Question 1

Income statements prepared under U.S.GAAP contain which of the following sections or categories, depending on the nature of a firm's earnings for the period?
A)income from continuing operations
B)income, gains, and losses from discontinued operations
C)extraordinary gains and losses
D)all of the above
E)none of the above

Accepted Answer

Income statements prepared under U.S.GAAP contain all of the sections or categories listed, depending on the nature of a firm's earnings for the period. Therefore, income from continuing operations, income, gains, and losses from discontinued operations, and extraordinary gains and losses are all included in the income statement.

Question 2

There are three formats available for both U.S.GAAP and IFRS reporting of the items that are included in Other Comprehensive Income.

Accepted Answer

There are two formats available for reporting items of Other Comprehensive Income under both U.S. GAAP and IFRS: the single-statement approach and the two-statement approach.

Question 3

Revenue and expense accounts
A)are permanent accounts.
B)are temporary accounts.
C)reflect cumulative changes in each account since the organization of the firm.
D)record all cash receipts and cash disbursements.
E)none of the above

Accepted Answer

Revenue and expense accounts are temporary accounts that are reset to zero at the end of each accounting period. They reflect revenue earned and expenses incurred during that period and are used to calculate the net income or loss for the period.

Question 4

Which of the following is/are true?
A)Cost is the economic sacrifice made to acquire goods or services
B)When the good or service acquired has reliably measurable future benefits to a firm, the cost is an asset.
C)When the firm consumes the good or service, the cost is an expense.
D)All of the above are true.
E)None of the above are true.

Accepted Answer

All of the statements are true in accounting. Cost is the economic sacrifice made to acquire goods or services, and when the good or service acquired has reliably measurable future benefits to a firm, the cost is an asset. However, when the firm consumes the good or service, the cost is an expense.

Question 5

The _____ convention, links the timing of some expenses with revenue recognition.
A)going concern
B)conservatism
C)matching
D)materiality
E)objectivity

Accepted Answer

The matching convention states that expenses should be recognized in the same period as the revenue they helped to generate. This ensures that the income statement accurately reflects the profitability of the business during a particular period.

Question 6

Income statements contain which of the following sections or categories, depending on the nature of a firm's earnings for the period?
A)income from continuing operations
B)income, gains, and losses from discontinued operations
C)extraordinary gains and losses
D)all of the above
E)none of the above

Accepted Answer

Income statements typically include all of the listed sections or categories, depending on a firm's earnings for the period. Income from continuing operations represents the primary source of revenue for ongoing business activities, while income, gains, and losses from discontinued operations relate to the disposal or cessation of separate parts of the company. Extraordinary gains and losses may arise from unusual events or transactions outside the ordinary course of business, such as natural disasters, lawsuits, or mergers.

Question 7

Which of the following is/are false?
A)Firms do not necessarily recognize revenues when they receive cash
B)Firms do not necessarily recognize expenses when they disburse cash.
C)Net income will not necessarily equal cash flow from operations each period.
D)A profitable firm will likely borrow funds in order to remain in business, but eventually operations must generate cash to repay the borrowing.
E)None of the above are false

Accepted Answer

All of the statements are true. Firms may recognize revenues and expenses on an accrual basis rather than on a cash basis, resulting in differences between cash flow and revenue or expenses recognized. Net income and cash flow from operations can differ due to non-cash items or changes in working capital. A profitable firm may borrow funds for investment or growth, but ultimately must generate cash from operations to repay debt.

Question 8

U.S.GAAP and IFRS require firms in some instances to change the carrying value of certain assets and liabilities.Both sets of accounting standards preclude the recognition of these changes in net income, and therefore in retained earnings.

Accepted Answer

Both U.S.GAAP and IFRS do not allow changes in the carrying value of certain assets and liabilities to be recognized in net income or retained earnings.

Question 9

U.S.GAAP and IFRS distinguish between revenues and expenses on the one hand and gains and losses on the other.Which of the following is/are true?
A)Revenues and expenses result from the recurring, primary operating activities of a business.
B)Income items include the ordinary, recurring operating activities of the firm.
C)Gains and losses result from either peripheral activities or nonrecurring activities.
D)The reporting of revenues and expenses are at gross amounts, and firms report gains and losses at net amounts.
E)all of the above

Accepted Answer

All the statements provided are true. A) Revenues and expenses indeed result from the recurring, primary operating activities of a business, highlighting the core operations that generate most of the company's income. B) Income items, which include revenues and expenses, are related to the ordinary, recurring operating activities of the firm, emphasizing the regularity and centrality of these activities to the business. C) Gains and losses are typically recognized from activities that are either peripheral to the main business operations or are nonrecurring, distinguishing them from the regular flow of revenues and expenses. D) The reporting distinction where revenues and expenses are reported at gross amounts, while gains and losses are reported at net amounts, is also accurate, reflecting the different nature and implications of these items for financial reporting and analysis.

