Question 1

Which of the following is NOT an acceptable basis for the recognition of expenses?

Accepted Answer

A) Cash disbursement 
B) Direct matching 
C) Immediate recognition 
D) Systematic and rational allocation 
A) Cash disbursement 
B) Direct matching 
C) Immediate recognition 
D) Systematic and rational allocation

Question 2

Indicate which of the items below should be reported in the financial statements as an extraordinary item.Assume the dollar amounts associated with all items are material.
The items are:
1.Loss from the discontinuance of operations in Peoria.Operations continue in other areas throughout the Midwest.
2.Sale of machinery at a loss.
3.Loss from damage due to a snowstorm in Chicago.
4.Write-down of inventory due to an earthquake in Chicago.
5.A large portion of a tobacco manufacturer's crops are destroyed by a hail storm.Severe damage from hail storms in the locality where the manufacturer grows tobacco is rare.
6.A steel fabricating company sells the only land it owns.The land was acquired ten years ago for future expansion,but shortly thereafter the company abandoned all plans for expansion and held the land for appreciation.
7.An earthquake destroys one of the oil refineries owned by a large multi-national oil company.
8.A citrus grower's Florida crop is damaged by frost.Frost damage is normally experienced every three or four years.
9.A company which operates a chain of warehouses sells the excess land surrounding one of its warehouses.When the company buys property to establish a new warehouse,it usually buys more land than it expects to use for the warehouse with the expectation that the land will appreciate in value.In the past five years,there have been two instances in which the company sold such excess land.
10.A large diversified company sells a block of shares from its portfolio of securities which it has acquired for investment purposes.This is the first sale from its portfolio of securities.The company owns several securities for investment purposes.
11.A textile manufacturer with only one plant moves to another location.It has not relocated a plant in twenty years and has no plans to do so in the foreseeable future.
12.The employees of a major supplier of the reporting company go on strike.
13.The reporting company writes off a material amount of inventory.
14.The reporting company sells a locomotive used to move large,partially-completed subassemblies around the manufacturing plant.

Accepted Answer

1.No.Entities expand and contract as par

Question 3

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

Accepted Answer

A) property, plant, and equipment. 
B) accounts payable. 
C) bank loans payable. 
D) operating profit. 
A) property, plant, and equipment. 
B) accounts payable. 
C) bank loans payable. 
D) operating profit.

Question 4

Which of the following statements regarding discontinued operations is true?

Accepted Answer

A) The assets and liabilities of a disposal group classified as held for sale by an entity may be offset and shown as a single item on the balance sheet of the entity. 
B) The assets and liabilities of a disposal group of an entity must be shown separately in the asset and liabilities sections of the balance sheet of the entity and cannot be offset. 
C) An adjustment in a subsequent period to the selling price of a component of an entity sold must be reported as a retroactive adjustment in the prior-period financial statements of the entity in which the discontinued operation was reported. 
D) The gain or loss on disposal of a component of an entity classified as a discontinued operation need not be disclosed separately from the loss from operations of the discontinued segment. 
A) The assets and liabilities of a disposal group classified as held for sale by an entity may be offset and shown as a single item on the balance sheet of the entity. 
B) The assets and liabilities of a disposal group of an entity must be shown separately in the asset and liabilities sections of the balance sheet of the entity and cannot be offset. 
C) An adjustment in a subsequent period to the selling price of a component of an entity sold must be reported as a retroactive adjustment in the prior-period financial statements of the entity in which the discontinued operation was reported. 
D) The gain or loss on disposal of a component of an entity classified as a discontinued operation need not be disclosed separately from the loss from operations of the discontinued segment.

Question 5

The revenue principle states that revenue should be recognized at a point when

Accepted Answer

A) an exchange transaction involving goods and services has occurred and the earnings process is essentially complete. 
B) an order for shipment of a definite amount of merchandise has been received. 
C) a contract between buyer and seller has been signed by both parties. 
D) the seller has shipped merchandise to a customer under the terms that the customer need not pay for the merchandise until it is sold. 
A) an exchange transaction involving goods and services has occurred and the earnings process is essentially complete. 
B) an order for shipment of a definite amount of merchandise has been received. 
C) a contract between buyer and seller has been signed by both parties. 
D) the seller has shipped merchandise to a customer under the terms that the customer need not pay for the merchandise until it is sold.

Question 6

All of the following are a component of comprehensive income except

Accepted Answer

A) unrealized gains and losses on trading securities. 
B) foreign currency translation adjustment. 
C) deferred gains and losses on derivative financial instruments. 
D) change in the minimum pension liability. 
A) unrealized gains and losses on trading securities. 
B) foreign currency translation adjustment. 
C) deferred gains and losses on derivative financial instruments. 
D) change in the minimum pension liability.

