Deck 4: The Income Statement and Statement of Cash Flows

Question 1

Intraperiod income tax presentation is primarily a matter of:

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

Answer 1

D

Question 2

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

Answer 2

False

Question 3

A change in depreciation method is accounted for by retrospectively revising prior years' financial statements.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

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

Question 7

The definition of what constitutes an extraordinary item should be independent of the operating environment.

Question 8

An item must meet the subjective criteria of being either unusual or infrequent to be reported as extraordinary.

Question 9

Popson Inc. incurred a material loss which was not unusual in character, but was clearly an infrequent occurrence. This loss should be reported as:

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

Question 10

The income effect of a change in reporting entity is shown separately in the income statement in the year of the change.

Question 11

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

Question 12

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

Question 13

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

Question 14

Income from continuing operations sometimes includes gains from non-operating activities.

Question 15

Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2009: All income statement items are subject to a 40% income tax rate. In its 2009 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 16

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 separate item in the income statement:

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

Question 17

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

Question 18

Changes in accounting estimates require disclosure of their effects, if material, on current year net income and EPS but do not require restatement of prior years' financial statements.

Question 19

Income statements prepared according to both U.S. GAAP and International Accounting Standards require the separate reporting, as an extraordinary item, of material gains and losses from events that are both unusual and infrequent.

Question 20

EPS disclosure is required only for income from continuing operations.

Question 21

In the 2009 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 22

Suppose that the Footwear Division's assets had not been sold by December 31, 2009, but were considered held for sale. Assume that the fair value of these assets at December 31 was $80 million. In the 2009 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 these is correct 60% of the $10 million operating loss.There is no impairment of assets and only impairments are included if the assets are still held for sale.

Question 23

In the 2009 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.60% (i.e., 1 tax rate) $22 million ($32 million gain on asset sale $10 million operating loss)

Question 24

The distinction between operating and non-operating income relates to:

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

Question 25

What would be Misty's income before extraordinary item(s)?

A)$198.
B)$210.
C)$330.
D)$360.($600 250 20) (1 .4) = $198

Question 26

Suppose that the Footwear Division's assets had not been sold by December 31, 2009, but were considered held for sale. Assume that the fair value of these assets at December 31 was $40 million. In the 2009 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 60% (i.e., 1 tax rate) $18 million loss ($8 million impairment loss on Footwear's assets + $10 million operating loss = $18 million pretax loss).

Question 27

What would be Misty's net income for the current year?

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

Question 28

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 SFAS No. 144. How should Claxton report the sale in its 2009 income statement?

A)As an extraordinary item.
B)As a discontinued operation, reported below income from continuing operations.
C)Report the income or loss from operations of the division in discontinued operations below continuing operations and the gain or loss from disposal in continuing operations.
D)None of these.

Question 29

On November 1, 2009, Jamison Inc. adopted a plan to discontinue its barge division, which qualifies as a separate component of the business according to SFAS No. 144. The disposal of the division was expected to be concluded by April 30, 2010. On December 31, 2009, 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, 2009, 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

Pro forma earnings:

A)Are 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 31

Howard Co.'s 2009 income from continuing operations before income taxes was $280,000. Howard Co. reported a before-tax extraordinary gain of $50,000. All tax items are subject to a 40% tax rate. In its income statement for 2009, 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 32

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 2009 income statement?

A)$2,000,000 loss.
B)$2,500,000 loss.
C)None.
D)$500,000 gain included in continuing operations and a $2,000,000 loss from discontinued operations.$2,000,000 loss from operations only.There is no impairment loss.

Question 33

A voluntary change in accounting principle is accounted for by:

A)A cumulative effect on income in the year of the change.
B)A retrospective reporting of all comparative financial statements shown.
C)A prior period adjustment.
D)A separate line component of income.

Question 34

In the 2009 income statement for Foxtrot Co., it would report:

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

Question 35

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 2009 income statement?

A)$2,000,000 loss.
B)$2,500,000 loss.
C)None.
D)$500,000 impairment loss included in continuing operations and a $2,000,000 loss from discontinued operations.$2,000,000 loss from operations and $500,000 impairment loss = $2,500,000.

Question 36

Major Co. reported 2009 income of $300,000 from continuing operations before income taxes and a before-tax extraordinary loss of $80,000. All income is subject to a 30% tax rate. In the 2009 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 37

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

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

Question 38

Cal's Cookies reported 2009 before-tax income before extraordinary items of $152,000 and a before-tax extraordinary loss of $32,000. All tax items are subject to a 30% tax rate. In its 2009 income statement, Cal's would report the following amounts as separate line items for net income and income tax expense:

A)$120,000 and $36,000.
B)$ 84,000 and $45,600.
C)$ 84,000 and $36,000.
D)$120,000 and $45,600.

Question 39

On August 1, 2009, Rocket Retailers adopted a plan to discontinue its catalog sales division, which qualifies as a separate component of the business according to SFAS No. 144. The disposal of the division was expected to be concluded by June 30, 2010. On January 31, 2010, 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, 2010, Rocket would report a before-tax loss on discontinued operations of:

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

Question 40

An extraordinary event for financial reporting purposes is both:

A)Unusual and material.
B)Infrequent and significant.
C)Material and infrequent.
D)Unusual and infrequent.

Question 41

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 42

In its December 31, 2009 financial statements, E-Z Prices estimated that losses on its current receivables would be $10.2 million. During 2010, E-Z Prices determined that the losses on the Dec. 31, 2009, receivables were actually $12.4 million. Ignoring taxes, E-Z Prices would report, in its 2010 financial statements, the additional $2.2 million loss on receivables as:

A)An extraordinary item.
B)A prior period adjustment.
C)A retroactive adjustment.
D)A current year's expense.

