Question 1

Lansing Corporation reported depreciation expense of $50,000 to compute pretax accounting income and depreciation expense of $90,000 to compute taxable income. Lansing's tax rate is 40%. Lansing will report a:

Accepted Answer

The difference in depreciation expense ($90,000 - $50,000 = $40,000) creates a temporary difference. The tax effect of this difference is $40,000 * 40% = $16,000, resulting in a deferred tax liability.

Question 2

Elkhorn Corporation has pretax accounting income of $636,000 and taxable income of $748,000. The company's income tax rate is 35%. The entry to record the income tax includes a:

Accepted Answer

The answer of Elkhorn Corporation has pretax accounting income of...

Question 3

A company's change in total stockholders' equity from all sources other than from the owners of the business is:

Accepted Answer

Comprehensive income includes all changes in equity during a period from non-owner sources, such as unrealized gains or losses on investments or changes in foreign currency translation. It is reflected in the statement of comprehensive income, which reports changes in equity from all sources.

Question 4

Comprehensive income is:

Accepted Answer

Comprehensive income is reported in the financial statements, but it is not used in the calculation of net income or earnings per share. It includes all changes in equity during a period from transactions and events outside of the normal operations of a business.

Question 5

Walters Ltd. has taxable income of $482,000 and pretax accounting income of $566,000. The company's income tax rate is 35%. The entry to record the income tax includes a:

Accepted Answer

The taxable income is multiplied by the tax rate to calculate the income tax owed, which is $482,000 * 35% = $168,700. This amount is then credited to Income Tax Payable since it represents a liability owed to the government. Therefore, choice D is the correct answer.

Question 6

Corrections to the beginning balance of Retained Earnings for errors of an earlier period are called:

Accepted Answer

Prior-period adjustments are made to correct errors in the Retained Earnings balance from earlier accounting periods. These adjustments are reflected in the current period's financial statements. Cumulative error adjustments and extraordinary items are not specific to Retained Earnings, while cumulative effect of change in accounting principle refers to a different type of accounting adjustment altogether.

Question 7

The statement of retained earnings is more comprehensive than the statement of stockholders' equity.

Accepted Answer

The statement of stockholders' equity is more comprehensive as it includes all changes in equity, while the statement of retained earnings focuses only on changes in retained earnings.

Question 8

Deferred tax liability is normally classified as a ________ and income tax payable is classified as a ________ on the balance sheet.

Accepted Answer

Deferred tax liability is expected to be paid beyond one year and hence classified as a long-term liability on the balance sheet. Income tax payable, on the other hand, is expected to be paid within one year and hence classified as a current liability.

Question 9

The amount of cash dividends declared during the period is reflected in the statement of stockholders' equity and the amount of cash dividends paid is reflected in the statement of cash flows.

Accepted Answer

This statement is true. The amount of cash dividends declared is reported in the statement of stockholders' equity, while the amount of cash dividends paid is reported in the statement of cash flows.

Question 10

Honest Sam's Corporation has pretax accounting income of $395,000 and taxable income of $375,000. The company's income tax rate is 35%. The entry to record the income tax includes a:

Accepted Answer

The difference between pretax accounting income and taxable income is $20,000 ($395,000 - $375,000). The deferred tax liability is calculated as $20,000 * 35% = $7,000. Thus, a credit to Deferred Tax Liability for $7,000 is needed.

Question 11

Net income was understated in the previous year. The entry to record the correction includes a:

Accepted Answer

Net income that was understated in the previous year means that the company earned more than previously reported. To correct for this, retained earnings need to be increased, therefore, a credit to retained earnings should be made.

Question 12

1.tax liabilities?

Accepted Answer

The answer of 1.tax liabilities?
...

Question 13

Prior-period adjustments are added to or deducted from:

Accepted Answer

Prior-period adjustments are corrections made to previously reported financial statements. These adjustments are made to correct errors made in the prior period, and the adjustments are recorded in the current period. The effect of these adjustments is to adjust the beginning retained earnings balance of the current period.

Question 14

Comprehensive income includes net income:

Accepted Answer

Comprehensive income takes into account all gains and losses, including unrealized gains and losses on available-for-sale investments and foreign-currency translation adjustments, in addition to net income. Therefore, the best answer is taking into account all of the above, which is choice D.

Question 15

Net income decreases stockholders' equity while a net loss increases stockholders' equity.

Accepted Answer

This statement is actually incorrect. Net income actually increases stockholders' equity while a net loss decreases stockholders' equity.

Question 16

Net income was overstated in the previous year. The entry to record the correction includes a:

Accepted Answer

When net income is overstated, Retained Earnings must be debited to reduce it, correcting the overstatement.

Question 17

A statement of stockholder's equity reports all items affecting stockholders' equity for a period.

Accepted Answer

A statement of stockholder's equity is a financial statement that reports all changes that have occurred in stockholders' equity over a period of time. This includes items such as net income, dividends, stock issuances, and stock buybacks. The purpose of the statement is to show how the company's equity has changed during the period and to provide insight into the company's overall financial health.

Question 18

Aziz Corporation has taxable income of $525,000 and pretax accounting income of $495,000. The company's income tax rate is 35%. The entry to record the income tax includes a:

Accepted Answer

The taxable income is $525,000, so the income tax payable is $525,000 * 35% = $183,750. Therefore, the entry includes a credit to Income Tax Payable for $183,750.

Question 19

When income tax payable exceeds income tax expense:

Accepted Answer

When income tax payable exceeds income tax expense, it indicates that the company has paid more taxes than it has expensed, leading to a deferred tax asset.

Question 20

The foreign-currency translation adjustment is part of other comprehensive income.

Accepted Answer

The foreign-currency translation adjustment is a component of other comprehensive income, which is reported as a separate section of the statement of comprehensive income. Therefore, the statement is true.

Quiz 11: The Income Statement the Statement of Stockholders Equity