Question 10

Which of the following concepts best characterizes the accrual basis of accounting?
A)Conservatism
B)Matching
C)Understandability
D)Going concern
E)Unit of measurement

Accepted Answer

The accrual basis of accounting is based on the matching concept, which requires that expenses be recognized in the period in which they generate revenues. This means that revenues and expenses are recorded when they are earned or incurred, regardless of when cash is received or paid. The matching principle is important for accurate measurement of a company's profitability and financial position.

Question 11

_____ arise from relatively infrequent transactions, and there can be no assurance that they will recur in any future period.
A)Gains/Losses
B)Revenues
C)Expenses
D)Assets
E)Liabilities

Accepted Answer

Gains and losses arise from relatively infrequent transactions, such as the sale of a long-term asset or a one-time legal settlement. Unlike revenues and expenses, gains and losses do not result from the normal operations of a business and cannot be reliably predicted to recur in future periods.

Question 12

Which of the following is/are true?
A)Revenues measure the inflow of net assets from operating activities.
B)Expenses measure the outflow of net assets consumed in the process of generating revenues.
C)Recognizing revenues and expenses always involves a simultaneous entry in an asset and/or liability account.
D)Adjusting entries almost always involve an entry in at least one income statement and one balance sheet account.
E)All of the above are true.

Accepted Answer

A) Revenues reflect the inflow of net assets from a company's operating activities, such as sales of goods or services. 
B) Expenses reflect the outflow of net assets consumed in the process of generating revenues, such as the cost of goods sold or operating expenses. 
C) Recognizing revenues and expenses does not always involve a simultaneous entry in an asset and/or liability account. For example, expenses can be recognized through a decrease in assets or an increase in liabilities, while revenues can be recognized through an increase in assets or a decrease in liabilities. 
D) Adjusting entries usually involve an entry in at least one balance sheet account and one income statement account to adjust for timing differences or to bring accounts up to date. Therefore, all of the given statements are true.

Question 13

The firm recognizes an expense when the following condition(s) hold(s).
A)The consumption of the asset results from a transaction that leads to the recognition of revenue.
B)The consumption of the asset results from the passage of time.
C)The expenditures on advertising must be recognized as expense in the period of expenditure.
D)The expenditures on research must be recognized as expense in the period of expenditure.
E)all of the above

Accepted Answer

All the conditions listed (A, B, C, D) are situations where a firm would recognize an expense. Expenses are recognized when they are incurred, which can be due to the consumption of an asset in generating revenue, the passage of time, or specific expenditures such as advertising and research during the period they are made.

Question 14

U.S.GAAP and IFRS distinguish between revenues and expenses on the one hand and gains and losses on the other.Which of the following is/are not true?
A)Revenues and expenses result from the recurring, primary operating activities of a business.
B)Income items include the ordinary, recurring operating activities of the firm.
C)Gains and losses result from either peripheral activities or nonrecurring activities.
D)The reporting of revenues and expenses are at gross amounts, and firms report gains and losses at net amounts.
E)Gains and losses result from the recurring, primary operating activities of a business.

Accepted Answer

The statement "Gains and losses result from the recurring, primary operating activities of a business" is not true. Gains and losses typically result from either peripheral activities or nonrecurring activities, and are not considered to be part of the ordinary, recurring operating activities of a firm.

Question 15

_____ reflect the decrease in shareholders' equity resulting from the decrease in the net assets consumed during the generation of income.
A)Revenues
B)Expenses
C)Dividends
D)Liabilities
E)Common stock

Accepted Answer

Expenses reflect the decrease in shareholders' equity resulting from the decrease in the net assets consumed during the generation of income. Revenues represent an increase in shareholders' equity, while dividends are distributions of profits to shareholders and do not necessarily reflect a decrease in equity. Liabilities and common stock represent sources of financing and do not directly reflect a decrease in equity due to the consumption of net assets.

Question 16

The matching convention assigns _____ to the related _____.
A)expenses; revenues
B)revenues; revenues
C)assets; liabilities
D)liabilities; assets
E)assets; shareholders' equity

Accepted Answer

The matching convention requires that expenses be matched with the revenues they helped generate, therefore assigning expenses to revenues.

