Question 1

Hedging foreign currency transactions can be accomplished by:

Accepted Answer

Hedging foreign currency transactions can be achieved through various methods, including maintaining equal amounts of receivables and payables in foreign currencies, purchasing futures contracts, and buying foreign currencies to be received in the future. All these methods help manage the risk associated with currency fluctuations.

Question 2

The estimated value of a share of a company's stock is less than the current market price per share. Based on this information, the investment decision rule is to:

Accepted Answer

If the estimated value of a stock is less than the current market price, it suggests that the stock is overvalued, and the investment decision would be to sell the stock.

Question 3

Income tax payable is computed by multiplying income before income taxes, from the income statement, by the income tax rate.

Accepted Answer

Income tax payable is calculated based on taxable income, which may differ from income before income taxes due to differences in accounting and tax regulations.

Question 4

When a company discontinues a segment of its business, the income statement should report income (loss)from continuing operations and income (loss)from discontinued operations.

Accepted Answer

When a company discontinues a segment, accounting standards require separate reporting of continuing and discontinued operations to provide clear financial information to stakeholders.

Question 5

Taxable income should always equal pretax accounting income.

Accepted Answer

Taxable income and pretax accounting income can differ due to temporary differences, such as depreciation methods, and permanent differences, like tax-exempt income.

Question 6

One reason why taxable income and pretax accounting income may not be equal is due to the difference in depreciation methods used.

Accepted Answer

Different depreciation methods can lead to timing differences between taxable income and pretax accounting income, as tax laws may allow different depreciation rates or methods than those used in financial accounting.

Question 7

A prior-period adjustment is made to the ending balance of retained earnings in the current period's statement of stockholders' equity.

Accepted Answer

The answer of A prior-period adjustment is made to the...

Question 8

Financial analysts typically include discontinued operations in predictions of future corporate income.

Accepted Answer

Discontinued operations are excluded from future income predictions as they do not contribute to ongoing business activities.

Question 9

Income tax payable appears on the:

Accepted Answer

Income tax payable is a liability and appears on the balance sheet as it represents taxes owed by the company that have not yet been paid.

Question 10

Western Corporation has taxable income of $420,000 and pretax accounting income of $200,000. The company's income tax rate is 20%. The journal entry to record the income tax includes a:

Accepted Answer

The answer of Western Corporation has taxable income of $420,000...

Question 11

Income tax expense appears on the:

Accepted Answer

Income tax expense is reported on the income statement as it is a part of the company's expenses for the period.

Question 12

Income tax expense is a component of income from operations.

Accepted Answer

Income tax expense is not a component of income from operations; it is typically reported separately below operating income in the income statement.

Question 13

The weighted-average cost of capital is influenced by the risk that a company might not be able to sustain a certain rate of return into the indefinite future.

Accepted Answer

The weighted-average cost of capital (WACC) reflects the risk associated with a company's future cash flows, including the risk of not sustaining a certain rate of return, which affects the cost of equity and debt.

Question 14

Eastwich Corporation has pretax accounting income of $5,900,000 and taxable income of $5,820,000. The company's income tax rate is 20%. The journal entry to record the income tax includes a:

Accepted Answer

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

Question 15

Income tax payable is the amount of tax to be paid to the government based on the income tax return.

Accepted Answer

Income tax payable is the liability on the balance sheet representing the amount of tax owed to the government based on the income tax return filed by an individual or a business.

Question 16

Which of the following statements is TRUE?

Accepted Answer

When income tax payable exceeds income tax expense, it indicates that the company has paid more tax than it has expensed, leading to a Deferred Tax Asset.

Question 17

The formula to determine income tax payable is:

Accepted Answer

Income tax payable is calculated by multiplying the taxable income from the income tax return by the applicable income tax rate.

Question 18

Assume it is the first year of operations. When pretax accounting income exceeds taxable income, a:

Accepted Answer

The answer of Assume it is the first year of...

Question 19

Common stock should be purchased if the estimated value of a company exceeds its current market value.

Accepted Answer

If the estimated value of a company is higher than its current market value, it suggests that the stock is undervalued, making it a potentially good investment opportunity.

Question 20

The formula to determine income tax expense is:

Accepted Answer

Income tax expense is calculated by multiplying the income before income tax expense from the income statement by the income tax rate.

Quiz 11: Evaluating Performance: Earnings Quality, the Income Statement, Statement of Comprehensive Income