The Income Statement, Comprehensive Income, | Test Bank Ch.4 - Answer Key + Test Bank | Intermediate Accounting 10e by J. David Spiceland, Mark W. Nelson, Wayne Thomas. DOCX document preview.
Intermediate Accounting, 10e (Spiceland)
Chapter 4 The Income Statement, Comprehensive Income, and
the Statement of Cash Flows
1) Income from continuing operations sometimes includes gains from nonoperating activities.
Difficulty: 1 Easy
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
2) Unlike the balance sheet, the income statement measures activity over a period of time.
Difficulty: 1 Easy
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
3) The single-step format of the income statement first lists all the revenues and gains included in income from continuing operations.
Difficulty: 1 Easy
Topic: Income statement―Single-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
4) The single-step format of the income statement does not separately report nonoperating gains in the revenues section of the income statement.
Difficulty: 2 Medium
Topic: Income statement―Single-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
5) The multiple-step format of the income statement reports a series of intermediate subtotals such as gross profit, operating income, and income before taxes.
Difficulty: 1 Easy
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
6) Revenues and expenses typically occur as a result of normal operating activity.
Difficulty: 1 Easy
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
7) Gains and losses typically occur as a result of normal operating activity.
Difficulty: 1 Easy
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
8) Income from continuing operations consists only of those items expected to be permanent components of earnings.
Difficulty: 1 Easy
Topic: Earnings quality―Components
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
9) Interest expense typically is considered a temporary component of earnings.
Difficulty: 2 Medium
Topic: Earnings quality―Components
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
10) One meaning of earnings quality is the ability of reported earnings to predict a company's future earnings.
Difficulty: 1 Easy
Topic: Earnings quality―Components
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
11) Managers' income smoothing behavior results in reported earnings being manipulated higher in each year.
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
12) Classification shifting by managers leads to under-reporting of total expenses and over-statement of bottom-line net income.
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
13) Material restructuring costs are reported as an element of income from continuing operations.
Difficulty: 1 Easy
Topic: Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
14) Restructuring costs most often refer to costs associated with management's plans to materially change the scope of business operations or the manner in which they are conducted.
Difficulty: 1 Easy
Topic: Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
15) Intraperiod tax allocation is the process of associating income tax effects with the income statement components that create those effects.
Difficulty: 1 Easy
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
16) Gains, but not losses, from discontinued operations must be separately reported in an income statement.
Difficulty: 1 Easy
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
17) A change in accounting principle that is implemented using the retrospective approach includes restating financial statements of all periods presented as if the new standard had been used in those periods.
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
18) A change in accounting principle that is implemented using the modified retrospective approach includes implementing the change in the current period only and not adjusting for the cumulative effects on prior periods.
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
19) Changes in estimates are accounted for using the prospective approach.
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
20) Material errors in prior periods' income statements are corrected by making an adjustment to the beginning balance of the current period's retained earnings.
Difficulty: 1 Easy
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
21) Earnings per share disclosure is required only for income from continuing operations.
Difficulty: 1 Easy
Topic: Earnings per share
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
22) Comprehensive income reports an expanded version of income to include certain types of gains and losses not included in traditional income statements.
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
23) Comprehensive income is the total change in shareholders' equity that occurred during the period.
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
24) The direct and indirect methods of reporting the statement of cash flows present different information for investing and financing activities.
Difficulty: 1 Easy
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
25) Income statements prepared according to either U.S. GAAP or International Financial Reporting Standards (IFRS) require the separate reporting of discontinued operations.
Difficulty: 1 Easy
Topic: IFRS―Income statement
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the income statement, statement of comprehensive income, and statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
26) International Financial Reporting Standards (IFRS) require a company to classify expenses in an income statement by function.
Difficulty: 1 Easy
Topic: IFRS―Income statement
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the income statement, statement of comprehensive income, and statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity; Global
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
27) In a statement of cash flows prepared under International Financial Reporting Standards (IFRS), interest received is most often classified as an operating cash flow.
Difficulty: 1 Easy
Topic: IFRS―Statement of cash flows
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the income statement, statement of comprehensive income, and statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
28) In a statement of cash flows prepared under International Financial Reporting Standards (IFRS), interest paid is most often classified as a financing cash flow.
Difficulty: 1 Easy
Topic: IFRS―Statement of cash flows
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the income statement, statement of comprehensive income, and statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
29) A decrease in the receivables turnover ratio indicates a decrease in the time between credit sales and cash collection.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
30) The decomposition of return on assets illustrates why some companies with low profit margins can be very profitable if their asset turnover is high.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
31) A company could improve its return on assets by increasing its income or by increasing its total assets.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
32) Return on equity is increased if a firm can maintain its return on assets but increase its leverage.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
33) The difference between single-step and multiple-step income statements is primarily an issue of:
A) Consistency.
B) Presentation.
C) Measurement.
D) Valuation.
Difficulty: 1 Easy
Topic: Income statement―Single-step format; Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
34) Most real-world income statements are presented using which format?
A) Income-step.
B) Single-step.
C) Magnitude-step.
D) Multiple-step.
Difficulty: 1 Easy
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
35) A primary advantage of the multiple-step format of the income statement over the single-step format is that the multiple-step format:
A) classifies expenses by function.
B) results in a higher amount of net income.
C) separately lists income tax expense.
D) lists revenues and expenses in order of their dollar amount.
Difficulty: 1 Easy
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
36) Which of the following profit amounts usually will be listed in both the single-step and multiple-step formats of the income statement?
A) Gross profit.
B) Operating income.
C) Income before taxes.
D) Net nonoperating income.
Difficulty: 2 Medium
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
37) The relationship between revenue from selling inventory and the cost of that inventory is measured as:
A) Net income.
B) Gross profit.
C) Income before taxes.
D) Operating income.
Difficulty: 2 Medium
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
38) The measure of profit reported on a multiple-step income statement that represents the primary-revenue generating activities of the company is:
A) Net income.
B) Gross profit.
C) Income before taxes.
D) Operating income.
Difficulty: 2 Medium
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
39) 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.
Difficulty: 2 Medium
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
40) Provincial Inc. reported the following before-tax income statement items:
Operating income | $ | 700,000 |
|
Nonoperating losses |
| (100,000 | ) |
Provincial has a 25% income tax rate.
Provincial would report the following amount of income tax expense as a separately stated line item in the income statement:
A) $200,000.
B) $150,000.
C) $175,000.
D) $160,000.
Difficulty: 2 Medium
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
41) Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2021:
Operating income | $ | 200,000 |
|
Income on discontinued operations |
| 80,000 |
|
All income statement items are subject to a 25% income tax rate. In its 2021 income statement, Freda's separately stated income tax expense and total income tax expense would be:
A) $70,000 and $70,000, respectively.
B) $70,000 and $50,000, respectively.
C) $50,000 and $70,000, respectively.
D) $50,000 and $50,000, respectively.
Difficulty: 3 Hard
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
42) Earnings quality refers to:
A) the ability of management to budget for expenditures in the following year.
B) the ability of management to sell its inventory for a profit.
C) the ability of management to quickly collect cash from customers.
D) the ability of reported earnings to predict a company's future earnings.
Difficulty: 1 Easy
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
43) Income smoothing refers to:
A) the ability of management to report an earnings amount in each period less than actual earnings.
B) the ability of management to use accruals to reduce the volatility of reported earnings over time.
C) the ability of management to maintain sales to its current customers for several years.
D) the ability of management to report an earnings amount in each period greater than actual earnings.
Difficulty: 1 Easy
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
44) To accomplish income smoothing, managers could do which of the following?
A) In a year net income is particularly high, estimate future bad debts for a higher amount.
B) Report all revenues on a cash basis.
C) In a year net income is particularly low, estimate future warranty costs for a lower amount.
D) Report all expenses on a cash basis.
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
45) Managers may engage in classification shifting by:
A) reporting sales to fictitious customers to inflate reported revenues.
B) reducing estimates of accrued expenses to inflate reported net income.
C) reporting operating expenses as nonoperating expenses to inflate reported operating income.
D) increasing estimates of accrued expenses to inflate reported net income.
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Remember
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
46) A likely method that managers use for classification shifting is to report certain operating expenses as:
A) revenues.
B) nonoperating expenses.
C) income tax expense.
D) assets.
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Remember
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
47) Classification shifting by managers has the effects of increasing which level of profitability?
A) Operating income.
B) Net income.
C) Income before taxes.
D) All of the other answers are correct.
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Remember
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
48) Financial statement users typically begin their assessment of permanent earnings with:
A) sales revenue.
B) income from continuing operations.
C) net income.
D) gross profit.
Difficulty: 1 Easy
Topic: Earnings quality―Components
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
49) Temporary earnings are best characterized as:
A) earnings that do not have corresponding cash flows.
B) earnings from nonoperating activities.
C) earnings that do not conform to Generally Accepted Accounting Principles (GAAP).
D) earnings that arise from events that are not likely to recur in the foreseeable future.
Difficulty: 1 Easy
Topic: Earnings quality―Components
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
50) Which of the following most likely would be classified as restructuring costs?
A) Advertising costs to sell a product recently developed by a company.
B) Severance pay for employee layoffs associated with facility closings.
C) Brokerage fees from the issuance of additional shares of stock.
