Question 1

When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as

Accepted Answer

The answer of When a company discontinues an operation and...

Question 2

Which of the following is included in comprehensive income?

Accepted Answer

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Unrealized gains on available-for-sale securities are included in comprehensive income. Changes in accounting principles are also included in comprehensive income.

Question 3

In 2011, Milford Corporation determined that it overstated salaries payable and salaries expense by $20,000 in 2010.In 2011, which of the following accounts will have to be credited to correct this error?

Accepted Answer

The overstatement of salaries payable and salaries expense in 2010 would have resulted in an understatement of net income and retained earnings. To correct this, Retained Earnings should be credited in 2011 to adjust for the prior period error.

Question 4

The earnings per share computation is not required for

Accepted Answer

The answer of The earnings per share computation is not...

Question 5

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

Accepted Answer

The retained earnings statement shows the beginning balance in retained earnings, plus or minus net income or loss, minus dividends and other adjustments (such as prior period adjustments). However, discontinued operations are reported separately in the income statement and are not included in the retained earnings statement. Therefore, choice C (discontinued operations) will not appear in the retained earnings statement.

Question 6

Changes in estimates affect reported amounts

Accepted Answer

Changes in estimates are accounted for in the period of change and future periods if the change affects both. This means they affect financial statements currently (in the period of change) and prospectively (in future periods), but not retrospectively.

Question 7

A change in accounting principle requires what kind of adjustment to the financial statements?

Accepted Answer

A change in accounting principle requires a retrospective adjustment, which means that the financial statements for prior periods must be restated to reflect the new accounting principle. This is because retrospective adjustments provide consistency and comparability to financial statements by ensuring that all periods are reported using the same accounting principle. Therefore, only option C is correct.

Question 8

Which of the following is true about intraperiod tax allocation?

Accepted Answer

Intraperiod tax allocation aims to relate the income tax expense to the items that affect the amount of tax. This occurs because certain revenue and expense items appear in the income statement either before or after they are included in the tax return. Intraperiod tax allocation is required for both cumulative effect of accounting changes and prior period adjustments. However, its purpose is not to allocate income tax expense evenly over a number of accounting periods.

Question 9

A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to

Accepted Answer

A change in accounting principle requires that the cumulative effect of the change be shown as an adjustment to beginning retained earnings for the earliest period presented in the financial statements. This adjustment is necessary to ensure that the financial statements are comparable to prior periods and that the cumulative effect of the change is properly reflected in the financial statements.

Question 10

Income taxes are allocated to

Accepted Answer

Income taxes are allocated to all of these categories: continuing operations, discontinued operations, and prior period adjustments.

Question 11

Given the following income statement line items:
Income from operations
Income before income taxes
Income from continuing operations
Income from discontinued operations
Net income
How many earnings per share amounts are required to be disclosed?

Accepted Answer

The answer of Given the following income statement line items:
Income...

Question 12

Undeclared dividends are deducted from net income in the earnings per share computation for which type of preference shares?

Accepted Answer

Undeclared dividends are deducted from net income in the earnings per share computation for cumulative preference shares because they have a priority claim on dividends that accrue but are not declared. Non-cumulative preference shares do not have this priority claim and therefore undeclared dividends are not deducted from net income in the earnings per share computation for non-cumulative preference shares.

Question 13

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

Accepted Answer

A combined statement of retained earnings only includes the components of net income and the changes in retained earnings, but not the components of other comprehensive income. The other options listed (B and C) are both acceptable ways of displaying the components of other comprehensive income.

Question 14

Prior years income statements are not restated for

Accepted Answer

Changes in estimates are accounted for in the period of change and future periods if affected, not by restating prior years' income statements.

Question 15

Companies use intraperiod tax allocation for all of the following items except

Accepted Answer

The answer of Companies use intraperiod tax allocation for all...

Question 16

Earnings per share relate to

Accepted Answer

Earnings per share (EPS) is a financial metric that relates to ordinary shares only. EPS is calculated by dividing a company's net income by its total number of outstanding ordinary shares. The resulting value represents the amount of earnings attributed to each outstanding ordinary share.

Question 17

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

Accepted Answer

The correction of the arithmetical error in the depreciation calculation is considered a correction of an error in a prior period (the prior year), so it should be treated as a prior period adjustment in the year in which it is discovered. This means that the correction should be reflected in the opening balances of the current year's financial statements, with no effect on the current year's income statement.

Question 18

Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?

Accepted Answer

The answer of Which of the following is a required...

Question 19

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

Accepted Answer

The answer of Which of the following does not appear...

Quiz 4: Income Statement and Related Information

When a company discontinues an operation and disposes of the discontinued operation (component) , the transaction should be included in the income statement as a gain or loss on disposal reported as