Question 7

The amount of income reported for tax purposes

Accepted Answer

A) is normally greater than the net income reported to stockholders. 
B) must be computed according to GAAP. 
C) is used to compute earnings per share. 
D) may differ from the amount of income determined for financial reporting purposes. 
A) is normally greater than the net income reported to stockholders. 
B) must be computed according to GAAP. 
C) is used to compute earnings per share. 
D) may differ from the amount of income determined for financial reporting purposes.

Question 8

The changes in the account balances and the following additional information are taken from the accounts of the Coalition Co.
   
Dividends for 2015 were $82,500.There were no transactions in 2015 affecting retained earnings other than the dividends and net income.Calculate the 2015 net income.

Accepted Answer

Debit changes in acc

Question 9

International Accounting Standard 8 requires

Accepted Answer

A) a restatement of prior years' income for a change in accounting principle. 
B) the reporting of the cumulative effect of a change in accounting principle as part of net income in the year of the change. 
C) the reporting of the cumulative effect of a change in accounting principle as a direct adjustment to beginning retained earnings in the year of the change. 
D) the amortization of the cumulative effect of a change in accounting principle over the future periods expected to be affected by the change. 
A) a restatement of prior years' income for a change in accounting principle. 
B) the reporting of the cumulative effect of a change in accounting principle as part of net income in the year of the change. 
C) the reporting of the cumulative effect of a change in accounting principle as a direct adjustment to beginning retained earnings in the year of the change. 
D) the amortization of the cumulative effect of a change in accounting principle over the future periods expected to be affected by the change.

Question 10

The transaction approach to determining income is a concept in which

Accepted Answer

A) income is measured as the amount that an entity could consume during a period and be as well off at the end of that period as it was at the beginning. 
B) the financial statement effects of business events are classified as revenues, gains, expenses, and losses, which are used to measure and define income. 
C) market values adjusted for the effects of inflation or deflation are used to calculate income. 
D) income equals the change in market value of the firm's outstanding common stock for the period. 
A) income is measured as the amount that an entity could consume during a period and be as well off at the end of that period as it was at the beginning. 
B) the financial statement effects of business events are classified as revenues, gains, expenses, and losses, which are used to measure and define income. 
C) market values adjusted for the effects of inflation or deflation are used to calculate income. 
D) income equals the change in market value of the firm's outstanding common stock for the period.

Question 11

Under which of the following conditions would hurricane damage be considered an extraordinary item for financial reporting purposes?

Accepted Answer

A) Under any circumstances hurricane damage should be classified as an extraordinary item. 
B) Only if hurricanes are unusual in nature and infrequent in occurrence in the geographic area 
C) Only if hurricanes are normal in the geographic area but do not occur frequently 
D) Only if hurricanes occur frequently in the geographic area but have been insured against 
A) Under any circumstances hurricane damage should be classified as an extraordinary item. 
B) Only if hurricanes are unusual in nature and infrequent in occurrence in the geographic area 
C) Only if hurricanes are normal in the geographic area but do not occur frequently 
D) Only if hurricanes occur frequently in the geographic area but have been insured against

Question 12

Accrual-basis net income is most useful for

Accepted Answer

A) determining the amount of income tax a company should pay. 
B) predicting the short-term performance of an enterprise. 
C) predicting the long-term performance of an enterprise. 
D) determining the amount of dividends a company should pay. 
A) determining the amount of income tax a company should pay. 
B) predicting the short-term performance of an enterprise. 
C) predicting the long-term performance of an enterprise. 
D) determining the amount of dividends a company should pay.

Question 13

Panther Corp.reported the following pretax amounts for the year ending December 31,2014:
   
The income tax rate applicable to Panther is 30 percent.Prepare a partial income statement for the year ending December 31,2014,beginning with "Income from continuing operations before income taxes." Include the presentation of earnings per share,assuming 50,000 shares were outstanding during the year.

Accepted Answer

The answer of Panther Corp.reported the following pretax amounts for...

Question 14

On December 31,2014 and 2015,Williams Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding.Additional information:
 
The price-earnings ratio on common stock at December 31,2015,was

Accepted Answer

A) 10 to 1. 
B) 12 to 1. 
C) 14 to 1. 
D) 16 to 1. 
A) 10 to 1. 
B) 12 to 1. 
C) 14 to 1. 
D) 16 to 1.

Question 15

Which of the following events would be considered an extraordinary item?

