Question 1

Income statement performance assessment
Explain how the income statement can be used to evaluate an enterprise's past performance and profitability. What other information might be useful for performance and profitability evaluation?

Accepted Answer

The answer of  Income statement performance assessment
Explain how the...

Question 2

Definitions
Provide clear, concise answers for the following:1. What are revenues?
2. What are expenses?
3. What are gains?
4. What are losses?
5. How should unusual gains and losses be disclosed in the income statement?
6. When does a discontinued segment qualify as discontinued operations?
7. How are earnings per share calculated?
8. State two examples of adjustments to prior years' retained earnings and indicate how they are reported in the financial statements.
9. The IASB is planning significant changes regarding the presentation of financial statements. What plans does the IASB have?

Accepted Answer

The answer of Definitions
Provide clear, concise answers for the following:1....

Question 3

Comprehensive income
Oiseau Inc. reported the following for 2020:
 $\begin{array}{llcc}
  \text { Net sales............................................ } & \$1,470,000 \
 \text { Cost of goods sold.............................. } &850,000\
 \text { Selling and admin expenses ...............} &210,000\
 \text {Loss on disposal of equipment..............  } &(12,000)\
 \text {Unrealized gain OCL............................  } &14,000\
\end{array}$
 Instructions
Prepare a statement of comprehensive income. Ignore income tax and EPS. Assume Oiseau follows IFRS.

Accepted Answer

The answer of Comprehensive income
Oiseau Inc. reported the following for...

Question 4

The modified cash basis

Accepted Answer

The answer of The modified cash basis
...

Question 5

Statement of income terminology
The statement of income/earnings has many names. Distinguish among the income statement, statement of profit or loss and statement of comprehensive income, and the statement of financial performance.

Accepted Answer

The answer of Statement of income terminology
The statement of income/earnings...

Question 6

Gerald Bone, M.D., keeps his accounting records on the cash basis. During 2020, Dr. Bone collected $150,000 from his patients. At December 31, 2019, Dr. Bone had accounts receivable of $45,000. At December 31, 2020, Dr. Bone had accounts receivable of $35,000 and unearned revenue of $5,000. On the accrual basis, how much was Dr. Bone's patient service revenue for 2020?

Accepted Answer

On the accrual basis, we need to account for the revenue earned during the period, regardless of whether the cash has been received or not. To determine the revenue earned during the period, we need to adjust for the change in accounts receivable and unearned revenue.

Starting with the cash collected of $150,000, we subtract the decrease in accounts receivable from $45,000 to $35,000, which represents $10,000 of services that were performed but not yet collected in cash. This gives us an adjusted cash basis revenue of $140,000.

Next, we need to add the decrease in unearned revenue from $5,000 to $0, which represents $5,000 of services that were previously collected in cash but not yet performed.

Therefore, the total patient service revenue on the accrual basis is $140,000 + $5,000 = $145,000.

Question 7

Calculation of net income from the change in shareholders' equity
Presented below are changes in all account balances of Heys Inc. during last year, except for retained earnings.
  The only entries in retained earnings were for net income and a dividend declaration of $12,000.
Instructions
Calculate the net income for last year.

Accepted Answer

The answer of Calculation of net income from the change...

Question 8

The strict cash basis of accounting

Accepted Answer

The strict cash basis of accounting does not conform with Generally Accepted Accounting Principles (GAAP) because it recognizes revenues and expenses only when cash is received or paid, not when they are earned or incurred.

Question 9

Income statement limitations
Briefly discuss the limitations of the income statement.

Accepted Answer

The answer of  Income statement limitations
Briefly discuss the limitations...

Question 10

Earnings management
Explain the concept of earnings management. Why is it of concern to investors and financial statement users? Do you think this practice should be allowed?

Accepted Answer

The answer of Earnings management
Explain the concept of earnings management....

Question 11

Calculation of net income from the change in shareholders' equity
Presented below is selected information pertaining to Pullman Enterprises Ltd. for last year:
 $\begin{array}{llcc}
  \text { Assets, January 1............................... } & \$240,000 \
 \text { Assets, December 31........................... } &320,000\
 \text { Liabilities, January 1 ..........................} &120,000\
 \text {Common shares, December 31 ...................  } &60,000\
 \text {Retained earnings, December 31 ................  } &20,000\
 \text { Common shares issued during the year.............. } &2,000\
 \text {Dividends declared during the year...........  } &32,000\
\end{array}$
 Instructions
Calculate the net income for last year.

Accepted Answer

The answer of Calculation of net income from the change...

Question 12

Income statement information about future cash flows
How might stakeholders use the income statement to help assess a company's expected cash inflows?