Question 17

A seller of goods can easily associate (or match) the consumption of the benefits of the asset sold with revenues from its sale.At the time of sale and revenue recognition, the seller
A)removes the asset (inventory) from the seller's balance sheet.
B)recognizes revenue.
C)recognizes a reduction in an asset (inventory).
D)records the cost of goods sold expense in the same amount by which inventory decreases.
E)all of the above

Accepted Answer

All of the options listed are typically done at the time of sale and revenue recognition. The seller removes the asset (inventory) from their balance sheet as it has now been sold to a customer. Revenue is recognized at the time of sale, typically the sales price of the item sold. This also results in a reduction in inventory, since the item is no longer in the seller's possession. Finally, the cost associated with the sale is recognized as Cost of Goods Sold, which is usually recorded as an expense in the same amount by which inventory decreases.

Question 18

What criteria must sales transactions meet in order for the seller to recognize revenues before collecting cash?
A)The revenues must be earned (the firm must have achieved substantial performance).
B)The amount to be received must qualify as an asset (there must be a future economic benefit and the amount must be measured with sufficient reliability).
C)The firm must have a reasonable expectation that it will collect the amount owed from the customer.
D)all of the above
E)none of the above

Accepted Answer

All three criteria (earned revenue, qualifying as an asset, and reasonable expectation of collection) must be met for a seller to recognize revenues before collecting cash. If any one of these criteria is not met, the seller cannot recognize revenue before cash collection.

Question 19

When assets and income from operations that a firm has decided to discontinue (and dispose of or abandon), separating the two income components allows users to form better predictions of
A)past earnings.
B)current earnings.
C)future earnings.
D)all of the above
E)none of the above

Accepted Answer

Separating the income components of discontinued operations can help users form better predictions of future earnings. By removing the impact of discontinued operations, users can better understand the ongoing earnings potential of the company, which can help with forecasting future earnings. Separating the income components is less useful for predicting past earnings or current earnings, as those periods have already passed or are currently being reported.

Question 20

Income statements prepared under IFRS contain which of the following sections or categories, depending on the nature of a firm's earnings for the period?
A)income from continuing operations
B)income, gains, and losses from discontinued operations
C)separate disclosure of material income items
D)all of the above
E)none of the above

Accepted Answer

Income statements prepared under IFRS can include all three sections/categories listed in the question, depending on the nature of the firm's earnings for the period. Income from continuing operations refers to the ongoing earnings from the business's normal operations, while income, gains, and losses from discontinued operations are from businesses or segments that the company has sold or plans to sell. Separate disclosure of material income items refers to providing additional details about significant earnings items.

Quiz 5: Income Statement: Reporting Results of Operating Activities

Income statements prepared under U.S.GAAP contain which of the following sections or categories, depending on the nature of a firm's earnings for the period?

There are three formats available for both U.S.GAAP and IFRS reporting of the items that are included in Other Comprehensive Income.

Revenue and expense accounts

Which of the following is/are true?

The _____ convention, links the timing of some expenses with revenue recognition.

Income statements contain which of the following sections or categories, depending on the nature of a firm's earnings for the period?

Which of the following is/are false?

U.S.GAAP and IFRS require firms in some instances to change the carrying value of certain assets and liabilities.Both sets of accounting standards preclude the recognition of these changes in net income, and therefore in retained earnings.

U.S.GAAP and IFRS distinguish between revenues and expenses on the one hand and gains and losses on the other.Which of the following is/are true?

Which of the following concepts best characterizes the accrual basis of accounting?

_____ arise from relatively infrequent transactions, and there can be no assurance that they will recur in any future period.

Which of the following is/are true?

The firm recognizes an expense when the following condition(s) hold(s) .

U.S.GAAP and IFRS distinguish between revenues and expenses on the one hand and gains and losses on the other.Which of the following is/are not true?

_____ reflect the decrease in shareholders' equity resulting from the decrease in the net assets consumed during the generation of income.

The matching convention assigns _ to the related _.

A seller of goods can easily associate (or match) the consumption of the benefits of the asset sold with revenues from its sale.At the time of sale and revenue recognition, the seller

What criteria must sales transactions meet in order for the seller to recognize revenues before collecting cash?

When assets and income from operations that a firm has decided to discontinue (and dispose of or abandon) , separating the two income components allows users to form better predictions of

Income statements prepared under IFRS contain which of the following sections or categories, depending on the nature of a firm's earnings for the period?