D) Acquisition fees associated with the purchase of land and buildings.
Difficulty: 2 Medium
Topic: Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
51) Restructuring costs typically can be defined as:
A) costs of external financing through issuance of debt or equity securities.
B) costs associated safeguarding a company's assets and ensuring accuracy of financial reporting.
C) costs associated with management's plans to materially change the scope of business operations or the manner in which they are conducted.
D) costs of expenditures made on capital projects and executive compensation.
Difficulty: 1 Easy
Topic: Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
52) Non-GAAP 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.
Difficulty: 1 Easy
Topic: Earnings quality―Components; Earnings quality―Management practices
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
53) A common component of income excluded from the calculation of non-GAAP earnings is:
A) Interest expense.
B) Income tax expense.
C) Cost of goods sold.
D) Restructuring costs.
Difficulty: 2 Medium
Topic: Earnings quality―Components; Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
54) 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.
Difficulty: 2 Medium
Topic: Continuing operations―Components; Earnings quality―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
55) A company reports the following amounts at the end of the current year:
Sales revenue | $ | 860,000 |
|
Selling expense |
| 250,000 |
|
Gain on sale of investments |
| 30,000 |
|
Interest expense |
| 10,000 |
|
Cost of goods sold |
| 520,000 |
|
Under normal circumstances (ignoring tax effects), permanent earnings would be computed as:
A) $90,000.
B) $110,000.
C) $80,000.
D) $50,000.
Difficulty: 2 Medium
Topic: Earnings quality―Components
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
56) Which of the following is most likely to be classified as discontinued operations?
A) Sale of a small equity method investment in another company.
B) Sale of a group of assets that represents a strategic shift in operations.
C) Sale of undeveloped land due to lack of customer demand for additional store locations.
D) All of the other answers would be classified as discontinued operations.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
57) A company has decided to discontinue a component of its business and sells the component by the end of the year. The amount that the company would report as income from discontinued operations is (ignore tax effects):
A) only income from operations for the year.
B) only the gain or loss on the disposal of the component's assets.
C) income from operations for the year and only a loss on the disposal of the component's assets.
D) income from operations for the year and either a gain or loss on the disposal of the component's assets.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
58) A company has decided to discontinue a component of its business but, when the reporting period ends, the component has not yet been sold. The amount that the company would report as income from discontinued operations is (ignore tax effects):
A) income from operations for the year and the amount by which the component's fair value less cost to sell is greater than book value.
B) income from operations for the year and the amount by which the component's fair value less cost to sell is less than book value.
C) only the amount by which the component's fair value less cost to sell is less than book value.
D) only the component's income from operations for the year.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
59) 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.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
60) Which of the following best explains why the taxes on discontinued operations are reported separately from taxes on continuing operations?
A) The tax rate applied to discontinued operations typically is lower than that applied to continuing operations.
B) The taxes on discontinued operations are not expected to recur in future years.
C) The tax rate applied to discontinued operations typically is higher than that applied to continuing operations.
D) Companies are allowed to delay tax payments for discontinued operations for up to five years.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
61) Intraperiod income tax presentation is primarily a matter of:
A) Valuation.
B) Going concern.
C) Periodicity.
D) Allocation.
Difficulty: 1 Easy
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
62) 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 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.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
63) On August 1, 2021, 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, 2022. On January 31, 2022, Rocket's fiscal year-end, the following information relative to the discontinued division was accumulated:
Operating loss Feb. 1, 2021–Jan. 31, 2022 | $ | 115,000 |
Estimated operating losses, Feb. 1–June 30, 2022 |
| 80,000 |
Impairment of division assets at Jan. 31, 2022 |
| 10,000 |
In its income statement for the year ended January 31, 2022, Rocket would report a before-tax loss on discontinued operations of:
A) $(115,000).
B) $(195,000).
C) $(65,000).
D) $(125,000).
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
64) On November 1, 2021, 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, 2022. On December 31, 2021, the company's year-end, the following information relative to the discontinued division was accumulated:
Operating loss Jan. 1–Dec. 31, 2021 | $ | 65 | million |
|
Estimated operating losses, Jan. 1 to April 30, 2022 |
| 80 | million |
|
Excess of fair value, less costs to sell, over book value at Dec. 31, 2021 |
| 15 | million |
|
In its income statement for the year ended December 31, 2021, Jamison would report a before-tax loss on discontinued operations of:
A) $65 million.
B) $50 million.
C) $130 million.
D) $145 million.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
65) On October 28, 2021, a company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2021, the end of the company's fiscal year. The division's loss from operations for 2021 was $2,000,000.
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 the company report as loss on discontinued operations in its 2021 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.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
66) On October 28, 2021, a company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2021, the end of the company's fiscal year. The division's loss from operations for 2021 was $2,000,000.
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 the company report as loss on discontinued operations in its 2021 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.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
67) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2021.
The following additional facts pertain to the transaction:
• The Footwear Division qualifies as a component of the entity according to
GAAP regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2021.
• Foxtrot's income tax rate is 25%.
In the income statement for the year ended December 31, 2021, Foxtrot Co. 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.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
68) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2021.
The following additional facts pertain to the transaction:
• The Footwear Division qualifies as a component of the entity according to
GAAP regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2021.
• Foxtrot's income tax rate is 25%.
In the income statement for the year ended December 31, 2021, Foxtrot Co. 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 these answer choices are correct.
Difficulty: 2 Medium
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
69) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2021.
The following additional facts pertain to the transaction:
• The Footwear Division qualifies as a component of the entity according to
GAAP regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2021.
• Foxtrot's income tax rate is 25%.
In the income statement for the year ended December 31, 2021, Foxtrot Co. would report income from discontinued operations of:
A) $14.0 million.
B) $16.5 million.
C) $22.0 million.
D) $24.5 million.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
70) On May 1, Tango Co. agreed to sell the assets of its Formal Wear Division to Top Hat Inc.
The following additional facts pertain to the transaction:
• The Formal Wear Division qualifies as a component of the entity according to
GAAP regarding discontinued operations.
• The book value of Formal Wear's assets totaled $48 million on December 31, 2021.
• Formal Wear's operating income was a pre-tax loss of $10 million in 2021.
• Tango's income tax rate is 25%.
Suppose that the Formal Wear Division's assets had not been sold by December 31, 2021, but were considered held for sale. Assume that the fair value of these assets was $40 million at December 31, 2021. In the income statement for the year ended December 31, 2021, Tango Co. would report discontinued operations of:
A) $7.5 million loss.
B) $10.0 million loss.
C) $13.5 million loss.
D) $18.0 million loss.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
71) On May 1, Tango Co. agreed to sell the assets of its Formal Wear Division to Top Hat Inc.
The following additional facts pertain to the transaction:
• The Formal Wear Division qualifies as a component of the entity according to
GAAP regarding discontinued operations.
• The book value of Formal Wear's assets totaled $48 million on December 31, 2021.
• Formal Wear's operating income was a pre-tax loss of $10 million in 2021.
• Tango's income tax rate is 25%.
Suppose that the Formal Wear Division's assets had not been sold by December 31, 2021, but were considered held for sale. Assume that the fair value of these assets was $80 million at December 31, 2021. In the income statement for the year ended December 31, 2021, Tango Co., would report discontinued operations of a:
A) $7.5 million loss.
B) $10.0 million loss.
C) $16.5 million income.
D) None of these answer choices are correct.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
72) Major Co. reported 2021 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 25% tax rate. In the income statement for the year ended December 31, 2021, Major Co. would show the following line-item amounts for income tax expense and net income:
A) $55,000 and $165,000 respectively.
B) $75,000 and $165,000 respectively.
C) $75,000 and $145,000 respectively.
D) $55,000 and $220,000 respectively.
Income from continuing operations before income taxes | $ | 300,000 |
|
Income tax expense |
| 75,000 |
|
Income from continuing operations | $ | 225,000 |
|
Loss on discontinued operations (net of $20,000 tax benefit) |
| (60,000 | ) |
Net income | $ | 165,000 |
|
Difficulty: 3 Hard
Topic: Discontinued operations; Net income after income tax expense
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
73) Howard Co.'s 2021 income from continuing operations before income taxes was $280,000. Howard Co. reported before-tax income on discontinued operations of $60,000. All tax items are subject to a 25% tax rate. In its income statement for 2021, Howard Co. would show the following line-item amounts for income tax expense and net income:
A) $70,000 and $255,000 respectively.
B) $55,000 and $220,000 respectively.
C) $85,000 and $340,000 respectively.
D) $85,000 and $255,000 respectively.
Income from continuing operations before income taxes | $ | 280,000 |
|
Income tax expense ($280,000 × 25%) |
| 70,000 |
|
Income from continuing operations | $ | 210,000 |
|
Income on discontinued operations (net of $15,000 tax expense) |
| 45,000 |
|
Net income | $ | 255,000 |
|
Difficulty: 3 Hard
Topic: Discontinued operations; Net income after income tax expense
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
74) Misty Company reported the following before-tax items during the current year:
Sales revenue | $ | 600 |
|
Selling and administrative expenses |
| 260 |
|
Restructuring charges |
| 20 |
|
Loss on discontinued operations |
| 40 |
|
Misty's effective tax rate is 25%.
What is Misty's income from continuing operations?
