Exam 2: Accrual Accounting and Income Determination

Since net income is earned as a result of complex,multiple-stage processes,the key issue in net income determination is the timing of net income recognition.

Management might,in a "down" earnings year,be tempted to treat nonrecurring gains as part of income from continuing operations and nonrecurring losses as extraordinary.

Royal,Inc.discovered that equipment purchased three years ago for $300,000 will not last as long as originally estimated.The firm was depreciating the equipment at the rate of $40,000 per year with an estimated salvage value of $20,000.New estimates indicate that the equipment will last a total of five years with no salvage value.How much should Royal,Inc.record as depreciation in year four?

To recognize revenue after the time of sale,there must be extreme uncertainty regarding the amount of cash to be collected or

Hickory Furniture Company had the following costs paid during the month of May: Inventory purchases \ 40,000 Advertising costs 8,000 Delivery costs 2.000 Hickory sold $32,000 of the inventory and has agreed to pay warranty expenses for its customers. These are expected to be $1,600 and occur evenly over the next four months (i.e., starting in June). -What is the amount of Hickory's May expenses when applying the matching principle?

The "critical event" for revenue recognition is

Income statements are classified into sections to

To measure earnings under accrual accounting,revenue is recognized only when received.

A special one-time charge resulting from corporate restructurings would be reported on the income statement as a/an

Traditional financial reporting presents forecasted cash flow information.

Lazer Industries,Inc.manufactures medical equipment parts and accessories.Assume all amounts are pre-tax and a 30% tax rate for 2014. Sales \ 1,200,000 Interest expense \ 150,000 Returns from customers \ 100,000 Rent expense \ 450,000 Cost of goods sold \ 300,000 Other selling, general and administrative expenses \ 170,000 Extraordinary loss \ 230,000 Goodwill impairment \ 20,000 Required: Provide a condensed income statement for Lazer Industries,Inc.based on the available information.Include all subtotals needed (appropriately labeled)to present your income statement in good form.

Which one of the following events would be considered an extraordinary event?

Current U.S.GAAP permits firms to display the components of other comprehensive income in which of the following formats?

Debit means increase.

On the income statement,income from discontinued operations is shown

If a material event is either unusual in nature or an infrequent occurrence it is classified on the income statement as a/an

Berg,Inc.provides exotic wedding planning services.Berg's facilities are located in an elevated area with a dry climate.Assume all amounts are pre-tax and a 30% tax rate for 2014. Interest expense \ 230,000 Rent expense 390,000 Flood damage to facilities 270,000 Revenue 2,100,000 Salaries expense 450,000 Advertising expense 170,000 Restructuring charges 55,000 Required: Based on the available information,provide a condensed income statement for Berg,Inc.Include all subtotals needed (appropriately labeled)to present your income statement in good form.

T-account analysis can be used to gain insights into why accrual basis earnings and cash basis earnings differ and to

When a company changes from any inventory method to LIFO,the change is reported

Schlegel Department Store sells gift certificates-redeemable for store merchandise-that expire one year after their issuance.Schlegel has the following information pertaining to its gift certificates sales and redemptions: Unredeemed certificates at 12/31/13 \ 90,000 2014 sales 400,000 2014 redemptions of prior year sales 60,000 2014 redemptions of current year sales 325,000 Schlegel's experience indicates that 10% of gift certificates will not be redeemed.The company's policy is to record revenue on gift certificates when they are redeemed or expire. Required: In its 2014 income statement,what amount should Schlegel report as gift certificate revenue?