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
A)a prior period adjustment.
B)an other income and expense item.
C)an amount after continuing operations and before net income.
D)a bulk sale of plant assets included in income from continuing operations.

Accepted Answer

When a company discontinues an operation, the gain or loss on disposal is reported separately from continuing operations, after income from continuing operations and before net income, to provide clear information about the results of discontinued operations.

Question 2

Which of the following earnings per share figures must be disclosed on the face of the income statement?
A)EPS for income before taxes.
B)The effect on EPS from unusual items.
C)EPS for gross profit.
D)EPS for income from continuing operations.

Accepted Answer

EPS for income from continuing operations must be disclosed on the face of the income statement according to Generally Accepted Accounting Principles (GAAP). EPS for other categories such as gross profit or income before taxes are not required to be displayed on the face of the statement. The effect of unusual items can be presented separately or combined with the EPS from continuing operations.

Question 3

The occurrence which most likely would have no effect on 2015 net income (assuming that all amounts involved are material) is the
A)sale in 2015 of an office building contributed by a stockholder in 1987.
B)collection in 2015 of a receivable from a customer whose account was written off in 2014 by a charge to the allowance account.
C)settlement based on litigation in 2015 of previously unrecognized damages from a serious accident which occurred in 2013.
D)worthlessness determined in 2015 of stock purchased on a speculative basis in 2011.

Accepted Answer

The collection of a receivable that was previously written off does not affect net income, as it is recorded as a recovery of bad debts, which is a balance sheet adjustment.

Question 4

Earnings per share relate to
A)preference shares only.
B)ordinary shares only.
C)both preference and ordinary shares.
D)neither preference nor ordinary shares.

Accepted Answer

Earnings per share is a measure of a company's profitability that is calculated by dividing its net income by the number of outstanding ordinary shares. It only relates to ordinary shares and not preference shares.

Question 5

Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?
A)The gain or loss on disposal should be reported as an other income item.
B)Results of operations of a discontinued component should be disclosed immediately below income from operations.
C)Earnings per share from both continuing operations and net income should be disclosed on the face of the income statement.
D)The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations.

Accepted Answer

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

Question 6

A change in accounting principle requires what kind of adjustment to the financial statements?
A)Current period adjustment.
B)Prospective adjustment.
C)Retrospective adjustment.
D)Current and prospective adjustment.

Accepted Answer

A change in accounting principle requires a retrospective adjustment, which means that the adjustment is made to prior period financial statements to reflect the impact of the new accounting principle. This is because the financial statements of prior periods should have been prepared using the newly adopted accounting principle. The adjustment is not made prospectively, meaning that it is not made only for the current period or future periods.

Question 7

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?
A)5
B)4
C)3
D)2

Accepted Answer

Three earnings per share amounts are required to be disclosed: earnings per share from continuing operations, earnings per share from discontinued operations, and earnings per share for net income.

Question 8

Which of the following is not a generally practiced method of presenting the income statement?
A)Including prior period adjustments in determining net income.
B)The condensed income statement.
C)The consolidated income statement.
D)Including gains and losses from discontinued operations of a component of a business in determining net income.

Accepted Answer

Including prior period adjustments in determining net income is not a generally practiced method for presenting the income statement. Prior period adjustments are typically reflected directly in retained earnings rather than affecting the current period's net income. They are adjustments made to correct errors in previously issued financial statements.

Question 9

Gains or losses on the disposal of investments should be shown in the income statement

Accepted Answer

The answer of Gains or losses on the disposal of...

Question 10

Companies use intraperiod tax allocation for all of the following items except
A)discontinued operations.
B)prior period adjustments.
C)changes in accounting estimates.
D)income from continuing operations.

Accepted Answer

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

Question 11

The earnings per share computation is not required for
A)Net income.
B)Gain on disposal of discontinued operation, net of tax.
C)Income from continuing operations.
D)Income from operations.

Accepted Answer

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

Question 12

Which of the following is not a selling expense?
A)Advertising expense.
B)Office salaries expense.
C)Freight-out.
D)Store supplies consumed.

Accepted Answer

Office salaries expense is considered an administrative expense, not a selling expense. Advertising expense, freight-out, and store supplies consumed are all examples of selling expenses.

Question 13

Undeclared dividends are deducted from net income in the earnings per share computation for which type of preference shares?
A)Non-cumulative only.
B)Cumulative only.
C)Neither non-cumulative nor cumulative.
D)Both non-cumulative and cumulative.

