Deck 3: Statements of Income and Comprehensive Income

Question 1

Cost of goods sold and depreciation expense may be shown on the face of the financial statements or may be disclosed in the notes to the financial statements.

Answer 1

True

Question 2

An event is considered to occur infrequently if it would not reasonably be expected to recur in the foreseeable future, taking into account the entity's operating environment.

Answer 2

True

Question 3

The presentation of both net income and other comprehensive income is required under both IFRS and ASPE.

Answer 3

False

Question 4

Gross Profit must always be shown on the face of a single-step income statement.

Question 5

Other comprehensive income generally includes unrealized gains or losses which bypass the income statement.

Question 6

All OCI items must eventually be recycled to the income statement.

Question 7

Under IFRS, the statement of comprehensive income includes net income and other comprehensive income.

Question 8

Under IFRS, companies must use a single continuous statement to report comprehensive income.

Question 9

All OCI items are the result of transactions with owners.

Question 10

The operating losses and gain or loss from a discontinued operation must be shown net of tax in a distinct section on the statement of income.

Question 11

A discontinued operation under ASPE need not be a major line of business, geographic area or a business bought with a view to sale.

Question 12

Under IFRS, an expense item must be both presented and disclosed by nature and function.

Question 13

Finance costs must always be shown on the face of the income statement under IFRS.

Question 14

Earnings per share represent the portion of the income for a period attributable to a share of voting capital of an enterprise.

Question 15

Under ASPE, Assets held for sale may be current OR non-current.

Question 16

Changes to the valuation of all assets must be reported in comprehensive income under IFRS.

Question 17

The financial results of a discontinued segment must be reported separately on the income statement.

Question 18

When reporting net income for a fiscal year, companies must use a 12-month period.

Question 19

Under IFRS, depreciation expense and employee benefits expense may be shown on the face of the income statement OR may be disclosed separately in the notes to the financial statements.

Question 20

A company showing Cost of Goods Sold as a line item on the income statement has chosen to show its expense by nature.

Question 21

Once an asset has been abandoned, amortization stops and it is written down to its recoverable value.

Question 22

Other comprehensive income includes unrealized gains on losses of foreign exchange hedges.

Question 23

Other comprehensive income includes unrealized gains and losses on Available-for-sale securities.

Question 24

Correction of prior years' errors and changes in accounting principles are never reported on the statement of income.

Question 25

Interperiod tax allocation refers to the deferral and allocation of income tax expense to future periods while intraperiod tax allocation refers to the process of splitting up income tax expense across the different income statement categories.

Question 26

If an abandoned asset's recoverable value increases subsequent to abandonment, the asset may be written up to a maximum of the asset's original carrying value.

Question 27

Under ASPE, assets and liabilities forming part of a disposal group must be classified as current assets.

Question 28

Correction of prior years' errors and changes in accounting principles are not recorded net of any income tax effects.

Question 29

An income statement showing depreciation expense a line item is showing its expenses by nature.

Question 30

Basic and diluted Earnings per share figures must be disclosed under both ASPE and IFRS.

Question 31

Under both ASPE and IFRS, a discontinued operation must be a reportable segment.

Question 32

Under IFRS, the parent company's share of any profits or losses arising from joint ventures must be included on the face of Statement of Comprehensive Income.

Question 33

Total Comprehensive income must be allocated to both the parent and the non-controlling interest (NCI) shareholder groups.

Question 34

Both unusual and infrequent items must be reported net of income taxes.

Question 35

Unusual or infrequent items should be reported separately, but not net of income tax.

Question 36

The concept of intra-period tax allocation is based on the going concern principle.

Question 37

A natural disaster, such as a flood, will always be considered unusual or infrequent.

Question 38

Losses and provisions for losses with respect to bad debts and inventories should not be reported as unusual or infrequent.

Question 39

Depreciation is not taken on assets that are temporarily idle but have not been abandoned.

Question 40

Once any unrealized gains or losses included in Other Comprehensive Income are realized, they are transferred to the income statement.

Question 41

Which of the following may form part of a disposal group?

A) Accounts receivable which are expected to be sold to a factoring company.
B) A discontinued operating segment.
C) Stand-alone assets and liabilities that form a distinct group within part of an operating segment.
D) A discontinued operating segment and Stand-alone assets and liabilities that form a distinct group within part of an operating segment.

Question 42

Once an asset has been designated as held for sale it must be re measured to the lower of its carrying value and its fair value less costs to sell.

Question 43

A disposal group may include both current and non-current assets.