Accepted Answer

The answer of Income statement information about future cash flows
How...

Question 13

Low-cost/high-volume strategy versus cost differentiation strategy Explain the difference between a low-cost/high-volume strategy and a cost differentiation strategy.

Accepted Answer

The answer of  Low-cost/high-volume strategy versus cost differentiation strategy...

Question 14

For the year ended June 30, 2020, Harry Corp. reported revenue of $900,000 in its accrual basis income statement. Additional information was as follows: $\begin{array}{llcc}
  \text {Accounts receivable June 30,2019.....................................  } &\$200,000  \
 \text {Accounts receivable June 30,2020  ....................................} &490,000\
 \text { Uncollectible accounts written off during the fiscal year.......... } &20,000\
\end{array}$
 Under the cash basis, Harry should report revenue of

Accepted Answer

Under the cash basis, revenue is recognized when cash is received. In this case, Harry Corp. collected $490,000 of accounts receivable during the year and wrote off $20,000 of uncollectible accounts. Therefore, Harry Corp. should report revenue of $490,000 + $20,000 = $510,000 under the cash basis.

Question 15

Characteristics of high-quality earnings
Describe the characteristics of high-quality earnings.

Accepted Answer

The answer of Characteristics of high-quality earnings
Describe the characteristics of...

Question 16

Earnings management
Consider the practice of earnings management. Describe a scenario where a company might have an incentive to report lower earnings. Describe some earnings management approaches they might take to achieve this objective.

Accepted Answer

The answer of  Earnings management
Consider the practice of earnings...

Question 17

Compared to the accrual basis of accounting, the cash basis of accounting overstates income by the net increase during the accounting period of the $$\begin{array} { l l c } 
& \text { Account } & \text { Accrued } \
&\text { Receivable } & \text { Expences Payable } \
\text { a) } & \text { No } & \text { No } \
\text { b) } & \text { No } & \text { Yes } \
\text { c) } & \text { Yes } & \text { No } \
\text { d) } & \text { Yes } & \text { Yes }
\end{array}$$

Accepted Answer

The answer of Compared to the accrual basis of accounting,...

Question 18

Comprehensive income
Tarzana Corporation completed its first year of operations on December 31, 2020. Results and other information for the year included the following:
$\begin{array}{llcc}
  \text {Sales.........................................................................................  } &\$810,000  \
 \text { Cost of goods sold.................................................................... } &320,000\
 \text {Operating expenses...................................................................  } &94,000\
 \text {Unrealized holding gain from investments (accounted for  } &\
 \text {  under the fair value through comprehensive income model)..... } &31,000
 
\end{array}$
Instructions
Based on the information provided, prepare a combined statement of income and comprehensive income. Ignore income taxes and EPS.

Accepted Answer

The answer of  Comprehensive income
Tarzana Corporation completed its first...

Question 19

An all-inclusive approach
The notion of comprehensive earnings is sometimes referred to as the "all-inclusive" approach to measuring income. Explain what is meant by "all-inclusive." How does this differ from the traditional notion of income? Why do you think that emerging standards such as IFRS support this view of income?

Accepted Answer

The answer of An all-inclusive approach
The notion of comprehensive earnings...

Question 20

Representational faithfulness
Consider the concept of representational faithfulness. Explain why an understanding of the business and industry is essential to performing an audit, and how this relates to the fundamental characteristic of representational faithfulness.

Accepted Answer

The answer of Representational faithfulness
Consider the concept of representational faithfulness....

Quiz 4: Reporting Financial Performance

Income statement performance assessment Explain how the income statement can be used to evaluate an enterprise's past performance and profitability. What other information might be useful for performance and profitability evaluation?

The modified cash basis

Statement of income terminology The statement of income/earnings has many names. Distinguish among the income statement, statement of profit or loss and statement of comprehensive income, and the statement of financial performance.

The strict cash basis of accounting

Income statement limitations Briefly discuss the limitations of the income statement.

Earnings management Explain the concept of earnings management. Why is it of concern to investors and financial statement users? Do you think this practice should be allowed?

Income statement information about future cash flows How might stakeholders use the income statement to help assess a company's expected cash inflows?

Low-cost/high-volume strategy versus cost differentiation strategy Explain the difference between a low-cost/high-volume strategy and a cost differentiation strategy.

Characteristics of high-quality earnings Describe the characteristics of high-quality earnings.

Earnings management Consider the practice of earnings management. Describe a scenario where a company might have an incentive to report lower earnings. Describe some earnings management approaches they might take to achieve this objective.

Representational faithfulness Consider the concept of representational faithfulness. Explain why an understanding of the business and industry is essential to performing an audit, and how this relates to the fundamental characteristic of representational faithfulness.