Question 1

Which of the following is not an acceptable way of displaying the components of other comprehensive income?

Accepted Answer

A)  Combined statement of retained earnings.
B)  Second income statement.
C)  Combined statement of comprehensive income.
D)  All of the above are acceptable. A

Question 2

The income statement provides investors and creditors information that helps them predict

Accepted Answer

A)  the amounts of future cash flows.
B)  the timing of future cash flows.
C)  the uncertainty of future cash flows.
D)  All of these answers are correct. D

Question 3

Information in the income statement helps users to

Accepted Answer

A)  evaluate the past performance of the enterprise.
B)  provide a basis for predicting future performance.
C)  help assess the risk or uncertainty of achieving future cash flows.
D)  All of these. D

Question 4

Income before income taxes is computed by deducting interest expense from income from operations.

Accepted Answer

A) True 
 B)False

Question 5

The income statement presents subtotals for gross profit, income before continuing operations, income before income tax, and net income.

Accepted Answer

A) True 
 B)False

Question 6

The planned timing of revenues, expenses, gains, and losses to smooth out bumps in earnings is the definition of

Accepted Answer

A)  quality of earnings.
B)  earnings management.
C)  smoothing of earnings.
D)  earnings averaging.

Question 7

Which of the following situations involving different accounting methods or accounting estimates results in comparison difficulties between companies?

Accepted Answer

A)  Estimated useful lives for depreciable assets.
B)  Inventory methods.
C)  Estimates of bad debts.
D)  All of the above.

Question 8

Which of the following equations expresses the definition of "income"?

Accepted Answer

A)  Income = Revenues - Expenses
B)  Income = (Revenues + Gains)  - (Expenses + Losses) 
C)  Income = Revenues + Gains
D)  Income = Gains - Losses

Question 9

What might a manager do during the last quarter of a fiscal year if she wanted to decrease current annual net income?

Accepted Answer

A)  Delay shipments to customers until after the end of the fiscal year.
B)  Relax credit policies for customers.
C)  Pay suppliers all amounts owed.
D)  Delay purchases from suppliers until after the end of the fiscal year.

Question 10

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

Accepted Answer

A)  Net loss.
B)  Prior period adjustment.
C)  Discontinued operations.
D)  Dividends.

Question 11

Watts Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation.The error caused the net income to be reported at almost double the proper amount.Correction of the error when discovered in the next year should be treated as

Accepted Answer

A)  an increase in depreciation expense for the year in which the error is discovered.
B)  a 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.
C)  an other expense item for the year in which the error was made.
D)  a prior period adjustment.

Question 12

Which method of income measurement is used in the preparation of the income statement?

Accepted Answer

A)  Capital maintenance approach.
B)  Transaction approach.
C)  Cash-flow approach.
D)  Income components approach.

Question 13

Changes in estimates affect reported amounts

Accepted Answer

A)  retrospectively only.
B)  prospectively only.
C)  currently and prospectively.
D)  currently and retrospectively.

Question 14

Which of the following is not required to be presented on the income statement
Under IFRS?

Accepted Answer

A)  Revenue.
B)  Other gains/losses.
C)  Finance costs.
D)  Tax expense.

Question 15

The accountant for the Lintz Sales Company is preparing the income statement for 2015 and the statement of financial position at December 31, 2015.The January 1, 2015, merchandise inventory balance will appear

Accepted Answer

A)  only as an asset on the statement of financial position.
B)  only in the cost of goods sold section of the income statement.
C)  as a deduction in the cost of goods sold section of the income statement and as a current asset on the statement of financial position.
D)  as an addition in the cost of goods sold section of the income statement and as a current asset on the statement of financial position.

Question 16

Which of the following is an example of managing earnings down?

Accepted Answer

A)  Changing estimated bad debts from 3 percent to 2.5 percent of sales.
B)  Revising the estimated life of equipment from 10 years to 8 years.
C)  Not writing off obsolete inventory.
D)  Reducing research and development expenditures.

Question 17

Which of the following would appear first in a statement of retained earnings?

Accepted Answer

A)  Net income.
B)  Prior period adjustment.
C)  Cash dividends.
D)  Share dividends.

Question 18

If a company prepares a consolidated income statement, IFRS requires that net income be reported for

Accepted Answer

A)  the majority interest only.
B)  the minority interest only.
C)  both the majority interest and the minority interest.
D)  as a single amount only.

Question 19

Investors and creditors use income statement information for each of the following
Except to

Accepted Answer

A)  evaluate the future performance of the company.
B)  provide a basis for predicting future performance.
C)  help assess the risk and uncertainty of achieving future cash flows.
D)  All of these answers are correct.

Question 20

Which of the following does not appear on a statement of retained earnings?

Accepted Answer

A)  Net loss.
B)  Prior period adjustments.
C)  Preference share dividends.
D)  Other comprehensive income.

Exam 4: Income Statement and Related Information