A) $240.
B) $255.
C) $320.
D) $450.
Difficulty: 3 Hard
Topic: Continuing operations―Components; Earnings quality―Restructuring costs
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
75) Misty Company reported the following before-tax items during the current year:
Sales revenue | $ | 600 |
|
Selling and administrative expenses |
| 260 |
|
Restructuring charges |
| 20 |
|
Loss on discontinued operations |
| 40 |
|
Misty's effective tax rate is 25%.
What is Misty's net income for the current year?
A) $280.
B) $210.
C) $240.
D) $200.
Income from continuing operations before taxes ($600 − $260 − $20) | $ | 320 |
|
Income tax expense ($320 × 25%) |
| 80 |
|
Income from continuing operations | $ | 240 |
|
Loss on discontinued operations (net of $10 tax benefit) |
| (30 | ) |
Net income | $ | 210 |
|
Difficulty: 3 Hard
Topic: Earnings quality―Restructuring costs; Discontinued operations; Net income after income tax expense
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
76) Cendant Corporation's results for the year ended December 31, 2021, include the following material items:
Sales revenue | $ | 6,200,000 |
|
Cost of goods sold |
| 3,800,000 |
|
Selling and administrative expenses |
| 1,300,000 |
|
Loss on sale of investments |
| 200,000 |
|
Loss on discontinued operations |
| 500,000 |
|
Loss on impairment from continuing operations |
| 80,000 |
|
Cendant Corporation's income from continuing operations before income taxes for 2021 is:
A) $900,000.
B) $880,000.
C) $820,000
D) $320,000.
Difficulty: 3 Hard
Topic: Continuing operations―Components; Earnings quality―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
77) A change in accounting principle that is implemented using the retrospective approach includes:
A) implementing the change in the current period only and not adjusting for the cumulative effects on prior periods.
B) applying the new standard to the adoption period only and recording the cumulative adjustment for prior periods to the beginning balance of retained earnings.
C) restating financial statements of all periods presented as if the new standard had been used in those periods.
D) not accounting for the change in the current period or prior periods.
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
78) A change in accounting principle that is implemented using the modified retrospective approach includes:
A) implementing the change in the current period only and not adjusting for the cumulative effects on prior periods.
B) applying the new standard to the adoption period only, and recording the cumulative adjustment for prior periods to the current period's beginning balance of retained earnings.
C) restating financial statements of all periods presented as if the new standard had been used in those periods.
D) not accounting for the change in the current period or prior periods.
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
79) Changes in estimates are accounted for using which approach?
A) Prospective.
B) Retrospective.
C) Modified retrospective.
D) Modified prospective.
Difficulty: 1 Easy
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
80) When a material error is discovered in prior financial statements:
A) prior financial statements are restated to their correct amounts.
B) assets and liabilities in the current period are restated to their appropriate levels.
C) prior income effects are adjusted to the current period's beginning balance of retained earnings.
D) all of these answer choices are correct.
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
81) 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 these answer choices are correct.
Difficulty: 1 Easy
Topic: Earnings per share
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
82) 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 these answer choices are correct.
Difficulty: 2 Medium
Topic: Earnings per share
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
83) Each of the following would be reported as items of other comprehensive income except:
A) foreign currency translation adjustment.
B) gain on projected pension benefit obligation.
C) deferred gain from derivatives.
D) gain from the sale of equipment.
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
84) 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 these answer choices are acceptable methods.
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
85) During the year, a company's investment in debt securities increases in fair value, resulting in an unrealized gain on the investment. The investment is not sold by the end of the year. The company is considering whether to report the unrealized gain as a component of net income or as a component of other comprehensive income. Under which reporting requirement would the company have a higher ending balance of total shareholders' equity?
A) As a component of net income.
B) As a component of other comprehensive income.
C) Total shareholders' equity would be the same with either reporting requirement.
D) None of the other answers are correct.
Difficulty: 2 Medium
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
86) Consider the following two separate events for a company during the year:
1. Gain on sale of investments = $10.
2. Unrealized gain on investment from increase in fair value = $20.
The company reports the unrealized gain as a component of other comprehensive income. By how much would these two events increase net income and comprehensive income, ignoring tax effects?
A) Net income = $10; Comprehensive income = $20.
B) Net income = $10; Comprehensive income = $30.
C) Net income = $30; Comprehensive income = $30.
D) Net income = $30; Comprehensive income = $20.
Difficulty: 2 Medium
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
87) Consider the following two separate events for a company during the year:
1. Loss on sale of investments = $30.
2. Unrealized gain on investment from increase in fair value = $20.
The company reports the unrealized gain as a component of other comprehensive income. By how much would these two events affect net income and comprehensive income, ignoring tax effects?
A) Net income = $(30); Comprehensive income = $(10).
B) Net income = $(30); Comprehensive income = $20.
C) Net income = $0; Comprehensive income = $(10).
D) Net income = $(10); Comprehensive income = $20.
Difficulty: 2 Medium
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
88) Consider the following two separate events for a company during the year:
1. Loss on sale of investments = $20.
2. Unrealized gain on investment from increase in fair value = $30.
The company reports the unrealized gain as a component of other comprehensive income. By how much would these two events affect the balance of retained earnings, ignoring tax effects?
A) Increase of $30.
B) Increase of $10.
C) Decrease of $20.
D) Decrease of $10.
Difficulty: 2 Medium
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
89) Reporting comprehensive income according to International Financial Reporting Standards (IFRS) 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.
Difficulty: 1 Easy
Topic: IFRS―Comprehensive income
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the income statement, statement of comprehensive income, and statement of cash flows.
Bloom's: Remember
AACSB: Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
90) Comprehensive income is the change in equity from:
A) Owner transactions.
B) Nonowner transactions.
C) Owner and nonowner transactions.
D) Capital transactions.
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
91) Financial statements that report changes over time include:
A) statement of shareholders' equity, balance sheet, and statement of cash flows.
B) balance sheet, statement of cash flows, and income statement.
C) statement of cash flows, income statement, and statement of shareholders' equity.
D) statement of shareholders' equity, balance sheet, and income statement.
Difficulty: 1 Easy
Topic: Statement of cash flows―Content
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
92) For the statement of cash flows, investments in Treasury bills with very short maturity period would normally be included as:
A) Operating activities.
B) Investing activities.
C) Financing activities.
D) Cash equivalents.
Difficulty: 2 Medium
Topic: Statement of cash flows―Content
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
93) 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.
Difficulty: 1 Easy
Topic: Statement of cash flows―Content
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
94) 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.
Difficulty: 1 Easy
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
95) Operating cash flows would not include:
A) Interest received.
B) Interest paid.
C) Dividends paid.
D) Dividends received.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
96) Operating cash outflows would include:
A) Purchase of investments.
B) Purchase of equipment.
C) Payment of cash dividends.
D) Purchases of inventory.
Difficulty: 1 Easy
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
97) 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.
Difficulty: 1 Easy
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
98) Cash flows from investing do not include cash flows from:
A) lending money to another corporation.
B) the purchase of equipment.
C) the sale of a building.
D) the purchase of a corporation's own securities.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
99) Cash flows from financing activities include:
A) Interest received.
B) Interest paid.
C) Dividends received.
D) Dividends paid.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
100) 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.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
101) 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.
Difficulty: 2 Medium
Topic: Statement of cash flows―Content
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
102) 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.
Difficulty: 1 Easy
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
103) 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.
Difficulty: 2 Medium
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
104) Schneider Inc. had salaries payable of $60,000 and $90,000 at the end of 2020 and 2021, respectively. During 2021, Schneider recorded $620,000 in salaries expense in its income statement. Cash outflows for salaries in 2021 were:
A) $590,000.
B) $620,000.
C) $650,000.
D) $530,000.
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
105) Howard Inc. had prepaid rent of $75,000 and $80,000 at the end of 2020 and 2021, respectively. During 2021, Howard recorded $240,000 in rent expense in its income statement. Cash outflows for rent in 2021 were:
A) $235,000.
B) $240,000.
C) $245,000.
D) $250,000.
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
106) Martel Co. had supplies of $24,000 and $33,000 at the end of 2020 and 2021, respectively. During 2021, Howard paid $128,000 for supplies. Supplies expense in the 2021 income statement was:
A) $119,000.
B) $128,000.
C) $137,000.
D) $110,000.
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
107) Stinley Co. paid utilities of $134,000 during 2021. At the end of 2021, utilities payable equals $17,000 and utilities expense equals $145,000. What was the balance of utilities payable at the beginning of 2021?
A) $22,000.
B) $6,000.
C) $17,000.
D) $11,000.
Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
108) Tropical Tours reported revenue of $400,000 for its year ended December 31, 2021. Accounts receivable at December 31, 2020 and 2021, 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.
Accounts Receivable | ||||
12/31/2020 | 35,000 |
|
| |
Sales | 400,000 | ? |
| |
12/31/2021 | 32,000 |
|
| |
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
109) 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.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
110) 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.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
111) Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2018. Accounts receivable at December 31, 2017 and 2018, 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.
Accounts Receivable | ||||
12/31/2020 | 320,000 |
|
| |
Sales | 5,000,000 | ? |
| |
12/31/2021 | 355,000 |
|
| |
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
112) Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2021. 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.