Question 43

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 separately for extraordinary items.
D)It must be reported on operating income.

Question 44

Harley Davis Inc. started its unicycle manufacturing business in 2007 and acquired $600,000 of equipment at the beginning of 2007. It decided to use the double-declining balance (DDB) depreciation on its equipment with no residual value and a 10-year useful life. In 2009 it changed to the straight-line depreciation method. Depreciation computed for 2007-8 is presented below: In 2009, Harley Davis would report depreciation of:

A)$96,000.
B)$38,400.
C)$60,000.
D)$48,000.

Question 45

Cendant Corporation's results for the year ended December 31, 2009, include the following material items: Cendant Corporation's income from continuing operations before income taxes for 2009 is:

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

Question 46

Pablo purchased a lathe on January 1, 2007, at a cost of $45,000. At the time of purchase, the lathe was expected to have a five-year economic life and a residual value of $3,000. Pablo uses straight-line depreciation. At the beginning of 2009, Pablo estimated the lathe to have a remaining life of four years with no residual value. For the year ended December 31, 2009, Pablo would report depreciation of:

A)$7,500.
B)$7,050.
C)$7,000.
D)$6,750.

Question 47

The financial statement presentation of a change in reporting entity is most similar to the reporting of a:

A)A change in accounting principle.
B)Change in accounting estimate.
C)Discontinued business operation.
D)Correction of a material error discovered after the year the error was made.

Question 48

Jack's Fireworks, which was established in 2007, changed its method of accounting for inventories from the average cost method to the first-in, first-out (FIFO) method in 2009. Cost of goods sold for the periods 2007-2009 under FIFO and the average cost method were: Jack's Fireworks is subject to a 30% income tax rate. In its income statement for the year ended December 31, 2009, Jack's would report the cumulative effect of a change in accounting principle, net of income taxes, of:

A)$(15,400).
B)$ 0.
C)$ 19,600.
D)$ ( 4,200).

Question 49

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 50

On June 1, 2009, Romano Inc. changed the estimated useful life of its office equipment from 20 to 12 years. This change would be accounted for:

A)Prospectively.
B)Retrospectively.
C)As an accounting error.
D)None of these.

Question 51

Comprehensive income is the change in equity from:

A)Owner transactions.
B)Non-owner transactions.
C)Owner or non-owner transactions.
D)Capital transactions.

Question 52

Elmore Co. purchased an offset press on January 1, 2006, at a cost of $120,000. The press had an estimated eight-year life with no residual value. Elmore uses straight-line depreciation. At December 31, 2009, Elmore estimated that the press would have only two more years of remaining life with no residual value. For 2009, Elmore would report depreciation of:

A)$25,000.
B)$15,000.
C)$20,000.
D)$30,000.$75,000 3 = $25,000

Question 53

Reporting comprehensive income in the United States can be accomplished by which of the following methods:

A)In the statement of shareholders' equity.
B)A combined statement of income and comprehensive income.
C)A separate statement of comprehensive income.
D)All of these are acceptable methods.

Question 54

Reporting comprehensive income according to International Accounting 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)A separate statement of comprehensive income.
D)All of these are acceptable methods.

Question 55

The Maytag Corporation's income statement includes income from continuing operations, a loss from discontinued operations, and extraordinary items. 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 from discontinued operations and net income only.
D)Income from continuing operations, loss from discontinued operations, extraordinary items and net income.

Question 56

If Company A acquires Company B, required financial statement disclosures include all of the following except:

A)The effect of the change on net income.
B)The effect of the change on market share.
C)The effect of the change on income before extraordinary items.
D)The per share effects of the change.

Question 57

The financial statement presentation of a change in depreciation method is most similar to that of reporting:

A)Changes in accounting estimates.
B)Prior period adjustments.
C)Correction of errors.
D)Extraordinary items.

Question 58

Change statements include a:

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

Question 59

A change in depreciation method is accounted for:

A)Retrospectively.
B)As a cumulative adjustment to income in the year of change.
C)Prospectively, like changes in accounting estimates.
D)None of these.

Question 60

Changes in accounting estimates are reported:

A)Currently and prospectively.
B)Retroactively and currently.
C)Retroactively, currently, and prospectively.
D)By restating prior years.

Question 61

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 62

Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2009. 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 63

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 64

Shady Lane's income tax payable account decreased from $14 million to $12 million during 2009. If its income tax expense was $80 million, what would be 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.Income taxes payable: $14 million + 80 million X = $12 million.X = $82 million.

Question 65

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 66

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 67

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 68

Cash flows from financing activities include:

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

Question 69

Operating cash flows would exclude:

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

Question 70

Tropical Tours reported revenue of $400,000 for its year ended December 31, 2009. Accounts receivable at December 31, 2008 and 2009, 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 71

Operating cash outflows would include:

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

Question 72

Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2009. 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 73

Schneider Inc. had salaries payable of $60,000 and $90,000 at the end of 2008 and 2009, respectively. During 2009, Schneider recorded $620,000 in salaries expense in its income statement. Cash outflows for salaries in 2009 were:

A)$590,000.
B)$620,000.
C)$650,000.
D)$530,000.$620,000 $30,000 increase in salaries payable = $590,000.

Question 74

Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2009. Accounts receivable at December 31, 2008 and 2009, 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.Cash collections = $320,000 + 5,000,000 355,000 = $4,965,000

Question 75

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 76

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 77

Bird Brain Co. reported net income of $45,000 for the year ended December 31, 2009. 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 78

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

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

Question 79

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 80

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.