Question 44

When a segment of a business has been discontinued during the year and is sold at the end of that same year, the income or loss from the discontinued operations, one of the three amounts typically reported in the income statement, would not include:

A) the income or loss from operating the segment the entire year.
B) the income or loss from operating the segment from the beginning of the year to the date the decision was made to dispose of the segment.
C) the income or loss from operating the segment from the date the decision was made to dispose of the segment to the end of the year.
D) the difference between the sales price of the segment and the segment's book value.

Question 45

In the current year, a firm has decided to dispose of a segment. Disposal will take place in the next (subsequent) year. Use the following symbols to answer this question on reporting for discontinued operations: P = income on discontinued segment from beginning of current year to date of disposal decision
Q = income on discontinued segment from date of disposal decision to end of current year
R = estimated loss of discontinued segment sale of assets in subsequent year to date of disposal of segment
When determining the amount to disclose as the gain or loss on disposal of the segment for the current period, which of the following should be considered:

A) P, Q and R
B) P and Q only
C) Q and R only
D) None of P, Q or R

Question 46

Economic income excludes accounting income.

Question 47

Which of the following statements is/are correct?

A) Each asset and liability forming part of a disposal group must be remeasured individually.
B) All assets and liabilities forming part of a disposal group are remeasured as a whole.
C) Assets held for sale must be shown distinctly from Liabilities held for sale on the balance sheet. Both of these would be classified as non-current assets.
D) Assets and Liabilities held for sale may be netted against each other.

Question 48

The realization of a previously unrealized gain or loss during a given period has no effect on the company's total shareholder equity.

Question 49

Intraperiod income tax allocation:

A) involves the allocation of income taxes between current and future periods.
B) arises because items included in the determination of taxable income may be presented in different parts of the financial statements.
C) arises because certain revenues and expenses appear on the financial statements either before or after they are included on the income tax return.
D) involves items appearing above income from continuing operations in the income statement.

Question 50

The date on which a gain or loss from the disposal of a segment of a business is measured is the:

A) date that operations cease (if disposal is by abandonment).
B) last day of the fiscal year in which the decision to dispose is made plan.
C) date that the assets are sold.
D) date that the entity makes a formal commitment to disposal.

Question 51

After an asset held for sale has been written down, it must written back if its fair value less costs to sell subsequently increases under IFRS.

Question 52

Accounting income is a concept in which:

A) income is measured as the amount of "real wealth" that an entity could consume during a period and be as well off at the end of that period as it was at the beginning.
B) market values adjusted for the effects of inflation or deflation are used to calculate real wealth.
C) the transactions approach is used to record revenues, expenses, gains and losses throughout the reporting period.
D) income equals the change in market value of the firm's outstanding common stock for the period.

Question 53

Accounting income is a less complete measurement of wealth than is economic income.

Question 54

Interperiod income tax allocation:

A) involves the allocation of income taxes on certain taxable items of the same period.
B) generally has no effect on the balance sheet.
C) arises because certain revenues and expenses appear in the financial statements either before or after they are included on the income tax return.
D) involves only items appearing below income from continuing operations in the income statement.

Question 55

The issuance of new common shares and retirement of outstanding shares would be reported in comprehensive income.

Question 56

Only non-current assets may be reclassified as Assets Held for Sale.

Question 57

Historical cost is more useful for measuring economic income than fair values.

Question 58

Once an asset has been designated as held for sale, this classification is irrevocable.

Question 59

Other comprehensive income includes only unrealized gains and losses. When a previously unrecognized gain or loss is recognized later, this gain or loss will always be included in the company's net income in the year recognized.

Question 60

All elements of OCI must eventually be recycled to the income statement.

Question 61

When individual assets and liabilities within a disposal group change in value, these changes are:

A) ignored, since the disposal group will be sold as a whole.
B) charged to Retained Earnings.
C) charged to Other Comprehensive Income.
D) reflected on the income statement.

Question 62

A company started business on January 1, 2006. At the end of 2006, the accounting records provided the following unadjusted and pre-tax amounts: Sales revenue (cash), $186,000; cost of goods sold, $100,000; expenses (cash), $40,000; accrued wages, $6,000; accrued rent revenue, $2,000; and a 40 percent average income tax rate. What was the net income on accrual basis?