Net income | $ | 135,000 |
|
Subtract increase in A/R |
| (1,000 | ) |
Subtract decrease in A/P |
| (2,000 | ) |
Cash flows from operating activities | $ | 132,000 |
|
Difficulty: 3 Hard
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
113) Shady Lane's income tax payable account decreased from $14 million to $12 million during 2021. 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.
Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
114) Bird Brain Co. reported net income of $45,000 for the year ended December 31, 2021. 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.
Net income | $ | 45,000 |
|
Add decrease in A/R |
| 1,000 |
|
Add increase in A/P |
| 2,000 |
|
Cash flows from operating activities | $ | 48,000 |
|
Difficulty: 3 Hard
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
115) Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2021. 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.
Net income | $ | 216,000 |
|
Deduct increase in Inventory |
| (2,000 | ) |
Deduct decrease in A/P |
| (3,000 | ) |
Cash flows from operating activities | $ | 211,000 |
|
Difficulty: 3 Hard
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
116) Rowdy's Restaurants Cash Flow ($ in millions)
Cash received from: |
|
|
|
Customers | $ | 1,800 |
|
Interest on investments |
| 200 |
|
Sale of land |
| 100 |
|
Sale of Rowdy's common stock |
| 600 |
|
Issuance of debt securities |
| 2,000 |
|
|
|
|
|
Cash paid for: |
|
|
|
Interest on debt | $ | 300 |
|
Income tax |
| 80 |
|
Debt principal reduction |
| 1,500 |
|
Purchase of equipment |
| 4,000 |
|
Purchase of inventory |
| 1,000 |
|
Dividends on common stock |
| 200 |
|
Operating expenses |
| 500 |
|
Rowdy's would report net cash inflows (outflows) from operating activities in the amount of:
A) ($80) million.
B) $120 million.
C) $200 million.
D) $420 million.
Customers | $ | 1,800 |
|
Interest on investments |
| 200 |
|
Interest on debt |
| (300 | ) |
Income tax |
| (80 | ) |
Purchase of inventory |
| (1,000 | ) |
Operating expenses |
| (500 | ) |
Cash inflows from operating activities | $ | 120 |
|
Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
117) Rowdy's Restaurants Cash Flow ($ in millions)
Cash received from: |
|
|
|
Customers | $ | 1,800 |
|
Interest on investments |
| 200 |
|
Sale of land |
| 100 |
|
Sale of Rowdy's common stock |
| 600 |
|
Issuance of debt securities |
| 2,000 |
|
|
|
|
|
Cash paid for: |
|
|
|
Interest on debt | $ | 300 |
|
Income tax |
| 80 |
|
Debt principal reduction |
| 1,500 |
|
Purchase of equipment |
| 4,000 |
|
Purchase of inventory |
| 1,000 |
|
Dividends on common stock |
| 200 |
|
Operating expenses |
| 500 |
|
Rowdy's would report net cash inflows (outflows) from investing activities in the amount of:
A) ($4,000) million.
B) $100 million.
C) ($3,900) million.
D) ($1,900) million.
Sale of land | $ | 100 |
|
Purchase of equipment |
| (4,000 | ) |
Cash outflows from investing activities | $ | (3,900 | ) |
Difficulty: 3 Hard
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
118) Rowdy's Restaurants Cash Flow ($ in millions)
Cash received from: |
|
|
|
Customers | $ | 1,800 |
|
Interest on investments |
| 200 |
|
Sale of land |
| 100 |
|
Sale of Rowdy's common stock |
| 600 |
|
Issuance of debt securities |
| 2,000 |
|
|
|
|
|
Cash paid for: |
|
|
|
Interest on debt | $ | 300 |
|
Income tax |
| 80 |
|
Debt principal reduction |
| 1,500 |
|
Purchase of equipment |
| 4,000 |
|
Purchase of inventory |
| 1,000 |
|
Dividends on common stock |
| 200 |
|
Operating expenses |
| 500 |
|
Rowdy's would report net cash inflows (outflows) from financing activities in the amount of:
A) $1,100 million.
B) ($1,100) million.
C) $820 million.
D) $900 million.
Sale of common stock | $ | 600 |
|
Issuance of debt securities |
| 2,000 |
|
Debt principal reduction |
| (1,500 | ) |
Dividends on common stock |
| (200 | ) |
Cash inflows from financing activities | $ | 900 |
|
Difficulty: 3 Hard
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
119) Expenses in an income statement prepared under International Financial Reporting Standards (IFRS):
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 these answer choices are correct.
Difficulty: 1 Easy
Topic: IFRS―Income statement
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the income statement, statement of comprehensive income, and statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
120) In a statement of cash flows prepared under International Financial Reporting Standards (IFRS), 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.
Difficulty: 1 Easy
Topic: IFRS―Statement of cash flows
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the income statement, statement of comprehensive income, and statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
121) During its 2021 fiscal year, Jacobsen Corporation 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:
Unusual gain | $ | 200,000 |
|
Loss on discontinued operations | ( | 300,000 | ) |
The company's income tax rate is 25%.
Jacobsen Corporation prepares its financial statements applying U.S. GAAP. In its 2021 income statement, Jacobsen would report income from continuing operations of:
A) $391,500.
B) $465,000.
C) $615,000.
D) $620,000.
Difficulty: 3 Hard
Topic: Discontinued operations; Comprehensive income–Components-Presentation; Income tax–Separate line or Intraperiod
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
122) During its 2021 fiscal year, Jacobsen Corporation 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:
Unusual gain | $ | 200,000 |
|
Loss on discontinued operations | ( | 300,000 | ) |
The company's income tax rate is 25%.
Jacobsen Corporation prepares its financial statement applying International Financial Reporting Standards (IFRS). In its 2021 income statement, Jacobsen would report income from continuing operations of:
A) $391,500.
B) $465,000.
C) $615,000.
D) $620,000.
Difficulty: 3 Hard
Topic: IFRS―Income statement
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the income statement, statement of comprehensive income, and statement of cash flows.
Bloom's: Apply
AACSB: Diversity; Knowledge Application
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
123) In the DuPont formula, return on assets equals:
A) Gross margin on sales × Inventory turnover.
B) Profit margin on sales × Inventory turnover.
C) Gross margin on sales × Asset turnover.
D) Profit margin on sales × Asset turnover.
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
124) A company is effectively leveraging when:
A) the return on assets exceeds the return on equity.
B) the return on equity exceeds the return on assets.
C) the return on equity is increasing.
D) the return on assets is increasing.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
125) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and key ratios are presented below (all numbers are in millions):
| 2021 |
| 2020 | |||||||
Accounts receivable (net) | $ | 20 |
|
| $ | 16 |
| |||
Net sales | $ | 115 |
|
| $ | 100 |
| |||
Cost of goods sold | $ | 60 |
|
| $ | 55 |
| |||
Net income | $ | 20 |
|
| $ | 17 |
| |||
Inventory turnover |
| 5.22 |
|
|
|
|
| |||
Return on assets |
| 10.3 | % |
|
|
|
| |||
Equity multiplier |
| 2.36 |
|
|
|
|
| |||
Dowling's 2021 profit margin is (rounded):
A) 17.4%.
B) 18.5%.
C) 18.0%.
D) 16.5%.
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
126) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and key ratios are presented below (all numbers are in millions):
| 2021 |
| 2020 | |||||||
Accounts receivable (net) | $ | 20 |
|
| $ | 16 |
| |||
Net sales | $ | 115 |
|
| $ | 100 |
| |||
Cost of goods sold | $ | 60 |
|
| $ | 55 |
| |||
Net income | $ | 20 |
|
| $ | 17 |
| |||
Inventory turnover |
| 5.22 |
|
|
|
|
| |||
Return on assets |
| 10.3 | % |
|
|
|
| |||
Equity multiplier |
| 2.36 |
|
|
|
|
| |||
Dowling's 2021 average collection period is (rounded):
A) 50 days.
B) 63 days.
C) 57 days.
D) 51 days.
Avg. collection period | = | 365 / (accounts receivable turnover) |
| = | 365 / (net sales / {avg A/R}) |
| = | 365 / (115 /{20 + 16} /2) |
| = | 57.13 days |
| = | 57 days rounded |
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
127) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and key ratios are presented below (all numbers are in millions):
| 2021 |
| 2020 | |||||||
Accounts receivable (net) | $ | 20 |
|
| $ | 16 |
| |||
Net sales | $ | 115 |
|
|
| 100 |
| |||
Cost of goods sold | $ | 60 |
|
|
| 55 |
| |||
Net income | $ | 20 |
|
|
| 17 |
| |||
Inventory turnover |
| 5.22 |
|
|
|
|
| |||
Return on assets |
| 10.3 | % |
|
|
|
| |||
Equity multiplier |
| 2.36 |
|
|
|
|
| |||
Dowling's return on equity for 2021 is (rounded):
A) 22%.
B) 24.3%.
C) 17.4%.