Accepted Answer

A) An airline experienced a significant loss due to a strike by employees of the company who provide its aircraft maintenance. 
B) A food cannery was faced with a large loss of inventory of canned soups due to government condemnation because of possible botulism contamination; the company had never experienced a similar situation in its history. 
C) A company, located on an island which has experienced severe flooding three times in the past 25 years, was subjected to a heavy loss of physical plant due to flooding. 
D) A medical corporation was required to pay damages equal to three times its average net income to a patient. The corporation had experienced suits of this nature in the past, but the amount of the losses had never exceeded 5 percent of the corporation's average net income. 
A) An airline experienced a significant loss due to a strike by employees of the company who provide its aircraft maintenance. 
B) A food cannery was faced with a large loss of inventory of canned soups due to government condemnation because of possible botulism contamination; the company had never experienced a similar situation in its history. 
C) A company, located on an island which has experienced severe flooding three times in the past 25 years, was subjected to a heavy loss of physical plant due to flooding. 
D) A medical corporation was required to pay damages equal to three times its average net income to a patient. The corporation had experienced suits of this nature in the past, but the amount of the losses had never exceeded 5 percent of the corporation's average net income.

Question 16

The following expenses were recognized by Koenig Company,a retailer,during 2014:
 
What should Koenig report as general and administrative expenses for 2014?

Accepted Answer

A) $252,000 
B) $289,000 
C) $284,000 
D) $389,000 
A) $252,000 
B) $289,000 
C) $284,000 
D) $389,000

Question 17

Generally,recognition criteria are met and revenues are recognized

Accepted Answer

A) at the point of sale. 
B) when cause and effect are associated. 
C) at the point of cash collection. 
D) at appropriate points throughout the operating cycle. 
A) at the point of sale. 
B) when cause and effect are associated. 
C) at the point of cash collection. 
D) at appropriate points throughout the operating cycle.

Question 18

The allowance for doubtful accounts,which appears as a deduction from accounts receivable on a balance sheet,is an application of the

Accepted Answer

A) going-concern assumption. 
B) revenue recognition principle. 
C) matching principle. 
D) materiality constraint. 
A) going-concern assumption. 
B) revenue recognition principle. 
C) matching principle. 
D) materiality constraint.

Question 19

Financial statement elements relating to income are defined in FASB Concepts Statement 6 as follows:

Accepted Answer

A) Gains are increases in equity from ongoing major or central operations of an entity. 
B) Expenses are outflows of assets or liabilities incurred from peripheral or incidental transactions of an entity. 
C) Revenues are inflows or other enhancements of assets or settlements of liabilities from ongoing major or central operations. 
D) Losses are all decreases in equity other than from transactions with owners. 
A) Gains are increases in equity from ongoing major or central operations of an entity. 
B) Expenses are outflows of assets or liabilities incurred from peripheral or incidental transactions of an entity. 
C) Revenues are inflows or other enhancements of assets or settlements of liabilities from ongoing major or central operations. 
D) Losses are all decreases in equity other than from transactions with owners.

Question 20

Bad debts are recognized according to which of the following expense recognition principles?

Accepted Answer

A) Immediate recognition 
B) Direct matching 
C) Systematic and rational allocation 
D) Critical event recognition 
A) Immediate recognition 
B) Direct matching 
C) Systematic and rational allocation 
D) Critical event recognition

Exam 4: The Income Statement

Which of the following is NOT an acceptable basis for the recognition of expenses?

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 statements regarding discontinued operations is true?

The revenue principle states that revenue should be recognized at a point when

All of the following are a component of comprehensive income except

The amount of income reported for tax purposes

The changes in the account balances and the following additional information are taken from the accounts of the Coalition Co. Dividends for 2015 were $82,500.There were no transactions in 2015 affecting retained earnings other than the dividends and net income.Calculate the 2015 net income.

International Accounting Standard 8 requires

The transaction approach to determining income is a concept in which

Under which of the following conditions would hurricane damage be considered an extraordinary item for financial reporting purposes?

Accrual-basis net income is most useful for

On December 31,2014 and 2015,Williams Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding.Additional information: The price-earnings ratio on common stock at December 31,2015,was

Which of the following events would be considered an extraordinary item?

The following expenses were recognized by Koenig Company,a retailer,during 2014: What should Koenig report as general and administrative expenses for 2014?

Generally,recognition criteria are met and revenues are recognized

The allowance for doubtful accounts,which appears as a deduction from accounts receivable on a balance sheet,is an application of the

Financial statement elements relating to income are defined in FASB Concepts Statement 6 as follows:

Bad debts are recognized according to which of the following expense recognition principles?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll,pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

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