Deck 4: Income Statement

Question 1

Which of the following is not true about a stock dividend?

A)With a stock dividend, the firm issues a percentage of outstanding stock as new shares to existing shareholders.
B)The overall effect of a stock dividend is to leave total stockholders' equity and each owner's share of stockholders' equity unchanged.
C)In theory, with a stock dividend, total market value considering all outstanding shares should not change.
D)Since the number of shares changes under a stock dividend, any ratio based on the number of shares must be restated.
E)The accounting for a stock dividend, assuming the distribution is relatively small, requires that the par value of the stock be removed from retained earnings.

Answer 1

E

Question 2

Which of the following would be classified as an extraordinary item on the income statement?

A)Loss on disposal of a segment of business
B)Cumulative effect of a change in accounting principle
C)A sale of land
D)An error correction that relates to a prior year
E)A loss from a flood in a location that would not be expected to flood

Answer 2

E

Question 3

Andromeda Industries had 300,000 shares of common stock with a $3 par value and retained earnings of $180,000 at January 1, 2011.In 2011, the stock was split 3 for 1.In 2010, earnings per share were $1.80.Which of the following would not result from the stock split?

A)The new shares would total 900,000.
B)The total amount in the capital stock account would remain the same.
C)The par value would become $1.
D)Retained earnings would be reduced.
E)The earnings per share for 20 years prior to the split would be reduced.

Answer 3

D

Question 4

The stockholders' equity of Anamanda Company at September 30, 2012, is presented below: $$\begin{array}{l}\begin{array} {lll } \text {Common Stock, par value \$ 10, authorized 500,000 shares; 200,000 }&\\\text {shares issued and outstanding}&\$2,000,000\\\text {Paid-In Capital in Excess of Par }&300,000\\\text {Retained Earnings}&1,300,000\\&\$3,600,000\\\end{array}\end{array}$$ On October 1, 2012, the Board of Directors of Anamanda declared a 10% stock dividend to be distributed on November 10.The market price of the common stock was $15 on October 1 and $17 on November 10.What is the amount of the charge to retained earnings as a result of the declaration and distribution of this stock dividend?

A)$0
B)$200,000
C)$300,000
D)$340,000
E)$750,000

Question 5

When a company discontinues and disposes of a component segment of its operations, the gain or loss from disposal should be reported as:

A)an adjustment to retained earnings.
B)a sale of fixed assets in "other" expense.
C)an extraordinary item.
D)an accounting change.
E)a special item after continuing operations and before extraordinary items.

Question 6

The following relate to Data Original in 2012.What is the ending inventory? $$\begin{array} { l r } \text {Purchases}&\$540,000\\\text {Beginning Inventory}&80,000\\\text {Purchase Returns}&10,000\\\text {Sales}&800,000\\\text {Cost of Goods Sold}&490,000\\\end{array}$$

A)$120,000
B)$140,000
C)$210,000
D)$260,000
E)none of the answers are correct

Question 7

Changes in account balances of Multi-Plus Inc.during 2012 were: $$\begin{array} { l r } &\text {Increase}\\\text {Assets}&\$420,000\\\text {Liabilities}&125,000\\\text {Capital Stock}&100,000\\\text {Additional Paid-In Capital}&140,000\\\text {Retained Earnings}&?\\\end{array}$$ Assuming that there were no charges to retained earnings other than dividends of $62,000, the net income for 2010 was:

A)($7,000)
B)$55,000
C)$117,000
D)$257,000
E)none of the answers are correct

Question 8

Fisher Company has 1,000,000 share of common stock with a par value of $10.Additional paid-in capital totals $10,000,000 and retained earnings is $12,000,000.The directors declare a 6% stock dividend when the market value is $5.The reduction of retained earnings as a result of the declaration will be:

A)$0.
B)$300,000.
C)$600,000.
D)$500,000.
E)None of the answers are correct.

Question 9

Which of the following is a recurring item?

A)Equity in earnings of nonconsolidated subsidiaries
B)Error of a prior period
C)Discontinued operations
D)Extraordinary gain
E)Cumulative effect of change in accounting principle

Question 10

Which of the following will be disclosed in the reconciliation of retained earnings?

A)Adjustment for an error of a prior period
B)Net income
C)Net loss
D)Dividends
E)All of the answers are correct.

Question 11

Which of the following would be included in operating income?

A)Interest income for a manufacturing firm
B)Rent income for a leasing subsidiary
C)Gain from sale of marketable securities for a retailer
D)Dividend income for a service firm
E)None of the answers are correct.

Question 12

Which of the following is not a category within accumulated other comprehensive income?

