Question 1

Each of the following would be reported as items of other comprehensive income except:

Accepted Answer

Gains from the sale of equipment are not reported as items of other comprehensive income. They are reported as part of net income in the income statement. Other comprehensive income includes gains or losses that are not included in net income, such as foreign currency translation adjustments, net unrealized holding gains on investments, and deferred gains from derivatives.

Question 2

A change in accounting principle that is implemented using the retrospective approach includes:

Accepted Answer

The retrospective approach involves restating financial statements of all periods presented as if the new standard had been used in those periods. This approach provides a more accurate representation of the company's financial position and results of operations. Choices A, B, and D do not accurately reflect the retrospective approach.

Question 3

Comprehensive income is the change in equity from:

Accepted Answer

Comprehensive income includes all transactions affecting equity that are not owner transactions, such as gains or losses from investments and foreign currency translation adjustments. Therefore, comprehensive income is primarily composed of nonowner transactions.

Question 4

Which of the following is not true about EPS?

Accepted Answer

EPS does not have to be reported on operating income. EPS is calculated by dividing the net income of a company by the number of outstanding shares of stock. However, if a company has discontinued operations, the EPS must be reported separately for those operations. Additionally, all publicly traded corporations are required to report their EPS.

Question 5

The statement of cash flows reports cash flows from the activities of:

Accepted Answer

The statement of cash flows reports cash flows from financing activities, investing activities, and operating activities. These three categories cover all the important activities that result in cash inflows and outflows for the organization.

Question 6

In comparing the direct method with the indirect method of preparing the statement of cash flows:

Accepted Answer

The direct and indirect methods differ only in the presentation of cash flows from operating activities; investing and financing activities are presented the same way under both methods.

Question 7

Changes in estimates are accounted for using which approach?

Accepted Answer

Changes in estimates are accounted for using the prospective approach, meaning they are applied to the current and future periods only, not to past periods.

Question 8

Operating cash outflows would include:

Accepted Answer

Purchases of inventory are considered operating cash outflows as they are part of the day-to-day business operations.

Question 9

For the statement of cash flows, short-term Treasury bills would be included as:

Accepted Answer

Short-term Treasury bills are typically considered to be cash equivalents because they are highly liquid and have a maturity of less than three months. Therefore, they would be included in the cash and cash equivalents section of the statement of cash flows.

Question 10

The Maytag Corporation's income statement includes income from continuing operations and a loss on discontinued operations. Earnings per share information would be provided for:

Accepted Answer

Earnings per share (EPS) information is typically provided for income from continuing operations, loss on discontinued operations, and net income to give a clear picture of a company's profitability and financial health from all aspects of its operations.

Question 11

A change in accounting principle that is implemented using the modified retrospective approach includes:

Accepted Answer

The modified retrospective approach requires applying the new accounting principle to the adoption period and recognizing the cumulative effect of the adjustment in the beginning balance of retained earnings of the period of adoption, while not restating the financial statements of prior periods. Option A is incorrect as it does not adjust for the cumulative effect on prior periods. Option C is incorrect as it involves restating financial statements of all periods presented. Option D is incorrect as it does not account for the change at all.

Question 12

Reporting comprehensive income according to International Financial Reporting Standards (IFRS) can be accomplished by each of the following methods except:

Accepted Answer

Under IFRS, comprehensive income can be reported either in a single statement of comprehensive income or in two separate statements (a statement of profit or loss and a separate statement of comprehensive income). Reporting comprehensive income in the statement of shareholders' equity is not an option provided by IFRS.

Question 13

Misty Company reported the following before-tax items during the current year:  
-Misty's effective tax rate is 40%. What is Misty's income from continuing operations?

Accepted Answer

($600 - 250 - 20) × (1 - 0.4) = $198

Question 14

Cendant Corporation's results for the year ended December 31, 2018, include the following material items:  Cendant Corporation's income from continuing operations before income taxes for 2018 is:

Accepted Answer

$6,200,000 - 3,800,000 - 1,300,000 - 200,000 - 80,000 = $820,000

Question 15

Operating cash flows would not include:

Accepted Answer

Operating cash flows include cash transactions related to the normal business operations of a company. While interest received (A) and paid (B), and dividends received (D) are considered operating activities for most companies, dividends paid (C) are classified as financing activities, not operating activities.

Question 16

Misty Company reported the following before-tax items during the current year:  
-Misty's effective tax rate is 40%. What is Misty's net income for the current year?

Accepted Answer

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Question 17

When a material error is discovered in prior financial statements:

Accepted Answer

When a material error is discovered in prior financial statements, the appropriate action is to restate those financial statements to their correct amounts. This could include adjusting income effects to the current period's beginning balance of retained earnings, but that would not necessarily be the first step to take. Additionally, assets and liabilities in the current period would not be restated unless there was a separate error discovered in the current period's financial statements.

Question 18

Reporting comprehensive income can be accomplished by each of the following methods except:

Accepted Answer

Comprehensive income cannot be reported in the statement of shareholders' equity. It must be reported either in a single continuous statement or in two separate but consecutive statements.

Question 19

Change statements include a:

Accepted Answer

Change statements refer to financial statements that show changes over a period of time, which include the cash flow statement, income statement, and retained earnings statement.

Question 20

Reconciliation between net income and comprehensive income would include:

Accepted Answer

Reconciliation between net income and comprehensive income includes both unrealized holding losses and unrealized holding gains on investments. This is because both of these items represent changes in the value of investments that are not realized through actual sales or disposition of the investments. The purpose of reconciling net income and comprehensive income is to provide a more complete picture of an entity's financial performance, including all changes in value of investments that have not yet been realized.

Quiz 4: The Income Statement, Comprehensive Income, and the Statement of Cash Flows