Exam 4: The Income Statement

Elwood P. Dowd Company has two divisions, J and K. The operations and cash flows of these two divisions are clearly distinguishable. On July 1, 2012, the company decided to dispose of the assets and liabilities of Division K. It is probable that the disposal will be completed early next year. The revenues and expenses of Dowd Company for 2009 and for the preceding two years are as follows: During the latter part of 2012, Dowd disposed of a portion of Division K and recognized a pretax loss of $8,000 on the disposal. The income tax rate for Dowd Company is 40%. Prepare the comparative income statements for Dowd Company for the years 2010, 2011, and 2012.

Costs that can be reasonably associated with specific revenues but not with specific products should be

A material loss should be presented separately as a component of income from continuing operations when it is

The changes in account balances of the Clearwater Corporation during 2011 are presented below: Assuming there are no changes in retained earnings except for net income and a dividend payment of $19,500, the net income for 2011 should be

The following expenses were recognized by Kalob Company, a retailer, during 2011: What should Kalob report as general and administrative expenses for 2011?

If a company anticipates a 40% increase in sales volume, then it is most likely that the company will need about a 40% increase in

Which of the following would not be reflected in the income statement?

A wholesale bakery would normally recognize revenue when

A significant part of the compensation received by the leaders of large business entities comes from company-sponsored bonus plans. Determination of the amount of compensation to be awarded under many of these bonus plans is based on net income or some variant of net income. Bonus plans typically provide for a target earnings number that must be achieved in order for bonuses to be paid. This target amount of earnings usually is a percentage either of shareholders' equity or total assets. If earnings fall below the target, then no bonuses are awarded. A bonus plan may also provide for a maximum amount of earnings above which no bonus will be paid. Accounting research suggests that managers of firms with bonus plans are more likely to choose accounting procedures that shift reported earnings from future periods to the current period. In light of this finding, consider what how managers might behave given the following situations: Required: Describe what you believe would be the likely behavior of managers under each of the three situations described above.

The transaction approach to determining income is a concept in which

Generally, recognition criteria are met and revenues are recognized

Which of the following statements regarding discontinued operations is true?

When a business segment is discontinued during the year, the gain or loss on disposal

Which of the following would be treated as an extraordinary item?

Which of the following is not true regarding restructuring charges?

The financial statements of Cresent Corporation for 2011 and 2012 contained the following errors: Assuming that none of the errors were detected or corrected, by what amount will 2011 operating income be overstated or understated?

The following pretax amounts pertain to the Brooke Corp. for the year ended December 31, 2011. The effective corporate tax rate is 30 percent. The company had 10,000 shares of common stock outstanding for the entire year.

The term "comprehensive income" as defined by the FASB

Which of the following categories of expenses is subject to immediate recognition on the income statement?

Which of the following approaches to income measurement underlies financial accounting and reporting?