Question 1

Prior years income statements are not restated for

Accepted Answer

Changes in estimates are not restated in prior years' income statements. Instead, the effects of changes in estimates are accounted for prospectively, in the period of change and future periods if the change affects both. Changes in accounting principles and corrections of errors, however, typically require restatement of prior periods to reflect the retrospective application of the new accounting principle or to correct the errors.

Question 2

Which of the following is included in comprehensive income?

Accepted Answer

Unrealized gains on non-trading equity securities are included in comprehensive income. Investments by owners and distributions to owners are not included in comprehensive income. Changes in accounting principles are not always included in comprehensive income, as they may be accounted for through retrospective adjustments to prior periods' financial statements.

Question 3

Comprehensive income includes all of the following except

Accepted Answer

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Therefore, investments by owners (C) do not fall under comprehensive income, while the other options (dividend revenue, losses on disposal of assets, and unrealized holding gains) are included.

Question 4

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 must be applied retrospectively, meaning that the cumulative effect of the change should be shown as an adjustment to the beginning balance of retained earnings for the earliest period presented in the financial statements. This is because the change affects all prior periods and thus the beginning balance of retained earnings represents the total impact of the change on those periods.

Question 5

Comprehensive income includes all of the following, except

Accepted Answer

Comprehensive income includes revenues and gains, expenses and losses, and unrealized gains and losses on non-trading equity securities. However, preference share dividends are not included in comprehensive income.

Question 6

Which of the following would appear first in a statement of retained earnings?

Accepted Answer

The statement of retained earnings begins with the opening balance, which is adjusted for any prior period adjustments before accounting for net income and dividends.

Question 7

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 8

A correction of an error in prior periods' income will be reported

Accepted Answer

The answer of A correction of an error in prior...

Question 9

Under IFRS other comprehensive income must be displayed (reported) in

Accepted Answer

The answer of Under IFRS other comprehensive income must be...

Question 10

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...

Question 11

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

Accepted Answer

Retained earnings statement includes net income or net profit, prior period adjustments, and dividends paid or declared. Discontinued operations do not affect the current period's retained earnings and therefore will not appear in the retained earnings statement.

Question 12

In 2015, Milford Corporation determined that it overstated salaries payable and salaries expense by $20,000 in 2014.In 2015, 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 2014 would have resulted in an understatement of net income and retained earnings. To correct this, Retained Earnings should be credited in 2015.

Question 13

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 error should be treated as a prior period adjustment, which means it should be reported on the income statement as an adjustment to the beginning balance of retained earnings, net of tax effect. This is because the error relates to a previous period, and the financial statements of that period cannot be amended.

Question 14

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

Accepted Answer

The combined statement of retained earnings only includes components of net income, not other comprehensive income. The other options, B and C, are both acceptable ways of displaying the components of other comprehensive income.

Quiz 4: Income Statement and Related Information