Question 1

On December 31, 2015, the net assets of Martinez Manufacturing amounted to $40,000. Net income calculated by using the financial capital maintenance concept amounted to $12,000. During the year, additional common stock was issued for $8,000, and $5,000 of dividends was paid. The net assets at January 1, 2015, amounted to

Accepted Answer

The answer of On December 31, 2015, the net assets...

Question 2

Who is the income statement designed to inform?

Accepted Answer

The income statement is a financial statement that provides information about a company's financial performance over a specific period. It is designed to inform a wide range of users, including creditors, investors, and lenders, about the company's profitability, revenue, expenses, and net income. These stakeholders use this information to make informed decisions regarding lending, investing, or extending credit to the company.

Question 3

In distinguishing between revenues and gains, which of the following statements is false?

Accepted Answer

Revenues are typically reported gross rather than net, which means the total amount of sales or income generated by the company is reported before any deductions. Gains, on the other hand, might be reported in a manner that reflects the net benefit to the company, but the distinction in the statement is incorrect regarding how revenues are more often reported.

Question 4

Which of the following expenses is an example of expense recognition under the immediate recognition principle?

Accepted Answer

The answer of Which of the following expenses is an...

Question 5

The income statement is an important financial statement for all of the following reasons, except

Accepted Answer

The income statement does not report net cash inflows from operating, financing, and investing activities. Instead, it shows the company's revenues, expenses, and net income or loss over a period. The statement of cash flows, not the income statement, reports cash inflows and outflows from operating, financing, and investing activities.

Question 6

In general, revenue is recognized

Accepted Answer

Revenue is typically recognized when goods are sold or services are rendered, according to the revenue recognition principle in accounting. This principle dictates that revenue is recognized when it is earned and realizable, regardless of when cash is received.

Question 7

Operating capability refers to

Accepted Answer

Operating capability refers to a company's ability to maintain a given level of operations. It measures a company's ability to continue providing products or services without a decline in quality or quantity.

Question 8

Revenue is recognized when:

Accepted Answer

The answer of Revenue is recognized when:
...

Question 9

Examples of matching expenses against revenues using the association of cause and effect include all of the following except

Accepted Answer

Insurance costs are typically considered period costs rather than being directly associated with specific revenues on a cause-and-effect basis. Costs like transportation for delivery, costs of products sold, and sales commissions can be directly linked to the revenues they help generate, making them examples of matching expenses against revenues using the association of cause and effect.

Question 10

The income statement reports

Accepted Answer

The income statement is a financial statement that reports a company's financial performance over a specific period of time, typically a fiscal quarter or year. It includes revenues, expenses, gains, and losses to show the company's net income or loss during the period.

Question 11

Which of the following is helpful to report separately?

Accepted Answer

Reporting expenses that vary with volume of activity, expenses that are discretionary, and expenses that depend on other economic factors separately can provide more detailed and useful information for analysis. This allows for a better understanding of the factors influencing the financial performance and helps in making informed decisions.

Question 12

Below is a list of account balances for Fraggle Company:  What is Fraggle Company's net income, assuming a 30% tax rate?

Accepted Answer

The answer of Below is a list of account balances...

Question 13

The major components of the income statement are listed below: A = revenues
B = income from continuing operations C = earnings per share
D = results from discontinued operations E = operating income
In what sequence do they normally appear on the income statement?

Accepted Answer

The typical sequence on an income statement starts with revenues (A), followed by operating income (E), income from continuing operations (B), results from discontinued operations (D), and finally, earnings per share (C).

Question 14

Depreciation is an example of which expense recognition principle?

Accepted Answer

Depreciation is the systematic and rational allocation of the cost of a long-term asset over its useful life, in accordance with the expense recognition principle. This principle requires that expenses be recognized in the same period as the revenues they help generate, so as to accurately reflect the true economic performance of a company. Depreciation allows for the matching of expenses to the revenue-generating capacity of the asset, as it gradually wears out or becomes obsolete.

Question 15

Which of the following is not a purpose of the income statement?

Accepted Answer

The income statement primarily reflects a company's revenues, expenses, and profits over a period, which helps in evaluating management's performance, comparing performance against other companies, and assessing risk. It does not directly predict the company's future assets and liabilities; that analysis would involve other financial statements like the balance sheet and cash flow statement.

Question 16

Which of the following is not recognized by the FASB as an expense recognition principle that properly matches expenses against revenues?

Accepted Answer

The FASB (Financial Accounting Standards Board) does not recognize "cash payment" as an expense recognition principle for properly matching expenses against revenues. The recognized principles focus on the matching of expenses with the revenues they help generate, rather than the timing of cash payments.

Question 17

The income statement helps users

Accepted Answer

The income statement provides information on a company's financial performance over a specific period, including revenues, expenses, and profits. This information can help users assess the company's risk by understanding its profitability and stability, review the impact of economic factors on its financial performance, and compare its performance against competitors, making all the provided options correct.

Question 18

In accrual accounting, net income is defined as

Accepted Answer

Net income in accrual accounting is calculated as Revenues minus Expenses plus Gains minus Losses. This formula accounts for all forms of income and expenses, including those not directly related to the primary operations of the business (gains and losses).

Question 19

A company is not required to follow a specific format in making the disclosures for its segments but the FASB encourages the most useful format for its specific circumstances.

Accepted Answer

The FASB (Financial Accounting Standards Board) does not mandate a specific format for segment reporting but encourages companies to present the information in a manner that is most useful for understanding the company's financial performance and prospects, considering its specific circumstances.

Question 20

Georgio Company began 2015 with net assets of $80,000. Net income calculated by using the capital maintenance concept was $21,000. During 2015, owners contributed $26,000 of new capital. By year-end, the net assets totaled $78,000. Dividends to the owners during 2015 were

Accepted Answer

The change in net assets is calculated as: Beginning net assets ($80,000) + Net income ($21,000) + New capital ($26,000) - Dividends = Ending net assets ($78,000). Solving for dividends gives $49,000.

Quiz 5: The Income Statement and the Statement of Cash Flows Time Value of Money Module