D) 9%.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
128) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and key ratios are presented below (all numbers are in millions):
| 2021 |
| 2020 | |||||||
Accounts receivable (net) | $ | 20 |
|
| $ | 16 |
| |||
Net sales | $ | 115 |
|
|
| 100 |
| |||
Cost of goods sold | $ | 60 |
|
|
| 55 |
| |||
Net income | $ | 20 |
|
|
| 17 |
| |||
Inventory turnover |
| 5.22 |
|
|
|
|
| |||
Return on assets |
| 10.3 | % |
|
|
|
| |||
Equity multiplier |
| 2.36 |
|
|
|
|
| |||
Dowling's average total assets for 2021 is (rounded):
A) 32.
B) 210.
C) 115.
D) 194.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
129) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and key ratios are presented below (all numbers are in millions):
| 2021 |
| 2020 | |||||||
Accounts receivable (net) | $ | 20 |
|
| $ | 16 |
| |||
Net sales | $ | 115 |
|
|
| 100 |
| |||
Cost of goods sold |
| 60 |
|
|
| 55 |
| |||
Net income |
| 20 |
|
|
| 17 |
| |||
Inventory turnover |
| 5.22 |
|
|
|
|
| |||
Return on assets |
| 10.3 | % |
|
|
|
| |||
Equity multiplier |
| 2.36 |
|
|
|
|
| |||
Dowling's average inventory balance for 2021 is (rounded):
A) 11.
B) 12.
C) 11.5.
D) 12.5.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
130) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are presented below:
| 2021 |
| 2020 | |||||||
Accounts receivable | $ | 40,000 |
|
| $ | 36,000 |
| |||
Merchandise inventory | $ | 28,000 |
|
|
| 35,000 |
| |||
Net sales |
| 190,000 |
|
|
| 186,000 |
| |||
Cost of goods sold |
| 114,000 |
|
|
| 108,000 |
| |||
Total assets |
| 425,000 |
|
|
| 405,000 |
| |||
Total shareholders' equity |
| 240,000 |
|
|
| 225,000 |
| |||
Net income |
| 32,500 |
|
|
| 28,000 |
| |||
Hulkster's 2021 receivables turnover is:
A) 2.85.
B) 4.70.
C) 5.00.
D) 10.63.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
131) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are presented below:
| 2021 |
| 2020 | |||||||
Accounts receivable | $ | 40,000 |
|
| $ | 36,000 |
| |||
Merchandise inventory | $ | 28,000 |
|
|
| 35,000 |
| |||
Net sales |
| 190,000 |
|
|
| 186,000 |
| |||
Cost of goods sold |
| 114,000 |
|
|
| 108,000 |
| |||
Total assets |
| 425,000 |
|
|
| 405,000 |
| |||
Total shareholders' equity |
| 240,000 |
|
|
| 225,000 |
| |||
Net income |
| 32,500 |
|
|
| 28,000 |
| |||
Hulkster's 2021 inventory turnover is (rounded):
A) 3.62.
B) 3.96.
C) 4.07.
D) 6.03.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
132) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are presented below:
| 2021 |
| 2020 | |||||||
Accounts receivable | $ | 40,000 |
|
| $ | 36,000 |
| |||
Merchandise inventory | $ | 28,000 |
|
|
| 35,000 |
| |||
Net sales |
| 190,000 |
|
|
| 186,000 |
| |||
Cost of goods sold |
| 114,000 |
|
|
| 108,000 |
| |||
Total assets |
| 425,000 |
|
|
| 405,000 |
| |||
Total shareholders' equity |
| 240,000 |
|
|
| 225,000 |
| |||
Net income |
| 32,500 |
|
|
| 28,000 |
| |||
Hulkster's 2021 asset turnover is (rounded):
A) 3.73.
B) 2.79.
C) 2.24.
D) 0.46.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
133) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are presented below:
| 2021 |
| 2020 | |||||||
Accounts receivable | $ | 40,000 |
|
| $ | 36,000 |
| |||
Merchandise inventory | $ | 28,000 |
|
|
| 35,000 |
| |||
Net sales |
| 190,000 |
|
|
| 186,000 |
| |||
Cost of goods sold |
| 114,000 |
|
|
| 108,000 |
| |||
Total assets |
| 425,000 |
|
|
| 405,000 |
| |||
Total shareholders' equity |
| 240,000 |
|
|
| 225,000 |
| |||
Net income |
| 32,500 |
|
|
| 28,000 |
| |||
Hulkster's 2021 average collection period is:
A) 73 days.
B) 104 days.
C) 109 days.
D) 128 days.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
134) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are presented below:
| 2021 |
| 2020 | |||||||
Accounts receivable | $ | 40,000 |
|
| $ | 36,000 |
| |||
Merchandise inventory | $ | 28,000 |
|
|
| 35,000 |
| |||
Net sales |
| 190,000 |
|
|
| 186,000 |
| |||
Cost of goods sold |
| 114,000 |
|
|
| 108,000 |
| |||
Total assets |
| 425,000 |
|
|
| 405,000 |
| |||
Total shareholders' equity |
| 240,000 |
|
|
| 225,000 |
| |||
Net income |
| 32,500 |
|
|
| 28,000 |
| |||
Hulkster's 2021 average days in inventory is (rounded):
A) 61 days.
B) 92 days.
C) 101 days.
D) 90 days.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
135) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are presented below:
| 2021 |
| 2020 | |||||||
Accounts receivable | $ | 40,000 |
|
| $ | 36,000 |
| |||
Merchandise inventory | $ | 28,000 |
|
|
| 35,000 |
| |||
Net sales |
| 190,000 |
|
|
| 186,000 |
| |||
Cost of goods sold |
| 114,000 |
|
|
| 108,000 |
| |||
Total assets |
| 425,000 |
|
|
| 405,000 |
| |||
Total shareholders' equity |
| 240,000 |
|
|
| 225,000 |
| |||
Net income |
| 32,500 |
|
|
| 28,000 |
| |||
Hulkster's 2021 profit margin is (rounded):
A) 17.1%.
B) 13.5%.
C) 7.6%.
D) 4.5%.
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
136) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are presented below:
| 2021 |
| 2020 | |||||||
Accounts receivable | $ | 40,000 |
|
| $ | 36,000 |
| |||
Merchandise inventory | $ | 28,000 |
|
|
| 35,000 |
| |||
Net sales |
| 190,000 |
|
|
| 186,000 |
| |||
Cost of goods sold |
| 114,000 |
|
|
| 108,000 |
| |||
Total assets |
| 425,000 |
|
|
| 405,000 |
| |||
Total shareholders' equity |
| 240,000 |
|
|
| 225,000 |
| |||
Net income |
| 32,500 |
|
|
| 28,000 |
| |||
Hulkster's 2021 return on assets is (rounded):
A) 7.1%.
B) 7.8%.
C) 13.5%.
D) 47.7%.
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
137) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are presented below:
| 2021 |
| 2020 | |||||||
Accounts receivable | $ | 40,000 |
|
| $ | 36,000 |
| |||
Merchandise inventory | $ | 28,000 |
|
|
| 35,000 |
| |||
Net sales |
| 190,000 |
|
|
| 186,000 |
| |||
Cost of goods sold |
| 114,000 |
|
|
| 108,000 |
| |||
Total assets |
| 425,000 |
|
|
| 405,000 |
| |||
Total shareholders' equity |
| 240,000 |
|
|
| 225,000 |
| |||
Net income |
| 32,500 |
|
|
| 28,000 |
| |||
Hulkster's 2021 return on shareholders' equity is (rounded):
A) 17.1%.
B) 14.0%.
C) 12.6%.
D) 7.1%.
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation
138) 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.
TERM | PHRASE | NUMBER |
1. Taxable income | Also known as income tax expense. | ____ |
2. Intraperiod tax allocation | From transactions or events that are not likely to occur in the foreseeable future. | ____ |
3. Prior period adjustment | Associates tax with income statement items. | ____ |
4. Provision for income tax | Used as the base for computing taxes currently payable. | ____ |
5. Temporary earnings | Made to correct a material error. | ____ |
TERM | PHRASE | NUMBER |
1. Taxable income | Also known as income tax expense. | 4 |
2. Intraperiod tax allocation | From transactions or events that are not likely to occur in the foreseeable future. | 5 |
3. Prior period adjustment | Associates tax with income statement items. | 2 |
4. Provision for income tax | Used as the base for computing taxes currently payable. | 1 |
5. Temporary earnings | Made to correct a material error. | 3 |
Difficulty: 2 Medium
Topic: Income tax―Separate line or Intraperiod; Earnings quality―Components; Accounting changes and error corrections
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
139) 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.
TERM | PHRASE | NUMBER |
1. Operating activities (income statement) | Is directly related to the principal revenue-generating activities. | ____ |
2. Gains | Requires note disclosure, if material. | ____ |
3. Income from continuing operations | Increases in equity from peripheral transactions. | ____ |
4. Income from discontinued operations | Income from an identifiable component will cease. | ____ |
5. Change in accounting estimate | More useful to analysts in predicting future income than current net income. | ____ |
TERM | PHRASE | NUMBER |
1. Operating activities (income statement) | Is directly related to the principal revenue-generating activities. | 1 |
2. Gains | Requires note disclosure, if material. | 5 |
3. Income from continuing operations | Increases in equity from peripheral transactions. | 2 |
4. Income from discontinued operations | Income from an identifiable component will cease. | 4 |
5. Change in accounting estimate | More useful to analysts in predicting future income than current net income. | 3 |
Difficulty: 1 Easy
Topic: Continuing operations―Components; Accounting changes and error corrections; Discontinued operations; Statement of cash flows―Classify O-I-F
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).; 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
140) 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.