A) $22,800
B) $25,200
C) $27,600
D) $30,000

Question 63

King Corporation decided to sell its sporting goods business segment for $900,000, on September 1, Year 1, which is also the disposal date. The book value of the segment's net assets is $700,000 on this date. The pre-tax income for the segment for the period January 1 - September 1, Year 1, was $20,000. Assuming a tax rate of 40%, choose the correct reporting for discontinued operations in the income statement of King Corporation, for the year ended December 31, Year 1. $$\begin{array} { | l | l | } \hline &\text { Income (loss) from Discontinued operations } & \text { Gain (loss) from disposal of ciscontinued operations } \\\hline 1& \$ 20,000 & \$ 200,000 \\\hline 2& \$ 132,000 & \$ 0 \\\hline 3& \$ 12,000 & \$ 120,000 \\\hline 4 &\$ 0 & \$ 132,000 \\\hline\end{array}$$

A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4

Question 64

Basic and fully-diluted earnings per share under IFRS must be shown for:

A) net Income only.
B) total Comprehensive Income.
C) income from continuing operations only.
D) income from continuing operations and net earnings.

Question 65

Under IFRS, to qualify as a discontinued operation or disposal group, the proceeds of a sale must:

A) be recovered through a sale transaction.
B) be recovered through continuing use.
C) be recovered through a sale transaction or through continuing use.
D) be made in cash.

Question 66

Under IFRS, a discontinued operation must be a:

A) Product line.
B) Geographic segment.
C) Product line or Geographic segment.
D) Cash Generating Unit (CGU).

Question 67

A company which lost part of its accounting system in a fire is having trouble determining what its net income is for the current year. The following correct adjusted balances and additional information for the current year are available: $$\begin{array} { | l | l | l | } \hline & \text { Balances at Jan. 1 } & \text { Balances at DeC. 31 } \\\hline \text { Total as sets } & \$ 10,000 & \$ 27,000 \\\hline \text { Total liabilities } & 3,000 & 8,000 \\\hline\end{array}$$ Additional information for the year: $$\begin{array} { | l | l | } \hline \text { Stock dividend declared and distributed: } & \$ 5,000 \\\hline \text { Correction of prior years' error (cr.): } & 2,000 \\\hline \text { Cash dividends declared and distributed: } &7,000 \\\hline\end{array}$$ Other than earnings and the events listed above, no other events or transactions affected owners' Equity in the current year. What was net income for the current year?

A) $12,000
B) $22,000
C) $17,000
D) $16,000

Question 68

Under ASPE, foreign exchange translation gains or losses are charged to:

A) net earnings.
B) retained earnings.
C) other comprehensive Income.
D) a separate component of Shareholder equity entitled "Cumulative Translations Gains and Losses".

Question 69

Increases in the recoverable value of a total disposal group are:

A) recorded in net income.
B) recorded in net income but are limited to the carrying value of the disposal group on the date it was designated as held-for-sale.
C) ignored.
D) credited to Retained Earnings.

Question 70

Earnings per share reporting:

A) is mandatory for corporations following IFRS and requires two presentations (basic and fully diluted EPS) when a firm has a complex capital structure.
B) is required for all corporations with common stock outstanding.
C) reveals the relationship between retained earnings available to holders of common stock and the number of shares of common stock outstanding.
D) how the maximum dividend which may be paid.

Question 71

Ace Corporation decided to sell its medical supplies business segment for $500,000, on September 1, Year 1. The disposal date is November 1, Year 1. The book value of the segment's net assets is $650,000. The pre-tax income for the segment for the period January 1 - September 1, Year 1, was a loss of $90,000; the pre-tax income for the segment for September and October was a loss of $20,000. Assuming a tax rate of 40%, choose the correct reporting for discontinued operations in the income statement of Ace Corporation, for the year ended December 31, Year 1. $$\begin{array} { | l | l | } \hline &\text { Income (loss) from Discontinued operations } & \text { Gain (loss) from disposal of discontinued operations } \\\hline 1& ( \$ 90,000 ) & ( \$ 170,000 ) \\\hline 2 & \$ 0 & \$ \$ 144,000 ) \\\hline 3& ( \$ 66,000 ) & ( \$ 90,000 ) \\\hline 4& ( \$ 54,000 ) & \$ \$ 102,000 ) \\\hline\end{array}$$

A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4

Question 72

A company reported the following results of its operations for 2006: $$\begin{array} { | l | l | } \hline \text { Loss trom discontinued operations (pre-tas) } & \$ 9,000 \\\hline \text { Net income (atter tax) } & 32,600 \\\hline \text { ncome tax rate } & 40 \% \\\hline\end{array}$$ Income from continuing operations was:

A) $32,600.
B) $27,200.
C) $41,600.
D) $38,000.

