Question 1

Which of the following material gains/losses would be disclosed as an extraordinary item on an entity's income statement?

Accepted Answer

A) a loss arising from the write-off of a large uncollectible accounts receivable balance 
B) a loss arising from the expropriation of a manufacturing plant by a foreign government 
C) a gain from sale of a component of the entity's business 
D) a gain from the sale of manufacturing equipment no longer needed by the entity 
A) a loss arising from the write-off of a large uncollectible accounts receivable balance 
B) a loss arising from the expropriation of a manufacturing plant by a foreign government 
C) a gain from sale of a component of the entity's business 
D) a gain from the sale of manufacturing equipment no longer needed by the entity B

Question 2

On December 31, 2010, the net assets of Marino 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 were paid.The net assets at January 1, 2010, amounted to

Accepted Answer

A) $31, 000 
B) $37, 000 
C) $20, 000 
D) $25, 000 
A) $31, 000 
B) $37, 000 
C) $20, 000 
D) $25, 000 D

Question 3

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

Accepted Answer

A) the income statement supports the stewardship function by helping stockholders evaluate management's operating effectiveness 
B) past income statements can be useful indicators in predicting current and future cash dividend payments as well as future stock prices 
C) the income statement provides useful information concerning the corporation's ability to generate sufficient cash flows from operations for use in payment of its operating obligations 
D) the income statement reports to users the amount of net cash inflows resulting from operating, financing, and investing activities 
A) the income statement supports the stewardship function by helping stockholders evaluate management's operating effectiveness 
B) past income statements can be useful indicators in predicting current and future cash dividend payments as well as future stock prices 
C) the income statement provides useful information concerning the corporation's ability to generate sufficient cash flows from operations for use in payment of its operating obligations 
D) the income statement reports to users the amount of net cash inflows resulting from operating, financing, and investing activities D

Question 4

Exhibit 5-1 The following condensed income statement of Rahm Corporation is presented for the two years ended December 31, 2010 and 2009:
$\begin{array}{lll}
&2010&2009\
\text { Net sales } & \$ 10,000,000 & \$ 9,000,000 \
\text { Cost of sales } &  \underline{6,000,000} & \underline{6,000,000} \
\text { Grossprofit } & \$ 4,000,000 & \$ 3,000,000\
\text { Operating expense } &2,500,000&2,000,000\
\text { Operating income } & \$ 1,500,000 & \$ 1,000,000 \
\text { Gain on sale of a component } & 900,000 & --\
&\$2,400.000&\$1,000.000\
\text { Income tax expense}&720,000&300,000\
\text {  Net income}&\$1,680,000&\$700,000
\end{array}$
 On January 1, 2010, Rahm entered into an agreement to sell for $2, 000, 000 one of its separate operating divisions.The sale resulted in a gain on disposition of $900, 000 on November 12, 2010, and qualifies as a discontinued component.This division's contribution to Rahm's reported income before income taxes for each year was as follows:
$\begin{array}{ll}
2010 & \$ 700,000 \text { loss } \
2009 & \$ 400,000 \text { loss }
\end{array}$
 Assume an income tax rate of 30%.
-
Refer to Exhibit 5-1.In the preparation of a revised comparative income statement, Rahm should report under the caption "Discontinued Operations" for 2010 and 2009, respectively,

Accepted Answer

A) income of $140, 000 and a loss of $280, 000 
B) income of $140, 000 and a loss of $0 
C) income of $200, 000 and a loss of $400, 000 
D) a loss of $700, 000 and a loss of $400, 000 
A) income of $140, 000 and a loss of $280, 000 
B) income of $140, 000 and a loss of $0 
C) income of $200, 000 and a loss of $400, 000 
D) a loss of $700, 000 and a loss of $400, 000

Question 5

Income measurement is a fundamental accounting concept, and yet the computation of periodic income has caused the accounting profession some difficulty.Economists and accountants have long debated what constitutes income and how it should be measured.The capital maintenance and transactional methods have been advocated as means of determining and measuring periodic income.Discuss these two income concepts.

Accepted Answer

The capital maintenance concept focuses

Question 6

The Nikel Company sold its cattle ranching component on June 30, 2010, for a gain of $1, 000, 000.From January through June, the component had sustained operating income of $300, 000.The income tax rate is 30%.How should Nikel report the income and the sale on its income statement?

Accepted Answer

A) as $300, 000 operating income and a $1, 000, 000 gain on sale of component 
B) as a $1, 300, 000 gain in operating income 
C) as a net of tax gain of $910, 000 after income from continuing operations 
D) as $210, 000 operating income and a $700, 000 gain on sale of the component shown before extraordinary items 
A) as $300, 000 operating income and a $1, 000, 000 gain on sale of component 
B) as a $1, 300, 000 gain in operating income 
C) as a net of tax gain of $910, 000 after income from continuing operations 
D) as $210, 000 operating income and a $700, 000 gain on sale of the component shown before extraordinary items

Question 7

Which of the following events would be accounted for as a prior-period adjustment?