TERM | PHRASE | NUMBER |
1. Single-step income statement | Not directly related to a firm's principal revenue-generating activities. | ____ |
2. Financing activities | Likely to be discontinued within a year. | ____ |
3. Held for sale component | Groups all revenues and gains. | ____ |
4. Nonoperating activities (income statement) | Related to the acquisition and disposition of long-term assets. | ____ |
5. Investing activities | Related to the external financing of the company. | ____ |
TERM | PHRASE | NUMBER |
1. Single-step income statement | Not directly related to a firm's principal revenue-generating activities. | 4 |
2. Financing activities | Likely to be discontinued within a year. | 3 |
3. Held for sale component | Groups all revenues and gains. | 1 |
4. Nonoperating activities (income statement) | Related to the acquisition and disposition of long-term assets. | 5 |
5. Investing activities | Related to the external financing of the company. | 2 |
Difficulty: 1 Easy
Topic: Income statement―Single-step format; Discontinued operations; Statement of cash flows―Classify O-I-F
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.; 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
141) 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.
TERM | PHRASE | NUMBER |
1. Comprehensive income | Reported in the nonoperating section of the income statement. | ____ |
2. Discontinued operations | Reported net of tax immediately after income from continuing operations. | ____ |
3. Gain/loss from sale of investments | Total nonowner changes in equity for a reporting period. | ____ |
4. Multiple-step income statement | Reports intermediate subtotals in arriving at net income. | ____ |
5. Direct method | Reports the cash effects of each operating activity directly on the statement. | ____ |
TERM | PHRASE | NUMBER |
1. Comprehensive income | Reported in the nonoperating section of the income statement. | 3 |
2. Discontinued operations | Reported net of tax immediately after income from continuing operations. | 2 |
3. Gain/loss from sale of investments | Total nonowner changes in equity for a reporting period. | 1 |
4. Multiple-step income statement | Reports intermediate subtotals in arriving at net income. | 4 |
5. Direct method | Reports the cash effects of each operating activity directly on the statement. | 5 |
Difficulty: 2 Medium
Topic: Income statement―Multiple-step format; Discontinued operations; Comprehensive income—Components-Presentation; Statement of cash flows―Classify O-I-F; Statement of cash flows―Direct method
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.; 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.; 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
142) 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.
TERM | PHRASE | NUMBER |
1. Earnings per share | Required disclosure for publicly traded corporations. | ____ |
2. Indirect method | If sold or held for sale, reported as a discontinued operation. | ____ |
3. Restructuring costs | Separately stated component of continuing operations. | ____ |
4. Earnings quality | Calculations work backward from net income to cash flow from operating activities. | ____ |
5. Component of an entity | Ability of reported income to predict future earnings. | ____ |
TERM | PHRASE | NUMBER |
1. Earnings per share | Required disclosure for publicly traded corporations. | 1 |
2. Indirect method | If sold or held for sale, reported as a discontinued operation. | 5 |
3. Restructuring costs | Separately stated component of continuing operations. | 3 |
4. Earnings quality | Calculations work backward from net income to cash flow from operating activities. | 2 |
5. Component of an entity | Ability of reported income to predict future earnings. | 4 |
Difficulty: 2 Medium
Topic: Earnings quality―Management practices; Earnings quality―Components; Discontinued operations; Earnings per share; Statement of cash flows―Indirect method
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).; 04-07 Describe the purpose of the statement of cash flows.; 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
143) 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.
TERM | PHRASE | NUMBER |
1. Issuance of common stock | The acquisition of assets by issuing debt or equity securities. | ____ |
2. Operating activities on statement of cash flows | Costs incurred often relate to downsizing. | ____ |
3. Restructuring costs | Total nonowner change in equity for a reporting period. | ____ |
4. Noncash financing and investing activities | Financing activity on statement of cash flows. | ____ |
5. Comprehensive income | When grouped together, essentially net income on a cash basis. | ____ |
TERM | PHRASE | NUMBER |
1. Issuance of common stock | The acquisition of assets by issuing debt or equity securities. | 4 |
2. Operating activities on statement of cash flows | Costs incurred often relate to downsizing. | 3 |
3. Restructuring costs | Total nonowner change in equity for a reporting period. | 5 |
4. Noncash financing and investing activities | Financing activity on statement of cash flows. | 1 |
5. Comprehensive income | When grouped together, essentially net income on a cash basis. | 2 |
Difficulty: 2 Medium
Topic: Earnings quality―Restructuring costs; Comprehensive income―Components-Presentation; Statement of cash flows―Classify O-I-F
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.; 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
144) 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.
TERM | PHRASE | NUMBER |
1. Earnings per share | Required disclosure for publicly traded corporations. | ____ |
2. Comprehensive income | Component of the entity has been sold or will be sold. | ____ |
3. Restructuring costs | Costs generally associated with downsizing. | ____ |
4. Multiple-step income statement | Reports a series of intermediate subtotals. | ____ |
5. Foreign currency translation adjustment | Accounted for prospectively. | ____ |
6. Change in estimate | Tangentially related to normal operations. | ____ |
7. Nonoperating income | Accounted for retrospectively by revising prior years' statements. | ____ |
8. Change in accounting principle | Other comprehensive income item. | ____ |
9. Discontinued operations | Total nonowner change in equity. | ____ |
10. Earnings quality | Ability of reported income to predict future earnings. | ____ |
TERM | PHRASE | NUMBER |
1. Earnings per share | Required disclosure for publicly traded corporations. | 1 |
2. Comprehensive income | Component of the entity has been sold or will be sold. | 9 |
3. Restructuring costs | Costs generally associated with downsizing. | 3 |
4. Multiple-step income statement | Reports a series of intermediate subtotals. | 4 |
5. Foreign currency translation adjustment | Accounted for prospectively. | 6 |
6. Change in estimate | Tangentially related to normal operations. | 7 |
7. Nonoperating income | Accounted for retrospectively by revising prior years' statements. | 8 |
8. Change in accounting principle | Other comprehensive income item. | 5 |
9. Discontinued operations | Total nonowner change in equity. | 2 |
10. Earnings quality | Ability of reported income to predict future earnings. | 10 |
Difficulty: 2 Medium
Topic: Income statement―Multiple-step format; Continuing operations―Components; Earnings per share; Accounting changes and error corrections; Earnings quality―Management practices; Earnings quality―Components; Restructuring costs; Discontinued operations; Comprehensive income―Components-Presentation
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).; 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
Use this information to answer the following questions:
On September 1, 2021, Jacob Furniture Mart enters into a tentative agreement to sell the assets of its Office Furniture 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 2021 was a $3 million loss before income tax. Jacob has an average tax rate of 25%.
Required: Consider independently the appropriate accounting by Jacob under the three scenarios below.
145) Scenario 1: Assume that Jacob sold the division's assets on December 31, 2021, for $24 million. The book value of the division's assets was $19 million at that date.
In this scenario, what would Jacob report in its 2021 income statement regarding the Office Furniture division?
Explain where this information would be presented.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
146) Scenario 2: Assume that Jacob had not yet sold the division's assets by the end of 2021. Further, assume that the fair value less cost to sell of the division's assets at December 31, 2021, was $24 million and was expected to remain the same when the assets are sold in 2022. The book value of the division's assets was $19 million at the end of 2021.
1) In this scenario, what would Jacob report in its 2021 income statement regarding the Office Furniture division?
Explain where this information would be presented.
2) In this scenario, what would Jacob report in its 2021 balance sheet regarding the information provided for Office Furniture Division?
Explain how this information would be classified in the balance sheet.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
147) Scenario 3: Assume that Jacob had not yet sold the Office Furniture division by the end of 2021. Further, assume that the fair value less cost to sell of the division's assets at December 31, 2021, was $12 million and was expected to remain the same when the assets are sold in 2022. The book value of the division's assets was $19 million at the end of 2021.
1) In this scenario, what would Jacob report in its 2021 income statement regarding the Office Furniture division?
Explain where this information would be presented.
2) In this scenario, what would Jacob report in its 2021 balance sheet regarding the information provided for the Office Furniture Division?
Explain how this information would be classified in the balance sheet.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
148) The Filzinger Corporation's December 31, 2021 year-end trial balance contained the following income statement items:
Account Title Debits Credits
Sales revenue 6,700,000
Interest revenue 70,000
Gain on sale of investments 52,000
Cost of goods sold 4,200,000
Selling expense 350,000
General and administrative expense 948,000
Interest expense 30,000
Research and development expense 600,000
Income tax expense 145,000
Required: Calculate the company's operating income for the year using a single-step income statement format.
Difficulty: 2 Medium
Topic: Income statement―Single-step format; Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
149) Canton Corporation reported the following items in its adjusted trial balance for the year ended December 31, 2021:
Income from continuing operations before income taxes $120,000
Gain on disposal of discontinued component 28,000
Loss from operations of discontinued component (60,000)
Canton is subject to a 25% tax rate.
Required: Prepare the December 31, 2021, income statement for Canton Corporation, starting with income from continuing operations before income taxes.
