Deck 6: Financial Statement I: the Income Statement

Question 1

Which of the following is characteristic of a change in an accounting estimate?

A)It usually need not be disclosed
B)It does not affect the financial statements of prior periods
C)It should be reported through the restatement of the financial statements
D)It makes necessary the reporting of pro forma amounts for prior periods

Answer 1

B

Question 2

Which of the following is not an economic consequence of financial reporting?

A)Financial information can affect the distribution of wealth among investors.More informed investors,or investors employing security analysts,may be able to increase their wealth at the expense of less informed investors.
B)Financial information can affect the level of risk accepted by a firm.Focusing on short-term,less risky projects may have long-term detrimental effects.
C)Financial information can affect the rate of capital formation in the economy and result in a reallocation of wealth between consumption and investment within the economy.
D)Financial information can affects the allocation of psychic income among investors.

Answer 2

D

Question 3

The formula,Operating profit/Sales,is used to calculate

A)Gross profit percentage
B)Net profit percentage
C)Comprehensive income percentage
D)Operating profit percentage

Answer 3

D

Question 4

A company changed its method of inventory pricing from last-in,first-out to first-in,first-out during the current year.Generally accepting accounting principles require that this change in accounting method be reported by:

A)Accounting for the effects of the change in the current and future periods.
B)Showing the cumulative effect of the change in the current year's financial statements and pro forma effects on prior year's financial statements in an appropriate footnote
C)Disclosing the reason for the change in the "significant accounting policies" footnote for the current year but not restating prior year financial statements
D)Applying retroactively the new method in restatements of prior years and appropriate footnote disclosures

Question 5

A high accounts receivable turnover ratio indicates

A)Customers are making payments quickly
B)A large portion of the company's sales are on credit
C)Many customers are not paying their receivables in a timely manner
D)The company's sales have increased

Question 6

The accounts receivable turnover and inventory turnover ratios are used to analyze

A)Long-term solvency
B)Profitability
C)Liquidity
D)Leverage

Question 7

Which of the following is not an income statement element?

A)Asset
B)Gain
C)Revenue
D)Expense

Question 8

The phrase events and transactions that are distinguished by both their unusual nature and their infrequency of occurrence describes:

A)Changes in accounting principles
B)Prior period adjustments
C)Extraordinary items
D)Prior period adjustments

Question 9

A transaction that is material in amount,unusual in nature,but not infrequent in occurrence should be presented separately as a an)

A)Component of income from continuing operations,but not net of applicable income taxes
B)Component of income from continuing operations,net of applicable income taxes
C)Extraordinary item,net of applicable income taxes
D)Prior period adjustment,but not net of applicable income taxes

Question 10

If year one sales equal $800,000,year two equal $840,000 and year three equals $896,000 the percentage to be assigned for year two in a sales trend analysis,assuming that year 1 is the base year,is

A)100%
B)89%
C)105%
D)112%

Question 11

A measure of a company's profitability is the

A)Current ratio
B)Current cash debt coverage ratio
C)Return on assets ratio
D)Debt to total assets ratio

Question 12

The statement,net income should reflect all items that affected the net increase or decrease in stockholders' equity during the period is consistentwithwhich of the following concepts of income?

A)Economic
B)All inclusive
C)Current operating performance
D)Money

Question 13

Which of the following items,if material in amount would normally be considered an extraordinary item for reporting results of operations?

A)Utilization of a net operating loss carryforward
B)Gains or losses on disposal of a segment of a business
C)Adjustments of accruals on long-term contracts
D)Gains or losses from a fire

Question 14

An example of the correction of an error in previously issued financial statements is a change

A)From the completed contract to the percentage-of-completion method of accounting for long-term construction-type contracts.
B)In the depletion rate,based on new engineering studies of recoverable mineral resources.
C)From the sum-of-years-digits to the straight-line method of depreciation for all plant assets.
D)From the installment basis of recording sales to the accrual basis,when collection of the sales price has been and continues to be reasonably assured

Question 15

An extraordinary item should be reported separately as a component of income

A)After discontinued operations of a component of a business
B)Before discontinued operations of a component of a business
C)After cumulative effect of accounting changes and after discontinued operations of a component of a business
D)After cumulative effect of accounting changes and before discontinued operations of a component of a business

Question 16

The disposal of a significant component of a business is called

A)A change in accounting principle
B)An extraordinary item
C)An other expense
D)Discontinued operation

Question 17

Which of the following is not an accounting change?

A)Change in accounting principle
B)Change in accounting estimate
C)Change in a reporting entity
D)Change because of an error

Question 18

The return on assets ratio is comprised of

A)Profit margin and debt to total assets ratio.
B)Profit margin and asset turnover ratio.
C)Times interest earned and debt to stockholders' equity ratio.
D)Profit margin and free cash flow.

Question 19

Which of the following is an example of an extraordinary item in reporting results of operations?

A)A loss incurred because of a strike by employees
B)The write-off of deferred research and development costs believed to have no future benefit
C)A gain resulting from the devaluation of the U.S.dollar
D)A gain resulting from the state exercising its right of eminent domain on a piece of land used as a parking lot

Question 20

Which of the following is not an example of an error?

A)A change from an accounting practice that is not generally acceptable to a practice that is generally acceptable.
B)Mathematical mistakes.
C)A change from LIFO to FIFO inventory costing
D)The incorrect classification of costs and expense

Question 21

Define and discuss the accounting treatment for extraordinary items.

Question 22

The correction of an error in the financial statements of a prior period should be reflected,net of applicable income taxes,in the current

A)Income statement after income from continuing operations and before extraordinary items
B)Income statement after income from continuing operations and after extraordinary items
C)Retained earnings statement as an adjustment of the opening balance
D)Retained earnings statement after net income but before dividends

Question 23

Discuss the all inclusive vs.current operating performance views of income.

Question 24

Discuss the economic consequences of financial reporting.

Question 25

Define comprehensive income.What is the purpose of reporting comprehensive income?

Question 26

When a component of a business has been discontinued during the year,this s' component s operating losses of the current period up to the measurement date should be included in the

A)Income statement as part of the income loss)from operations of the discontinued component
B)Income statement as part of the loss on disposal of the discontinued component
C)Income statement as part of the income loss)from continuing operations
D)Retained earnings statement as a direct decrease in retained earnings

Question 27

Discuss the concept of simple vs.complex capital structures and how it relates to the reporting of earnings per share.

Question 28

A prior period adjustment should be reflected,net of applicable income taxes,in the financial statements of a business entity in the

A)Retained earnings statement after net income but before dividends
B)Retained earnings statement as an adjustment of the opening balance
C)Income statement after income from continuing operations
D)Income statement as part of income from continuing operations

Question 29

Define and discuss the accounting treatment for discontinued operations.

Question 30

Discuss the sources of guidance for recording accounting transactions outlined by IAS No.8,Accounting Policies,Changes in Accounting Estimates and Errors.

Question 31

Discuss the four income statements elements defined by SFAC No.2.

Question 32

A loss from the disposal of a component of a business enterprise should be reported separately as a component of income

A)Before extraordinary items
B)After extraordinary items
C)After extraordinary items and cumulative effect of accounting changes
D)Before extraordinary items and cumulative effect of accounting changes