Accepted Answer

A) change in the depreciable lives of plant assets 
B) an overstatement of depreciation expense in a prior year 
C) change in the method of computing depreciation of plant assets 
D) change in inventory cost flow assumption from first-in, first-out to last-in, first-out 
A) change in the depreciable lives of plant assets 
B) an overstatement of depreciation expense in a prior year 
C) change in the method of computing depreciation of plant assets 
D) change in inventory cost flow assumption from first-in, first-out to last-in, first-out

Question 8

In preparing a statement of retained earnings, a company needs to know its

Accepted Answer

A) prior-period adjustments, net income (loss), and dividends 
B) comprehensive income and prior-period adjustments 
C) comprehensive income, dividends, and prior-period adjustments 
D) dividends and prior-period adjustments 
A) prior-period adjustments, net income (loss), and dividends 
B) comprehensive income and prior-period adjustments 
C) comprehensive income, dividends, and prior-period adjustments 
D) dividends and prior-period adjustments

Question 9

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

Accepted Answer

A) B-A-D-C 
B) B-A-C-D 
C) B-D-A-C 
D) B-D-C-D 
A) B-A-D-C 
B) B-A-C-D 
C) B-D-A-C 
D) B-D-C-D

Question 10

IFRS content in the income statement is similar to U.S.GAAP in all of the following areas except the disclosure of

Accepted Answer

A) revenues 
B) finance costs 
C) extraordinary items 
D) tax expense 
A) revenues 
B) finance costs 
C) extraordinary items 
D) tax expense

Question 11

Earnings per share is an important disclosure because

Accepted Answer

A) it provides information relevant to the common stockholders 
B) net income disclosed in the financial statements can fluctuate based upon management's intentions 
C) it forces common and preferred stockholders to read the financial statements 
D) it uses net income 
A) it provides information relevant to the common stockholders 
B) net income disclosed in the financial statements can fluctuate based upon management's intentions 
C) it forces common and preferred stockholders to read the financial statements 
D) it uses net income

Question 12

Which statement best defines income concepts?

Accepted Answer

A) Revenues and expenses are more consistent with the capital maintenance concept to income measurement than with the transactional approach. 
B) The capital maintenance approach to income measurement relies on historical cost. 
C) The capital maintenance approach to income measurement is the approach used in accounting today. 
D) The transactional approach to income measurement is applied using the accrual basis of accounting. 
A) Revenues and expenses are more consistent with the capital maintenance concept to income measurement than with the transactional approach. 
B) The capital maintenance approach to income measurement relies on historical cost. 
C) The capital maintenance approach to income measurement is the approach used in accounting today. 
D) The transactional approach to income measurement is applied using the accrual basis of accounting.

Question 13

The Samba Company, during 2010, reported net income on its income statement of $90, 000.There were 8, 000 shares of common stock outstanding during the entire year, and a $5 per-share dividend was declared on November 21, 2010.During the year, it was discovered that depreciation of $50, 000 was overstated in 2008 on some production equipment.The retained earnings balance on January 1, 2010 was $300, 000, and the income tax rate on all items of income is 40%.
Required:
Prepare a retained earnings statement for the year ended December 31, 2010.

Accepted Answer

The answer of The Samba Company, during 2010, reported net...

Question 14

The Gordon Company is disposing of a component of its company.The net loss from the sale is estimated to be $500, 000.Included in the $500, 000 is termination pay of $100, 000, which is directly associated with the decision to dispose of the component; and net losses from component asset write-downs of $400, 000.Ignoring taxes, Gordon's income statement should report a loss on sale of a business component of

Accepted Answer

A) $100, 000 
B) $600, 000 
C) $400, 000 
D) $500, 000 
A) $100, 000 
B) $600, 000 
C) $400, 000 
D) $500, 000

Question 15

Which is least likely to be classified as a sale of a component?

Accepted Answer

A) sale by a communications company of its radio stations, but none of its television stations 
B) sale by a food distributor of its wholesale supermarket division while maintaining its wholesale fast-food restaurants division 
C) sale by an apparel manufacturer of a woolen suit manufacturing plant in order to concentrate on the manufacture of suits from synthetic products 
D) sale by a meat-packing company of its (entire)20% interest in a professional football team 
A) sale by a communications company of its radio stations, but none of its television stations 
B) sale by a food distributor of its wholesale supermarket division while maintaining its wholesale fast-food restaurants division 
C) sale by an apparel manufacturer of a woolen suit manufacturing plant in order to concentrate on the manufacture of suits from synthetic products 
D) sale by a meat-packing company of its (entire)20% interest in a professional football team