Difficulty: 3 Hard
Topic: Net income after income tax expense; Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
Use this information to answer the following questions:
Plano Co. 12/31/2021 Debits Credits
Partial Trial Balance Data
Sales revenue 700,000
Interest revenue 60,000
Gain on sale of investments 110,000
Cost of goods sold 500,000
Selling expense 150,000
Interest expense 40,000
General and administrative expenses 100,000
Plano had 50,000 shares of stock outstanding throughout the year. Income tax expense has not yet been accrued. The effective tax rate is 25%.
150) Required: Prepare a single-step income statement with earnings per share disclosure.
Difficulty: 3 Hard
Topic: Income statement―Single-step format; Net income after income tax expense; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
151) Required: Prepare a multiple-step income statement with earnings per share disclosure.
Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Net income after income tax expense; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
Use this information to answer the following questions:
The trial balance of Kroeger Inc. included the following accounts as of December 31, 2021:
Debits Credits
Sales revenue 8,200,000
Interest revenue 60,000
Gain on sale of investments 120,000
Gain on debt securities 140,000
Loss on projected benefit obligation 160,000
Cost of goods sold 6,100,000
Selling expense 600,000
Goodwill impairment loss 500,000
Interest expense 30,000
General and administrative expense 500,000
The gain on debt securities represents the increase in the fair value of debt securities and is classified a component of other comprehensive income. Kroeger had 300,000 shares of stock outstanding throughout the year. Income tax expense has not yet been recorded. The effective tax rate is 25%.
152) Required: Prepare a 2021 multiple-step income statement for Kroeger Inc. with earnings per share disclosure.
Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net income after income tax expense; Earnings quality―Components; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
153) Required: Prepare a 2021 separate statement of comprehensive income for Kroeger Inc.
Difficulty: 3 Hard
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
154) Required: Prepare a 2021 single, continuous statement of comprehensive income for Kroeger Inc. Use a multiple-step income statement format.
Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net income after income tax expense; Earnings quality―Components; Earnings per share; Comprehensive income―Components-Presentation
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).; 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
155) The following income statement items appeared on the adjusted trial balance of Foxworthy Corporation for the year ended December 31, 2021 ($ in 000s): sales revenue, $22,300; cost of goods sold, $14,500; selling expense, $2,300; general and administrative expense, $1,200; dividend revenue from investments, $200; interest expense, $300. Income taxes have not yet been accrued. The company's income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company's income statement every year. The company's controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in 000s). All transactions are material in amount.
1. Investments were sold during the year at a loss of $300. Foxworthy also had an unrealized loss of $200 for the year on investments. The unrealized loss represents a decrease in the fair value of debt securities and is classified as part of other comprehensive income.
2. One of the company's factories was closed during the year. Restructuring costs incurred were $2,000.
3. During the year, Foxworthy completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP regarding discontinued operations. The division had incurred operating income of $800 in 2021 prior to the sale, and its assets were sold at a loss of $1,800.
4. A positive foreign currency translation adjustment for the year totaled $600.
Required:
Prepare Foxworthy's single, continuous statement of comprehensive income for 2021, including earnings per share disclosures. Use a multiple-step income statement format. Three million shares of common stock were outstanding throughout the year.
Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net income after income tax expense; Earnings quality―Restructuring costs; Discontinued operations; Earnings per share; Comprehensive income–Components-Presentation
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).; 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
Use this information to answer the following questions:
The trial balance of Lakewood Inc. included the following accounts as of December 31, 2021:
Debits Credits
Sales revenue 1,800,000
Interest revenue 80,000
Gain on sale of investments 50,000
Cost of goods sold 1,100,000
Selling expense 220,000
Loss on inventory write-down 30,000
Interest expense 40,000
General and administrative expense 200,000
Lakewood Inc. had 100,000 shares of stock outstanding throughout the year. Income tax expense has not yet been accrued. The effective tax rate is 25%.
156) Required: Prepare a single-step income statement with earnings per share disclosure.
Difficulty: 3 Hard
Topic: Income statement―Single-step format; Continuing operations―Components; Net income after income tax expense; Earnings quality―Components; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
157) Required: Prepare a multiple-step income statement with earnings per share disclosure.
Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net income after income tax expense; Earnings quality―Components; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
Use this information to answer the following questions:
The trial balance of Rollins Inc. included the following accounts as of December 31, 2021:
Debits Credits
Sales revenue 5,900,000
Interest revenue 40,000
Loss on sale of investments 10,000
Loss on debt investments 160,000
Gain on projected benefit obligation 260,000
Cost of goods sold 4,400,000
Selling expense 400,000
Restructuring costs 190,000
Interest expense 20,000
General and administrative expense 300,000
The loss on debt investments represents a decrease in the fair value of debt securities and is classified as part of other comprehensive income. Rollins had 100,000 shares of stock outstanding throughout the year. Income tax expense has not yet been accrued. The effective tax rate is 25%.
158) Required: Prepare a 2021 multiple-step income statement for Rollins Inc. with earnings per share disclosure.
Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net income after income tax expense; Earnings quality―Components; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
159) Required: Prepare a 2021 separate statement of comprehensive income for Rollins Inc.
Difficulty: 3 Hard
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
160) Required: Prepare a 2021 single, continuous statement of comprehensive income for Rollins Inc. Use a multiple-step income statement format.
Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net income after income tax expense; Earnings quality―Components; Earnings per share; Comprehensive income―Components-Presentation
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to accounting changes, error corrections, and earnings per share (EPS).; 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
161) Calstone, Inc., prepares a single, continuous statement of comprehensive income. The following situations occurred during the company's 2021 fiscal year:
1. Land that had been held as an investment was sold and a gain was recognized.
2. There was a loss on projected benefit obligation at December 31, 2021.
3. Interest revenue was recognized.
4. A division was sold that qualifies as a separate component according to GAAP regarding discontinued operations.
5. There was an unrealized loss on debt securities during the year. The unrealized loss represents a decrease in the fair value of debt securities as is classified as part of other comprehensive income.
6. Restructuring costs were incurred due to downsizing and reorganization of a manufacturing facility.
Required:
For each situation, identify the appropriate reporting treatment from the list below (consider each event to be material).
a. As a component of operating income.
b. As a nonoperating income item (other income or expense).
c. As a discontinued operation.
d. As an item of other comprehensive income.
Difficulty: 2 Medium
Topic: Continuing operations―Components; Earnings quality―Components; Discontinued operations; Comprehensive income―Components-Presentation
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.; 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
162) The following information is for Redwood Inc. for the year ended December 31, 2021. Redwood had a balance for cash and cash equivalents of $5,200 on January 1, 2021.
Cash received from:
Customers $ 1,900
Interest on investments 200
Sale of land 100
Issuance of common stock 600
Issuance of debt securities 2,000
Cash paid for:
Interest on debt $ 300
Income tax 80
Debt principal reduction 1,500
Purchase of equipment 4,100
Purchase of inventory 1,000
Dividends on common stock 200
Operating expenses 500
Required: Prepare a statement of cash flows for the year using the direct method for operating activities.
Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method; Statement of cash flows―Classify O-I-F; Statement of cash flows―Content
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.; 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
163) The chief accountant for Julius Co. provides you with the company's most recent income statement and comparative balance sheets below. The accountant has asked for your help in preparing part of the company's 2021 statement of cash flows.
2021 Income Statement ($ in thousands)
Sales revenue $5,000
Depreciation expense 280
3,720
Selling & administrative expense 4,000
Income before taxes 1,000
Income tax expense 300
Net income $700
Balance Sheet (all $ in thousands) 12/31/2021 12/31/2020
Cash $800 $750
Accounts receivable 450 365
Property, plant & equipment 1,900 1,450
Less: Accumulated depreciation ( 800) (520)
$2,350 $2,045
Accrued liabilities for selling & administration expense 300 325
Income taxes payable 180 130
Common stock 700 700
Retained earnings 1,170 890
$2,350 $2,045
Required:
In the space provided below, determine the cash flow from operating activities for Julius Co., using the direct method.
Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
164) The accounting records of Rockness Company provided the data below ($ in 000s).
Net income $25,200
Depreciation expense 3,300
Decrease in accounts receivable 2,000
Increase in inventory 4,500
Increase in prepaid insurance 300
Increase in salaries payable 900
Decrease in interest payable 400
Required:
Prepare a reconciliation of net income to net cash flows from operating activities.
Difficulty: 3 Hard
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
165) The statement of cash flows for the year ended December 31, 2021, for Whiteside Incorporated is presented below.
Whiteside Incorporated
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash flows from operating activities:
Cash received from customers $420,000
Interest on notes receivable 12,000
Dividends received 4,500
Purchase of inventory (156,000)
Payment of operating expenses (83,000)
Payment of interest on debt (16,000)
Net cash flows from operating activities $181,500
Cash flows from investing activities:
Sale of investments 42,000
Purchase of equipment (180,000)
Net cash flows from investing activities (138,000)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 200,000
Reacquisition of common stock shares previously
sold (140,000)
Dividends paid to shareholders (50,000)
Net cash flows from financing activities 10,000
Net increase in cash 53,500
Cash and cash equivalents, January 1 68,900
Cash and cash equivalents, December 31 $122,400
Required:
Prepare the statement of cash flows assuming that Whiteside prepares its financial statements according to International Financial Reporting Standards (IFRS). Where IFRS allows flexibility, use the classification used most often in IFRS financial statements.