Accepted Answer

Undeclared dividends are deducted from net income in the earnings per share computation only for cumulative preference shares, as the dividends on cumulative preference shares accrue if they are not paid out and must be paid before any dividends are paid to common shareholders. Non-cumulative preference shares do not accrue and therefore do not have undeclared dividends to deduct from net income for earnings per share computation.

Question 14

Income taxes are allocated to
A)continuing operations.
B)discontinued operations.
C)prior period adjustments.
D)All of these answers are correct.

Accepted Answer

Income taxes are allocated to continuing operations, discontinued operations, and prior period adjustments, as they affect all these areas of financial reporting.

Question 15

In which section of the income statement is interest expense reported?
A)Gross profit.
B)Income from operations.
C)Income before income taxes.
D)Non-controlling interest.

Accepted Answer

Interest expense is reported in the section of the income statement called income before income taxes. This section comes after income from operations and includes all income and expenses not directly related to the company's core operations. Interest expense is a non-operating expense that represents the cost of borrowing money, which reduces the company's taxable income. Therefore, it is reported in the income before income taxes section.

Question 16

The accountant for the Lintz Sales Company is preparing the income statement for 2015 and the statement of financial position at December 31, 2015.The January 1, 2015, merchandise inventory balance will appear
A)only as an asset on the statement of financial position.
B)only in the cost of goods sold section of the income statement.
C)as a deduction in the cost of goods sold section of the income statement and as a current asset on the statement of financial position.
D)as an addition in the cost of goods sold section of the income statement and as a current asset on the statement of financial position.

Accepted Answer

The January 1, 2015, merchandise inventory balance is used to calculate the cost of goods sold in the income statement, not as a current asset on the statement of financial position.

Question 17

Which of the following is true about intraperiod tax allocation?
A)It arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return.
B)It is required for the cumulative effect of accounting changes but not for prior period adjustments.
C)Its purpose is to allocate income tax expense evenly over a number of accounting periods.
D)Its purpose is to relate the income tax expense to the items which affect the amount of tax.

Accepted Answer

Intraperiod tax allocation is required to relate the income tax expense to the items which affect the amount of tax, such as differences between financial reporting and tax reporting. This allocation helps to provide a more accurate representation of a company's financial position and performance by properly matching tax expenses with the associated revenues and expenses.

Question 18

If a company prepares a consolidated income statement, IFRS requires that net income be reported for
A)the majority interest only.
B)the minority interest only.
C)both the majority interest and the minority interest.
D)as a single amount only.

Accepted Answer

Under IFRS, a consolidated income statement should report both the net income attributable to the majority interest and the net income attributable to the minority interest. This is because a consolidated financial statement presents the financial position, results of operations, and cash flows of a group of entities as if they were a single entity, thus including the financial information of both the parent company and its subsidiaries. The net income attributable to the minority interest represents the portion of the subsidiary's net income that is not owned by the parent company.

Question 19

Earnings per share should always be shown separately for
A)net income and gross profit.
B)net income and pretax income.
C)income from continuing operations.
D)discontinued operations and prior period adjustments.

Accepted Answer

Earnings per share (EPS) is required to be shown separately for income from continuing operations to provide clarity on the profitability of ongoing business activities.

Question 20

The occurrence that most likely would have no effect on 2015 net income is the
A)sale in 2015 of an office building contributed by a stockholder in 1966.
B)collection in 2015 of a dividend from an investment.
C)correction of an error in the financial statements of a prior period discovered subsequent to their issuance.
D)stock purchased in 2001 deemed worthless in 2015.

Accepted Answer

The correction of an error in the financial statements of a prior period is typically treated as a prior period adjustment and does not affect the current year's net income.

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

Which of the following earnings per share figures must be disclosed on the face of the income statement?

The occurrence which most likely would have no effect on 2015 net income (assuming that all amounts involved are material) is the

Earnings per share relate to

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

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

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?

Which of the following is not a generally practiced method of presenting the income statement?

Gains or losses on the disposal of investments should be shown in the income statement

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

The earnings per share computation is not required for

Which of the following is not a selling expense?

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

Income taxes are allocated to

In which section of the income statement is interest expense reported?

The accountant for the Lintz Sales Company is preparing the income statement for 2015 and the statement of financial position at December 31, 2015.The January 1, 2015, merchandise inventory balance will appear

Which of the following is true about intraperiod tax allocation?

If a company prepares a consolidated income statement, IFRS requires that net income be reported for

Earnings per share should always be shown separately for

The occurrence that most likely would have no effect on 2015 net income is the