Question 16

Characteristics of risk as they relate to the uncertainty or unpredictability of the future results of a company include

Accepted Answer

A) the greater the risk, the higher the rate of return expected by investors 
B) risk increases as the range and timeframe within which future results are likely to fall increases 
C) risk increases as the range and timeframe within which future results are likely to fall decreases 
D) the greater the risk, the higher the rate of return expected by creditors 
A) the greater the risk, the higher the rate of return expected by investors 
B) risk increases as the range and timeframe within which future results are likely to fall increases 
C) risk increases as the range and timeframe within which future results are likely to fall decreases 
D) the greater the risk, the higher the rate of return expected by creditors

Question 17

A company that discontinues and disposes of an operation (component)should include the gain or loss on sale in the income statement as a(n)

Accepted Answer

A) prior-period adjustment 
B) extraordinary item 
C) amount after income from continuing operations and before extraordinary items 
D) bulk sale of fixed assets included in income from continuing operations 
A) prior-period adjustment 
B) extraordinary item 
C) amount after income from continuing operations and before extraordinary items 
D) bulk sale of fixed assets included in income from continuing operations

Question 18

The following information relates to the Smith Company: $\begin{array}{ll}
2010 \text { cash dividend declared } & \$ 400 \
\text { Unadjusted (reported) retained eamings, January 1, 2010 } & ? \
2010 \text { net income } & 480 \
\text { Error in 2009-Understatement of ending inventory, } \
\text { error found in 2010 }  & 150\
\text { Unadjusted (reported)  retained earnings, December 31, } 2010& 1,400
\end{array}$   What is the unadjusted January 1, 2010, balance in retained earnings?

Accepted Answer

A) $1, 170 
B) $1, 320 
C) $1, 470 
D) $1, 630 
A) $1, 170 
B) $1, 320 
C) $1, 470 
D) $1, 630

Question 19

The gross profit of Abel Company for 2010 is $300, 000, cost of goods manufactured is $400, 000, the beginning inventories of goods in process and finished goods are $28, 000 and $35, 000, respectively, and the ending inventories of goods in process and finished goods are $50, 000 and $70, 000, respectively.The cost of goods sold of Abel Company for 2010 must have been

Accepted Answer

A) $378, 000 
B) $265, 000 
C) $278, 000 
D) $365, 000 
A) $378, 000 
B) $265, 000 
C) $278, 000 
D) $365, 000

Question 20

The following income statement information for 2010 and 2011 was obtained from the accounting records of the Upperton Company.
   Required:
Fill in the blanks for the missing data.

Accepted Answer

None

Which of the following material gains/losses would be disclosed as an extraordinary item on an entity's income statement?

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

The Nikel Company sold its cattle ranching component on June 30, 2010, for a gain of $1, 000, 000.From January through June, the component had sustained operating income of $300, 000.The income tax rate is 30%.How should Nikel report the income and the sale on its income statement?

Which of the following events would be accounted for as a prior-period adjustment?

In preparing a statement of retained earnings, a company needs to know its

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

IFRS content in the income statement is similar to U.S.GAAP in all of the following areas except the disclosure of

Earnings per share is an important disclosure because

Which statement best defines income concepts?

Which is least likely to be classified as a sale of a component?

Characteristics of risk as they relate to the uncertainty or unpredictability of the future results of a company include

A company that discontinues and disposes of an operation (component)should include the gain or loss on sale in the income statement as a(n)

The following income statement information for 2010 and 2011 was obtained from the accounting records of the Upperton Company. Required: Fill in the blanks for the missing data.

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

Additional Aspects of Financial Reporting and Financial Analysis

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Contributed Capital

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

Filters

Exam 5: The Income Statement and the Statement of Cash Flows

Which of the following material gains/losses would be disclosed as an extraordinary item on an entity's income statement?

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

The Nikel Company sold its cattle ranching component on June 30, 2010, for a gain of $1, 000, 000.From January through June, the component had sustained operating income of $300, 000.The income tax rate is 30%.How should Nikel report the income and the sale on its income statement?

Which of the following events would be accounted for as a prior-period adjustment?

In preparing a statement of retained earnings, a company needs to know its

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

IFRS content in the income statement is similar to U.S.GAAP in all of the following areas except the disclosure of

Earnings per share is an important disclosure because

Which statement best defines income concepts?

Which is least likely to be classified as a sale of a component?

Characteristics of risk as they relate to the uncertainty or unpredictability of the future results of a company include

A company that discontinues and disposes of an operation (component)should include the gain or loss on sale in the income statement as a(n)

The following income statement information for 2010 and 2011 was obtained from the accounting records of the Upperton Company. Required: Fill in the blanks for the missing data.

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

Additional Aspects of Financial Reporting and Financial Analysis

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Contributed Capital

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

Filters