Difficulty: 3 Hard
Topic: IFRS―Statement of cash flows
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.; 04-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to the income statement, statement of comprehensive income, and statement of cash flows.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application; Diversity
AICPA/Accessibility: BB Global; FN Measurement
Use this information to answer the following questions:
Missoula Inc. reported the following selected financial statement data:
Dec 31, 2020 Dec 31, 2021
Cash $ 30,000 $ 32,000
Accounts receivable (net) 48,000 52,000
Inventory 68,000 72,000
Plant assets (net) 210,000 218,000
Total assets 405,000 395,000
Liabilities 145,000 145,000
Shareholders' equity 260,000 250,000
Net sales 340,000 400,000
Cost of goods sold 220,000 280,000
Net income 20,000 25,000
166) Required: Compute the receivables turnover ratio for 2021.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
167) Required: Compute the inventory turnover ratio for 2021.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
168) Required: Compute the asset turnover ratio for 2021.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
169) Required: Compute the average collection period (rounded to one decimal place) for 2021.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
170) Required: Compute the average days in inventory for 2021.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
171) Required: Compute the profit margin on sales for 2021.
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
172) Required: Compute the return on assets for 2021.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
173) Required: Compute the return on equity for 2021. Round your answer to one decimal place, e.g., .1234 as 12.3%.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
Use this information to answer the following questions:
The following information (in $ millions) comes from the Annual Report of Saratoga Springs Co. for the year ending 12/31/2021:
Year ended 12/31/2021
Net sales 7,949
Cost of goods sold 4,767
Selling and administrative expense 1,909
Interest expense 416
Income before taxes 857
Net income 458
12/31/2021 12/31/2020
Cash and cash equivalents 975 64
Receivables, net 1,010 664
Inventories 1,055 519
Land, buildings and equipment at cost, net 13,500 3,844
Total assets 16,540 5,091
Total current liabilities 5,747 2,209
Long-term debt 5,591 2,221
Total liabilities 11,338 4,430
Total stockholders' equity 5,202 661
Required: Compute the following amounts for Saratoga Springs Co.
174) Its profit margin on sales for 2021. Round your answer to one decimal place, e.g., 0.1234 as 12.3%.
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
175) Its receivables turnover ratio for 2021. Round your answer to one decimal place.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
176) Its inventory turnover ratio for 2021. Round your answer to one decimal place.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
177) Its asset turnover ratio for 2021. Round your answer to two decimal places.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
178) Its average collection period for 2021. Round your final answer to one decimal place.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
179) Its average days in inventory for 2021. Round your final answer to one decimal place.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
180) Its return on assets for 2021. Round your answer to one decimal place, e.g., 0.1234 as 12.3%.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
181) Its return on equity for 2021. Round your answer to one decimal place, e.g., 0.1234 as 12.3%.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
182) The following information is provided in the 2021 annual report to shareholders of paris-perfume.com:
December 31, 2021 December 31, 2020
Accounts receivable (E) $100 million
Inventory $70 million $30 million
Other assets (G) $170 million
Total assets (A) $300 million
Total liabilities (C) $100 million
Total stockholders' equity (B) $200 million
For the year ended Dec. 31,
2021
Net sales (D)
Cost of goods sold (F)
Net income $40 million
Return on assets 10%
Receivables turnover 8.0
Inventory turnover 12.0
Asset turnover 2.5
Return on equity 20%
Profit margin on sales 4%
Required: Compute the missing amount in the paris-perfume.com financial statement information, and indicate your answers by marking them (A) to (G).
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
183) The following information is provided in the 2021 annual report to shareholders of The BizStore:
December 31, 2021 December 31, 2020
Accounts receivable (Y) $6 million
Inventory $25 million $20 million
Total assets $250 million (X)
Total stockholders' equity (W) $130 million
Net sales $115 million
Cost of Goods Sold (Z)
Net income (U)
Average collection period 22.2 days
Average days in inventory 104 days
Equity multiplier 1.9
Return on equity 16.0%
Profit margin on sales 17.4%
ROA (V)
Required: Compute items U–Z in the table above.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
184) Briefly explain when and why intraperiod tax allocation is necessary.
Difficulty: 2 Medium
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
185) Briefly explain why the income statement is referred to as a change statement.
Difficulty: 2 Medium
Topic: Income statement―Single-step format; Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and describe its components.
Bloom's: Understand
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
186) Net income, often referred to as "the bottom line," is not always a good predictor of future income. Explain this statement.
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Understand
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
187) Explain, using an example, how a company can use earnings management and justify it by conservatism.
Difficulty: 3 Hard
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics; Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
188) In a press release, Foot Locker Inc. reported that its fiscal first-quarter net income fell 46% due to losses related to discontinued operations, but earnings from continuing operations jumped 19% amid a modest increase in sales. The specialty athletic retailer said net income was $20 million for the quarter ended May 4, compared with net income of $37 million a year earlier. The latest results included a loss of $18 million from discontinued operations. Last year, the company had earnings of $5 million, or four cents a share, from discontinued operations. Foot Locker said earnings from continuing operations were $38 million, compared with $32 million a year earlier. Discuss how Foot Locker's press release relates to its earnings quality.
Difficulty: 3 Hard
Topic: Earnings quality―Components; Discontinued operations
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
189) In a press release, Estée Lauder Co. reported "a fiscal fourth-quarter loss due to a restructuring charge but said it expects to see earnings growth in its fiscal second through fourth quarters." The New York skin care and cosmetics company reported a net loss of $25.4 million, or 13 cents a share, for the quarter ended June 30, compared with net income of $20.4 million, or six cents a share, a year earlier. Excluding the restructuring charge of $76.9 million, or 32 cents a share, the company said profit would have been $51.5 million, or 19 cents a share. Discuss how Estée Lauder's press release relates to its earnings quality.
Difficulty: 2 Medium
Topic: Earnings quality―Components; Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management practices to alter reported earnings.; 04-03 Discuss the components of operating and nonoperating income and their relationship to earnings quality.
Bloom's: Analyze
AACSB: Ethics; Analytical Thinking; Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
190) Briefly define discontinued operations and explain how they are reported according to U.S. GAAP.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
191) Presented below is an excerpt ($ in millions) from the 2016 annual report to shareholders of Microsoft Corporation. Explain how the shareholder should interpret the difference between the net income and total comprehensive income for Microsoft in 2016.
Comprehensive Income:
Net income $16,798
Other comprehensive income (loss),
net of tax:
Net unrealized loss on derivatives (238)
Net unrealized loss on investments (228)
Translation adjustment and other (519)
Other comprehensive income (loss) (985)
Comprehensive income $15,813
Difficulty: 3 Hard
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive income and how we report components of the difference.
Bloom's: Understand
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement
192) Give an example of a major investing activity cash outflow that would be reported in the statement of cash flows for a manufacturing company.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.; 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
193) List at least four operating activities that would be reported in the statement of cash flows for Walmart. Assume the use of the direct method.
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
194) Give an example of a noncash financing and investing activity and explain when and how it would be reported in the financial statements.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
195) Briefly explain how you can determine if a company is effectively using leverage.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
Use this information to answer the following questions:
The following table presents a summary of ratio analysis for McDonald's and averages for its peer group:
McDonald's Industry
Peer Group
Profit margin 8.0% 7.0%
Inventory turnover 114.5 99.6
Asset turnover 0.75 1.22
Equity multiplier 2 2.5
Return on equity 12.0% 21.3%
196) Using the information provided above, use the DuPont framework to briefly summarize the operating performance of McDonald's relative to its benchmark competitors.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
197) Are differences between McDonald's and the industry likely driven by differences in size between McDonald's and the average company in its industry peer group? Explain briefly.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
198) Besides size differences, what other differences between McDonald's and its industry peer group could limit your ability to make meaningful comparisons about the performance of McDonald's from the data above?
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Create
AACSB: Reflective Thinking; Communication
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
199) Based on this information, if you were going to advise McDonald's about how it could enhance return on equity, what would you suggest? Be as specific as possible in the operational or financial changes you would recommend.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Create
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
Use this information to answer the following questions:
The following table presents a summary of ratio analysis for Uncle Joe's Coffee, based on the most recent 12 months and five-year comparisons of Uncle Joe's with averages in the restaurant industry and the services sector, respectively.
Company Industry Sector
Return on assets 10.68% 9.04% 5.09%
Return on assets- 5 yr. avg. 8.23% 8.37% 6.78%
Return on equity 13.94% 17.55% 10.97%
Return on equity- 5 yr. avg. 11.28% 15.69% 15.76%
Receivable turnover 34.15 27.99 16.11
Inventory turnover 11.88 34.73 15.94
Asset turnover 1.58 1.30 1.22
200) Using the information provided for Uncle Joe's and the industry and sector, briefly summarize the operating performance of Uncle Joe's relative to its benchmark competitors.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication; Resource Management
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
201) What limitations exist in drawing meaningful comparisons about the performance of Uncle Joe's from the data above?
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Understand
AACSB: Reflective Thinking; Communication
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
Document Information
Connected Book
Answer Key + Test Bank | Intermediate Accounting 10e
By J. David Spiceland, Mark W. Nelson, Wayne Thomas