Question 1

Jaguar Corp. reported the following pretax amounts for the year ending December 31, 2011:
  
The income tax rate applicable to Jaguar is 30 percent. Prepare a partial income statement for the year ending December 31, 2011, beginning with "Income from continuing operations before income taxes." Include the presentation of earnings per share, assuming 50,000 shares were outstanding during the year.

Accepted Answer

The answer of Jaguar Corp. reported the following pretax amounts...

Question 2

Greene Enterprises, Inc., has two operating divisions, one manufactures machinery and the other is a trucking operation that has been used to ship finished product for the manufacturing operation. Both divisions are considered separate components as defined by SFAS No. 144. The management of Greene Enterprises wants to focus on the manufacturing operation and accordingly adopted a formal plan to sell the trucking division on November 15, 2011. The sale was completed on April 30, 2012. At December 31, 2011, the trucking component was considered as held for sale.
On December 31, 2011, the company's fiscal year-end, the book value of the assets of the trucking division was $250,000. On that date, the fair value of the assets, less costs to sell, was $200,000. The before-tax operating loss of the division for the year was $140,000. The company's tax rate is 40%. The after-tax income from continuing operations for 2011 was $400,000.
Prepare a partial income statement for 2011 beginning with income from continuing operations. Ignore EPS disclosures.

Accepted Answer

The answer of Greene Enterprises, Inc., has two operating divisions,...

Question 3

Which of the following is true regarding Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," accounting and reporting standards for discontinued operations?

Accepted Answer

A test for impairment is necessary if the fair value of a component is less than its book value, even if it hasn't been sold by year-end.

Question 4

The forecast of income for future periods begins with a forecast of sales. An accurate projection of sales is essential to the determination of the amount of assets needed to do business and the level of financing required.
What factors should be considered in preparing the forecast of sales?

Accepted Answer

The answer of The forecast of income for future periods...

Question 5

Panther Corp. purchased a patent on January 2, 2006, for $700,000. The original life of the patent was estimated to be 14 years. In December of 2011, the company received information that the patent would be obsolete within 4 years. Accordingly, the company decided to write off the unamortized portion of the patent cost over 5 years beginning in 2011.
How would the change in useful life be reflected in the accounts for 2011 and subsequent years?

Accepted Answer

The answer of Panther Corp. purchased a patent on January...

Question 6

Huntington Company has two divisions, A and B. The operations and cash flows of these two divisions are clearly distinguishable. On July 1, 2012, the company decided to dispose of the assets and liabilities of Division B. It is probable that the disposal will be completed early next year. The revenues and expenses of Huntington Company for 2012 and for the preceding two years are as follows:
  
During the latter part of 2012, Huntington disposed of a portion of Division B and recognized a pretax loss of $10,000 on the disposal. The income tax rate for Huntington Company is 40%.
Prepare the comparative income statements for Huntington Company for the years 2010, 2011, and 2012.

Accepted Answer

The answer of Huntington Company has two divisions, A and...

Question 7

The revenue principle states that revenue should be recognized at a point when

Accepted Answer

The revenue principle states that revenue should be recognized at a point when an exchange transaction involving goods and services has occurred and the earnings process is essentially complete. This means that the seller has delivered the goods or services to the buyer, and the buyer has accepted them, indicating that the transaction is complete. Choice B is not correct because an order does not necessarily mean that the transaction has been completed. Choice C is not correct because a contract may not necessarily involve the exchange of goods and services. Choice D is not correct because the seller has not yet received payment, indicating that the transaction is not complete.

Question 8

Blocker Enterprises, Inc., has two operating divisions, one manufactures farm machinery and the other manufactures office furniture. Both divisions are considered separate components as defined by SFAS No. 144. The management of Blocker Enterprises wants to focus on the manufacturing of farm machinery and accordingly adopted a formal plan to sell the office furniture division on September 20, 2011. The sale was completed on March 10, 2012. At December 31, 2011, the office furniture component was considered as held for sale.
On December 31, 2011, the company's fiscal year-end, the book value of the assets of the office furniture division was $1,000,000. On that date, the fair value of the assets, less costs to sell, was $800,000. The before-tax operating loss of the division for the year was $130,000. The company's tax rate is 40%. The after-tax income from continuing operations for 2011 was $350,000.
Prepare a partial income statement for 2011 beginning with income from continuing operations. Ignore EPS disclosures.

Accepted Answer

The answer of Blocker Enterprises, Inc., has two operating divisions,...

Question 9

The following data are available from the records of Jazz, Inc.:
  
Prepare a single-step income statement and a retained earnings statement for Jazz, Inc. for the year ended December 31, 2011.

Accepted Answer

The answer of The following data are available from the...

Question 10

The following data are available for Carlton Products, a partnership:
  
Compute the purchases and the net income for the partnership for 2010, 2011, and 2012, assuming that the firm sells its merchandise at 25 percent above cost.

Accepted Answer

The answer of The following data are available for Carlton...

Question 11

Which of the following categories of expenses is subject to immediate recognition on the income statement?

Accepted Answer

The salary of the company president is considered a period cost and is expensed immediately on the income statement, as it is not directly tied to the production process.

