Question 1

Both U.S.GAAP and IFRS require firms to report certain information about each of their operating segments.

Accepted Answer

Both U.S.GAAP and IFRS require firms to report certain information about each of their operating segments.

Question 2

Comprehensive income equals net income as reported on the income statement plus (minus) the increase (decrease) in other comprehensive income for the year.

Accepted Answer

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. It encompasses net income and other comprehensive income (OCI), which includes items not recognized in the main income statement such as unrealized gains and losses on certain types of investments, foreign currency translation adjustments, and certain pension adjustments.

Question 3

Most firms display the components of cost of sales.

Accepted Answer

Most firms do not typically display the detailed components of cost of sales in their financial statements, as this information is often considered proprietary and sensitive.

Question 4

Expenses measure the outflow of net assets consumed in the process of generating revenues.

Accepted Answer

Expenses represent the cost incurred in generating revenue and are the outflow of net assets.

Question 5

Under the accrual method, the timing of revenue recognition is influenced by when the services or product are provided.

Accepted Answer

Under the accrual method, revenue is recognized when the services or products are provided or delivered, rather than when payment is received. This means that the timing of revenue recognition is influenced by when the services or products are provided.

Question 6

U.S.GAAP and IFRS require firms to disclose unrealized gains and losses that historically have bypassed the income statement in a category called other comprehensive income.

Accepted Answer

Both U.S.GAAP and IFRS require firms to disclose unrealized gains and losses that historically have bypassed the income statement in a category called other comprehensive income.

Question 7

Cost is the economic sacrifice made to acquire goods or services.

Accepted Answer

Cost refers to the price or value that an individual or organization needs to pay or give up to obtain a good or service. It is an economic concept that involves the consideration of both monetary and non-monetary factors, including time, effort, and other resources involved in acquiring a particular product or service. Therefore, the statement is true.

Question 8

The income statement, also called the statement of financial position, provides information, at a point in time, on the firm's productive resources and the financing used to pay for those
resources.

Accepted Answer

The income statement, also known as the statement of profit and loss, provides information on a firm's revenues, expenses, and net income over a period of time. The statement of financial position is also known as the balance sheet and provides information on a firm's assets, liabilities, and equity at a point in time.

Question 9

Revenues measure the inflow of net assets from operating activities.

Accepted Answer

Revenues represent the amount of money a company earns from its operating activities (selling goods or rendering services) and increases the company's net assets. In other words, revenues reflect the inflow of economic resources resulting from the company's ongoing operations.

Question 10

Historically, recognition has described a preference for financial reporting such "that possible errors in measurement be in the direction of understatement rather than overstatement of net income and net assets."

Accepted Answer

The answer of Historically, recognition has described a preference for...

Question 11

The income statement typically provides information about the operating results of business segments.

Accepted Answer

The answer of The income statement typically provides information about...

Question 12

Both U.S.GAAP and IFRS require the disclosure, in the notes to the financial statements, of selected information about business segments.

Accepted Answer

Both U.S. GAAP and IFRS require the disclosure of selected information about business segments in the notes to the financial statements.

Question 13

Current accounting practice takes the viewpoint of shareholders by reporting the amount of net income available to shareholders after subtracting from revenues all expenses incurred in generating the revenue by claimants (for example, employees, lenders, governments) other than shareholders.

Accepted Answer

Current accounting practice does report net income available to shareholders after deducting all expenses incurred in generating revenue by other claimants. This is because shareholders are the owners of the company and therefore have a direct interest in the company's profitability.

Question 14

Common terminology, but not definitions in U.S.GAAP and IFRS, often refers to the difference between sales and cost of sales as gross margin, gross profit, or gross income.

Accepted Answer

It is true that gross margin, gross profit, and gross income are all commonly used terms to describe the difference between sales and cost of sales. However, while these terms may be used interchangeably, they do not have consistent definitions in U.S. GAAP and IFRS.

Question 15

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

Accepted Answer

Gains and losses are typically associated with occasional or infrequent events, such as the sale of an asset or investment. They are not necessarily predictable or guaranteed to occur in future periods.

Question 16

Expenses provide future benefits, and assets measure the consumption of those benefits.

Accepted Answer

Expenses are costs incurred by an entity in its operations, which are matched with revenue earned during a period to determine the entity's net income. On the other hand, assets are economic resources owned or controlled by an entity, which are expected to provide future economic benefits to the entity. Therefore, assets measure the future benefits to be consumed, while expenses record the cost of using up those benefits.

Question 17

The statement of cash flows begin with revenues; for this reason, analysts often refer to revenue growth as "top-line" growth.

Accepted Answer

The statement of cash flows does not begin with revenues. It starts with the net income for the period and adjusts for non-cash items and changes in working capital to arrive at cash flows from operating activities. Revenue growth is still commonly referred to as "top-line" growth, however.

Question 18

Expenditures on advertising and research must be recognized as expense in the period of expenditure, regardless of the firm's expectation of future benefits.

Accepted Answer

This statement is in accordance with the Generally Accepted Accounting Principles (GAAP) which states that expenses must be recognized in the period in which they are incurred, regardless of the firm's expectation of future benefits.

Question 19

All transactions that increase net assets affect income.

Accepted Answer

Not all transactions that increase net assets affect income. Some increases in net assets, such as contributions from owners or revaluation of assets, do not affect the income statement but rather affect equity directly.

Question 20

Items classified as operating expenses reflect management's judgment that the item is a cost of the core business.

Accepted Answer

Operating expenses are expenses incurred in the normal course of business operations and are considered essential costs of running a business. Management's judgment plays a role in determining which expenses are classified as operating expenses.

Quiz 5: Income Statement: Reporting Results of Operating Activities

Both U.S.GAAP and IFRS require firms to report certain information about each of their operating segments.

Comprehensive income equals net income as reported on the income statement plus (minus) the increase (decrease) in other comprehensive income for the year.

Most firms display the components of cost of sales.

Expenses measure the outflow of net assets consumed in the process of generating revenues.

Under the accrual method, the timing of revenue recognition is influenced by when the services or product are provided.

U.S.GAAP and IFRS require firms to disclose unrealized gains and losses that historically have bypassed the income statement in a category called other comprehensive income.

Cost is the economic sacrifice made to acquire goods or services.

The income statement, also called the statement of financial position, provides information, at a point in time, on the firm's productive resources and the financing used to pay for those resources.

Revenues measure the inflow of net assets from operating activities.

Historically, recognition has described a preference for financial reporting such "that possible errors in measurement be in the direction of understatement rather than overstatement of net income and net assets."

The income statement typically provides information about the operating results of business segments.

Both U.S.GAAP and IFRS require the disclosure, in the notes to the financial statements, of selected information about business segments.

Current accounting practice takes the viewpoint of shareholders by reporting the amount of net income available to shareholders after subtracting from revenues all expenses incurred in generating the revenue by claimants (for example, employees, lenders, governments) other than shareholders.

Common terminology, but not definitions in U.S.GAAP and IFRS, often refers to the difference between sales and cost of sales as gross margin, gross profit, or gross income.

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

Expenses provide future benefits, and assets measure the consumption of those benefits.

The statement of cash flows begin with revenues; for this reason, analysts often refer to revenue growth as "top-line" growth.

Expenditures on advertising and research must be recognized as expense in the period of expenditure, regardless of the firm's expectation of future benefits.

All transactions that increase net assets affect income.

Items classified as operating expenses reflect management's judgment that the item is a cost of the core business.