A)Post retirement commitments on health plans
B)Foreign currency translation adjustments
C)Unrealized holding gains and losses on available-for-sale marketable securities
D)Changes to stockholders equity resulting from additional minimum pension liability adjustments
E)Unrealized gains and losses from derivative instruments

Question 13

If Investor Company owns 20% of the stock of Investee Company and Investee Company reports profits of $100,000, then Investor Company reports equity income of:

A)$80,000.
B)$20,000.
C)$40,000.
D)$60,000.
E)None of the answers are correct.

Question 14

Which of the following items on the income statement is not disclosed net of tax?

A)Unusual or infrequent item disclosed separately
B)Discontinued operations
C)Extraordinary loss
D)Cumulative effect of change in accounting principle
E)Unusual or infrequent item disclosed separately and discontinued operations are both not disclosed net of tax

Question 15

If the disposal of a segment meets the criteria of a disposal of a segment, then:

A)the loss on disposal is an extraordinary item.
B)the loss on disposal is categorized as "other expense".
C)the results of operations of the segment will be reported in conjunction with the gain or loss on disposal.
D)the disposal qualifies as a change in entity, and prior years' statements presented on comparative purposes must be restated.
E)the effects of the disposal are shown as part of operations.

Question 16

Anchor Company has 1,000,000 shares of common stock with a par value of $5.Additional paid-in capital totals $5,000,000 and retained earnings is $8,000,000.The directors declare a 10% stock dividend when the market value is $15.The reduction of retained earnings as a result of the declaration will be:

A)$0.
B)$500,000.
C)$800,000.
D)$1,000,000.
E)$1,500,000.

Question 17

Which of the following will not affect retained earnings?

A)Declaration of a stock dividend
B)Payment of a cash dividend previously disclosed
C)Adjustment for an error of a prior period
D)Net income
E)Net loss

Question 18

Gross profit is the difference between:

A)net income and operating income.
B)revenues and expenses.
C)sales and cost of goods sold.
D)income from continuing operations and discontinued operations.
E)gross sales and sales discounts.

Question 19

Which of the following would be classified as an extraordinary item on the income statement?

A)Loss from a strike
B)Correction of an error related to a prior period
C)Write-off of obsolete inventory
D)Loss on disposal of a segment of business
E)Loss from prohibition of a product

Question 20

If a firm consolidates subsidiaries that are not wholly owned, an income statement item is created that is termed:

A)dividend income.
B)minority share of earnings.
C)equity income.
D)extraordinary.
E)gain from sale of subsidiary.

Question 21

Presenting an item after tax, with the related tax deducted, is called net-of-tax presentation.

Question 22

Extraordinary items are always presented gross of applicable income taxes.

Question 23

An income statement is a summary of revenues and expenses and gains and losses, ending with net income for a particular period of time.

Question 24

The legality of distributions to stockholders is governed by federal law.

Question 25

It is the date of the declaration of dividends, not the date of dividend payment, that affects retained earnings and creates the liability.

Question 26

Comprehensive income is net income plus the periods change in accumulated other comprehensive income.

Question 27

With a stock dividend, total market value considering all outstanding shares should decline.

Question 28

Gross profit will be a prominent figure on a single-step income statement.

Question 29

Advertising expense would be an administrative expense.

Question 30

In practice, the income statement is frequently considered to be the least important financial statement.

Question 31

Equity earnings (losses) are the proportionate share of the earnings (losses) of the investee.

Question 32

In analysis of income, for purposes of determining a trend, extraordinary items should be included.

Question 33

Earnings per share is the earnings per share of outstanding common stock.

Question 34

Equity earnings can distort the reported results of a business's operations.

Question 35

A stock split merely increases the number of shares of stock; it usually does not change retained earnings or paid-in capital.

Question 36

Other income and other expense are categories under which secondary activities of the firm not directly related to the operations are classified.

Question 37

Retained earnings, an account on the balance sheet, represents the undistributed earnings of the corporation.

Question 38

The term primary analysis is used to describe consistent and conservative analysis.

Question 39

Ideally, income from continuing operations would be the better income figure to use to project the future from the analysis of historical statements.

Question 40

Accountants have not accepted the role of disclosing the firm's capacity to make distributions to stockholders.

Question 41

For the income statement under IFRS, there is a required format.

Question 42

The accounting standard provides considerable flexibility in reporting comprehensive income.

Question 43

Under IFRS, equipment may be revalved.

Question 44

Noncontrolling interest relects income from ownership of noncontrolling shareholders in the equity of consolidated subsidaries less than wholly owned.

Question 45

Since the number of shares changes under both a stock dividend and a stock split, any ratio based on the number of shares must be restated.