Question 12

Elwood P. Dowd Company has two divisions, J and K. The operations and cash flows of these two divisions are clearly distinguishable. On July 1, 2012, the company decided to dispose of the assets and liabilities of Division K. It is probable that the disposal will be completed early next year. The revenues and expenses of Dowd Company for 2009 and for the preceding two years are as follows:
  
During the latter part of 2012, Dowd disposed of a portion of Division K and recognized a pretax loss of $8,000 on the disposal. The income tax rate for Dowd Company is 40%.
Prepare the comparative income statements for Dowd Company for the years 2010, 2011, and 2012.

Accepted Answer

The answer of Elwood P. Dowd Company has two divisions,...

Question 13

The changes in the account balances and the following additional information are taken from the accounts of the Rainbow Co.
  
Dividends for 2012 were $82,500. There were no transactions in 2012 affecting retained earnings other than the dividends and net income. Calculate the 2012 net income.

Accepted Answer

The answer of The changes in the account balances and...

Question 14

A classic definition of income states that income is the amount one could consume at the end of a period and still be as well off as at the beginning of the period. Embedded in this definition of income is the concept of capital maintenance. Conceptually, income can occur only after the beginning capital has been recovered. When accountants adopt different measuring units, they are attempting to maintain different concepts of capital.
Identify the type of capital maintained when the measuring unit is (a) nominal dollars, (b) constant dollars, and (c) current costs. When would nominal cost and constant dollar measurements provide equivalent results?

Accepted Answer

The answer of A classic definition of income states that...

Question 15

Which of the following would be treated as an extraordinary item?

Accepted Answer

Expropriation of an entity's operations in a foreign country is an unusual and infrequent event that is not part of a company's ordinary operations, making it an extraordinary item. The write-down of inventory due to obsolescence, a loss resulting from a strike by workers against an entity, and the write-off of accounts receivable not expected to be collected are all considered ordinary expenses or losses that are part of a company's normal operations.

Question 16

Landon, Inc., has several operating divisions. In September 2011, the management of Landon decided on a formal plan to sell one of its divisions. This division is considered a separate component as defined by SFAS No. 144.
The sale was completed on December 10, 2011, at which time the division was sold for $900,000. The book value of the assets of the division was $1,000,000. The before-tax operating loss of the division for the period January 1, 2011 to the date of disposal was $130,000. The company's tax rate is 40%. The after-tax income from continuing operations for 2011 was $350,000.
Prepare a partial income statement for 2011 beginning with income from continuing operations. Ignore EPS disclosures.

Accepted Answer

The answer of Landon, Inc., has several operating divisions. In...

Question 17

All of the following would appear on a single-step income statement except

Accepted Answer

A single-step income statement does not show gross profit separately; it combines all revenues and subtracts all expenses to find net income.

Question 18

An example of direct matching of an expense with revenues would be

Accepted Answer

Direct labor costs incurred to produce inventory sold during a period are an example of direct matching of an expense with revenues because they are directly related to the goods produced and sold during a specific period. This means that the cost of labor can be directly linked to the revenue generated from the sale of the inventory. Depreciation, office salaries, and advertising expenses are indirect expenses that cannot be directly linked to revenues.

Question 19

The following pretax amounts pertain to the Brooke Corp. for the year ended December 31, 2011.
  
The effective corporate tax rate is 30 percent. The company had 10,000 shares of common stock outstanding for the entire year.

Accepted Answer

The answer of The following pretax amounts pertain to the...

Question 20

Provo Water Products had sales during 2011 of $895,000. Provo's gross profit percentage is 55 percent. Purchases of inventory during 2011 totaled $466,250 and a count of inventory on hand at the end of the year totaled $189,500. Selling expenses are 18 percent of sales and general and administrative expenses are equal to 80 percent of selling expenses. Provo's income tax rate is 30 percent and the company has 60,000 shares of common stock outstanding.
Prepare an income statement, including earnings per share data, for the year ended December 31, 2011.

Accepted Answer

The answer of Provo Water Products had sales during 2011...

Quiz 4: The Income Statement

Which of the following is true regarding Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," accounting and reporting standards for discontinued operations?

The forecast of income for future periods begins with a forecast of sales. An accurate projection of sales is essential to the determination of the amount of assets needed to do business and the level of financing required. What factors should be considered in preparing the forecast of sales?

The revenue principle states that revenue should be recognized at a point when

The following data are available from the records of Jazz, Inc.: Prepare a single-step income statement and a retained earnings statement for Jazz, Inc. for the year ended December 31, 2011.

The following data are available for Carlton Products, a partnership: Compute the purchases and the net income for the partnership for 2010, 2011, and 2012, assuming that the firm sells its merchandise at 25 percent above cost.

Which of the following categories of expenses is subject to immediate recognition on the income statement?

The changes in the account balances and the following additional information are taken from the accounts of the Rainbow Co. Dividends for 2012 were $82,500. There were no transactions in 2012 affecting retained earnings other than the dividends and net income. Calculate the 2012 net income.

Which of the following would be treated as an extraordinary item?

All of the following would appear on a single-step income statement except

An example of direct matching of an expense with revenues would be

The following pretax amounts pertain to the Brooke Corp. for the year ended December 31, 2011. The effective corporate tax rate is 30 percent. The company had 10,000 shares of common stock outstanding for the entire year.