Question 73

Queen Corporation decided to sell its furniture business segment for $400,000, on September 1, Year 1, which is also the disposal date. The book value of the segment's net assets is $500,000 on this date. The pre-tax income for the segment for the period January 1 - September 1, Year 1, was $150,000. Assuming a tax rate of 40%, choose the correct reporting for discontinued operations in the income statement of Queen Corporation, for the year ended December 31, Year 1. $$\begin{array} { | l | l | } \hline& \text { Income (loss) from Discontinued operations } & \text { Gain (loss) from disposal of ciscontinued operations } \\\hline 1& \$ 90,000 & \$ \$ 60,000 ) \\\hline 2& \$ 150,000 & \$ 100,000 ) \\\hline 3& \$ 30,000 & \$ 0 \\\hline 4& \$ 0 & \$ 30,000 \\\hline\end{array}$$

A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4

Question 74

Future costs associated with a restructuring can only be recognized if they:

A) will lead to a constructive obligation in the future.
B) will lead to a legal obligation in the future.
C) will lead to a constructive and legal obligation in the future.
D) will lead to a provision for restructuring cost.

Question 75

A review of the December 31, 2006, financial statements of a corporation revealed that under the caption "Exceptional and infrequent losses," a total of $130,000 was reported. Further analysis revealed that the $130,000 in losses was comprised of the following items:
(1) A loss of $25,000 incurred in the abandonment of equipment formerly used in the business.
(2) An unusual and infrequent occurrence, a loss of $37,500 was sustained as a result of damage to a warehouse by a falling meteorite.
(3) During 2006, several factories were shut down during a major strike by employees. Shutdown expenses totalled $60,000.
(4) Uncollectible accounts receivable of $7,500 were written off as uncollectible.
(5) Foreign exchange - translation gains: $10,000
(6) Decline in market value of Available-for-sale securities: $15,000
Ignoring income taxes, what amount would be shown as Other Comprehensive Income (Loss) on the statement of Comprehensive Income?

A) ($5,000)
B) $10,000
C) $15,000
D) $130,000

Question 76

Constructive obligations:

A) Arise from a reasonable expectation that a company will honour certain obligations based on past practices or events.
B) May result from legal requirements.
C) May or may not be legally enforceable.
D) Arise from a reasonable expectation that a company will honour certain obligations based on past practices or events and may or may not be legally enforceable.

Question 77

Given the following amounts from an income statement: $$\begin{array} { | l | l | } \hline \text { Sales (net of returns and allowances of } \$ 10 ) & \$ 336 \\\hline \text { Distribution expenses } & 76 \\\hline \text { Rent revenue } & 2 \\\hline \text { General and administrative expenses } & 36 \\\hline \text { interest revenue } & 1 \\\hline \text { Cost of goods sold } & 152 \\\hline \text { Interest expense } & 4 \\\hline \text { Loss on sale of irw estment } & 3 \\\hline \text { Income tax expense on operations } & 27 \\\hline \text { Exceptional item - Loss due to earthquake, pre-tax } & 5 \\\hline\end{array}$$ The amount shown on a single-step format income statement for income from continuing operations items would be:

A) $46.
B) $41.
C) $40.
D) $35.

Question 78

Given the following amounts from an income statement: $$\begin{array} { | l | l | } \hline \text { Sales (net of returns and allowances of } \$ 10 \text { ) } & \$ 690 \\\hline \text { Distribution expense } & 32 \\\hline \text { Cost of goods olds } & 264 \\\hline \text { Income tax on operations } & 56 \\\hline \text { Interest revenue } & 2 \\\hline \text { Loss trom Dis continued Operations, net of tax } & 10 \\\hline \text { Interest expense } & 8 \\\hline \text { General and administrative expenses } & 92 \\\hline \text { Loss of sale of investments } & 6 \\\hline\end{array}$$ The amount shown on a multiple-step format income statement for operating income from continuing operations would be:

A) $232.
B) $246.
C) $290.
D) $302.

Question 79

The results from operation of a discontinued segment under IFRS and any gain or loss on disposal or adjustment to fair value of the disposed segment should appear:

A) in one line on the statement of comprehensive income.
B) in two lines on the statement of comprehensive income.
C) in one or two lines on the statement of comprehensive income.
D) shown as part of other comprehensive income.

Question 80

IFRS 5 defines a discontinued operation as an operating segment of a company that:

A) has been sold.
B) is held for sale.
C) has been sold or is held for -sale.
D) is no longer under management control.