,and financing.

Question 55

Change statements include a:

A)Retained earnings statement,balance sheet,and cash flow statement.
B)Balance sheet,cash flow statement,and income statement.
C)Cash flow statement,income statement,and retained earnings statement.
D)Retained earnings statement,balance sheet,and income statement.

Question 56

Cash flows from financing activities include:

A)Interest received.
B)Interest paid.
C)Dividends received.
D)Dividends paid.

Question 57

Lucia Ltd.reported net income of $135,000 for the year ended December 31,2016.January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000,respectively.Year-end balances in these accounts were $30,000 and $24,000,respectively.Assuming that all relevant information has been presented,Lucia's cash flows from operating activities would be:

A)$132,000.
B)$134,000.
C)$136,000.
D)$138,000.

Question 58

Shively Mfg.Co.sold for $18,000 equipment that cost $40,000 and had a book value of $30,000.Shively would report:

A)Operating cash inflows of $18,000.
B)Operating cash inflows of $8,000.
C)Financing cash inflows of $18,000.
D)Investing cash inflows of $18,000.

Question 59

Arrow Printers paid $2,000 interest on short-term notes payable,$10,000 interest on long-term bonds,and $6,000 in dividends on its common stock.Arrow would report cash outflows from activities,as follows:

A)Operating,$2,000;financing,$16,000.
B)Operating,$0;financing,$18,000.
C)Operating,$12,000;financing,$6,000.
D)Operating,$18,000;financing,$0.

Question 60

Operating cash flows would exclude:

A)Interest received.
B)Interest paid.
C)Dividends paid.
D)Dividends received.

Question 61

Use the following to answer questions
On September 1,2016,Jacob Furniture Mart enters into a tentative agreement to sell the assets of its office equipment division.This division qualifies as a component of the entity according to GAAP regarding discontinued operations.The division's contribution to Jacob's operating income for 2016 was a $3 million loss before taxes.Jacob has an average tax rate of 30%.
Required: Consider independently the appropriate accounting by Jacob under the three scenarios below.
Scenario 2: Assume that Jacob had not yet sold the division's assets by the end of 2016.Further,assume that the fair value less costs to sell of the division's assets at December 31,2016,was $24 million and was expected to remain the same when the assets are sold in 2017.The book value of the division's assets was $19 million at the end of the year.Under these assumptions,what would Jacob report in its 2016 income statement regarding the office equipment division? Explain where this information would be presented.

Question 62

Jacobsen Corporation prepares its financial statement applying International Financial Reporting Standards.During its 2016 fiscal year,the company reported before-tax income of $620,000.This amount does not include the following two items,both of which are considered to be material in amount:
The company's income tax rate is 40%.In its 2016 income statement,Jacobsen would report income from continuing operations of:

A)$312,000.
B)$372,000.
C)$492,000.
D)$620,000.

Question 63

Bird Brain Co.reported net income of $45,000 for the year ended December 31,2016.January 1 balances in accounts receivable and accounts payable were $23,000 and $26,000 respectively.Year-end balances in these accounts were $22,000 and $28,000,respectively.Assuming that all relevant information has been presented,Bird Brain's cash flows from operating activities would be:

A)$48,000.
B)$44,000.
C)$46,000.
D)$45,000.

Question 64

Rowdy's would report net cash inflows (outflows)from operating activities in the amount of:

A)$(80).
B)$120.
C)$200.
D)$420.

Question 65

Rowdy's would report net cash inflows (outflows)from investing activities in the amount of:

A)$(4,000).
B)$ 100.
C)$(3,900).
D)$(1,900).

Question 66

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 67

Rowdy's would report net cash inflows (outflows)from financing activities in the amount of:

A)$ 1,100.
B)$(1,100).
C)$ 820.
D)$ 900.

Question 68

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 69

Listed below are 10 terms followed by a list of phrases that describe or characterize the terms.Match each phrase with the number for the correct term.

Question 70

In a statement of cash flows prepared under International Financial Reporting Standards,each of the following items is typically classified as a financing cash flow except:

A)Interest paid.
B)Dividends paid.
C)Proceeds from the issuance of long-term debt.
D)Dividends received.

Question 71

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 72

Jacobsen Corporation prepares its financial statements applying U.S.GAAP.During its 2016 fiscal year,the company reported before-tax income of $620,000.This amount does not include the following two items,both of which are considered to be material in amount:
The company's income tax rate is 40%.In its 2016 income statement,Jacobsen would report income from continuing operations of:

A)$312,000.
B)$372,000.
C)$492,000.
D)$620,000.

Question 73

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 74

Use the following to answer questions
On September 1,2016,Jacob Furniture Mart enters into a tentative agreement to sell the assets of its office equipment division.This division qualifies as a component of the entity according to GAAP regarding discontinued operations.The division's contribution to Jacob's operating income for 2016 was a $3 million loss before taxes.Jacob has an average tax rate of 30%.
Required: Consider independently the appropriate accounting by Jacob under the three scenarios below.
Scenario 3: Assume that Jacob had not yet sold the office furniture division by the end of 2016.Further,assume that the fair value less costs to sell of the division's assets at December 31,2016,was $12 million and was expected to remain the same when the assets are sold in 2017.The book value of the division's assets was $19 million at the end of the year.Under these assumptions,what would Jacob report in its 2016 income statement regarding the office equipment division? Explain where this information would be presented.

Question 75

Nevada Boot Co.reported net income of $216,000 for its year ended December 31,2016.Purchases totaled $152,000.Accounts payable balances at the beginning and end of the year were $36,000 and $33,000,respectively.Beginning and ending inventory balances were $44,000 and $46,000,respectively.Assuming that all relevant information has been presented,Nevada Boot would report operating cash flows of:

A)$155,000.
B)$221,000.
C)$211,000.
D)$151,000.

Question 76

Use the following to answer questions
On September 1,2016,Jacob Furniture Mart enters into a tentative agreement to sell the assets of its office equipment division.This division qualifies as a component of the entity according to GAAP regarding discontinued operations.The division's contribution to Jacob's operating income for 2016 was a $3 million loss before taxes.Jacob has an average tax rate of 30%.
Required: Consider independently the appropriate accounting by Jacob under the three scenarios below.
Scenario 1: Assume that Jacob sold the division's assets on December 31,2016,for $24 million.The book value of the division's assets was $19 million at that date.Under these assumptions,what would Jacob report in its 2016 income statement regarding the office equipment division? Explain where this information would be presented.

Question 77

Expenses in an income statement prepared under International Financial Reporting Standards:

A)Must be classified by function.
B)Must be classified by natural description.
C)Can be classified either by function or by natural description.
D)None of the other answers is correct.

Question 78

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 79

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 80

Shady Lane's income tax payable account decreased from $14 million to $12 million during 2016.If its income tax expense was $80 million,what was shown as an operating cash flow under the direct method?

A)A cash outflow of $12 million.
B)A cash outflow of $78 million.
C)A cash outflow of $80 million.
D)A cash outflow of $82 million.