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

A revenue recognition method that recognizes revenue before the time of sale is

The income statement information for 2010 and 2011 of the Kappy Company (a sole proprietorship)is as follows: Required: Fill in the blanks for the missing data.All the necessary information is listed.

Operating capability refers to

Exhibit 5-1 The following condensed income statement of Rahm Corporation is presented for the two years ended December 31, 2010 and 2009: 2010 2009 Net sales \ 10,000,000 \ 9,000,000 Cost of sales Grossprofit \ 4,000,000 \ 3,000,000 Operating expense 2,500,000 2,000,000 Operating income \ 1,500,000 \ 1,000,000 Gain on sale of a component 900,000 -- \2 ,400.000 \1 ,000.000 Income tax expense 720,000 300,000 Net income \1 ,680,000 \7 00,000 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: 2010 \ 700,000 loss 2009 \ 400,000 loss Assume an income tax rate of 30%. - Refer to Exhibit 5-1.In the preparation of a revised comparative income statement, Rahm should report income from continuing operations after income taxes for 2010 and 2009, respectively, amounting to

Which of the following is not a source of a prior-period adjustment?

How should the gain or loss that is considered infrequent but not unusual in nature be disclosed?

Which of the following sections will not appear in the statement of cash flows?

A company is required to report earnings per share on Net Income Comprehensive Income I. Yes Yes II. No No III. Yes No IV No Yes

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

Which of the following is not part of other comprehensive income?

Other comprehensive income items may be reported at their: Gross Amounts Net of Tax Amounts I. Yes Yes II. No No III. Yes No IV No Yes

Normally, a material effect from changing accounting principles should be reported

A review of the December 31, 2010, financial statements of Rule Corporation revealed that under the caption "extraordinary losses, " Rule had reported a total of $300, 000.Further analysis revealed that the $300, 000 in losses comprised the following items: 1.Rule recorded a gain of $\$ 80,000$ incurred in the sale of equipment. 2.In an umusual and infrequent occurrence, a loss of $\$ 250,000$ was sustained as a result of tomado damage to a manufacturing facility 3. During 2010, several factorieswere shut down chuing a najor strike by employees of Rule's major customer. Shut clown expenses totaled $\$ 100,000$ . 4. Inventory in the amount of $\$ 30,000$ waswritten off as obsolete. Ignoring income taxes, what amount of loss should Rule report as an extraordinary loss on its 2010 income statement?

Listed below are the three expense recognition principles followed by a series of expense items. a. association of cause and effect b. systematic and rational allocation c. immediate recogrition Required: Match the expense recognition principles to their corresponding expenses by placing the appropriate letter in the space provided.

A beginning accounting student has just learned how to prepare an income statement and has been told how valuable it is in the measurement of a company's profitability.However, he asks you, as an upper division accounting student, if there are any limitations to the information contained on the statement. Required: Discuss four limitations of the income statement.

Reporting "changes in accounting principles" is important because

When is a company not required to report comprehensive income?

Comprehensive income is an important concept in accounting because it represents