Question 1

The single-step income statement emphasizes

Accepted Answer

A)  the gross profit figure. 
B)  total revenues and total expenses. 
C)  discontinued operations and accounting changes. 
D)  the various components of income from continuing operations. 
A)  the gross profit figure. 
B)  total revenues and total expenses. 
C)  discontinued operations and accounting changes. 
D)  the various components of income from continuing operations. B

Question 2

Which of the following is NOT a generally practiced method of presenting the income statement?

Accepted Answer

A)  including corrections of errors made in a prior period 
B)  the single-step income statement 
C)  the multiple-step income statement 
D)  including gains and losses from discontinued operations 
A)  including corrections of errors made in a prior period 
B)  the single-step income statement 
C)  the multiple-step income statement 
D)  including gains and losses from discontinued operations A

Question 3

Income statement adjustments
You have been hired by the CFO of Turnover Corporation, a public company. As the new senior accountant, you have been asked to help with the preparation of the 2020 income statement.
For 2020, Turnover reported pre-tax income from continuing operations of $3,150,000. However, you have been advised that the following transactions have not yet been considered.
1. A review of the company's depreciation policies for its computer equipment revealed that depreciation expense relating to 2020 was overstated by $19,000.
2. During the year, the company wrote off $62,500 in accounts receivable for which no allowance for doubtful accounts had been set up.
3. In 2020, the company sold old equipment for $160,000. The equipment had a net book value of $120,000.
4. During the year, Turnover disposed of one its subsidiaries. The CFO tells you that the transaction meets the criteria for discontinued operations. The after-tax losses on the subsidiary's operations and from disposal were $120,000 and $290,000, respectively.
5. The company made a payment of $400,000 to settle a lawsuit. The lawsuit related to a 2015 event that the company lawyers had been working on since that time. Based on the lawyers' advice, no contingent liability had been set up.
Instructions
In good form, prepare a partial 2020 income statement for Turnover, taking into account the effects (if any) of the above items. The statement should start with income from continuing operations before income taxes. Unless otherwise indicated, you may assume an income tax rate of 40% for all items. Earnings per share calculations are not required.

Accepted Answer

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $TURNOVER CORPORATION $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Partial Income Statement $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $For the Year Ended December 31, 2020 $\begin{array}{c} \begin{array}{lll} \text {Income from continuing operations*..................................}\ \text {Income taxes.....................................................................}\ \text {ncome before discontinued operations..............................}\ \text {Discontinued operations}\ \text {Loss from operations (net of tax).....................................}\ \text {Loss from disposal (net of tax)..........................................}\ \text {Net income.....................................................................}\ \ \text {*Calculations}\ \text {Income from continuing operations (before adjustments).......}\ \text {1. Depreciation expense corrected....................................}\ \text {2. Expense for bad debts..................................................}\ \text {3. Gain $ \$ 160,000-\$ 120,000 $...........................................}\ \text {4. To be shown in discontinued operations section..............}\ \text {5. Loss on lawsuit...............................................................}\ \text {Adjusted income from continuing operations......................} \end{array} \begin{array}{r} \ \ \ \ \$ 120,000 \ \underline{(290,000)} \ \ \ \ \$ 3,150,000 \ 19,000 \ (62,500) \ 40,000 \ 0 \ \underline{(400,000)} \ \$ 2,746,500 \end{array} \begin{array}{r} \$ 2,746,500 \ \underline{(1,091,000)} \ 1,655,500\ \ \ \underline{\$ 410,000)} \ \underline{\$1,245,500}\ \ \ \ \ \ \ \ \ \ \end{array} \end{array}$

Question 4

Which of the following is(are) NOT recommended to be included in notes to the financial statements?

Accepted Answer

A)  accounting policies 
B)  information about the capital structure of the company 
C)  individual salaries of top management 
D)  sources of estimation uncertainty 
A)  accounting policies 
B)  information about the capital structure of the company 
C)  individual salaries of top management 
D)  sources of estimation uncertainty

Question 5

Use the following information for the following questions. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 2020, included the following expense accounts:
 $\begin{array}{llcc}
  \text { Accounting and legal fees......................... } & \$120,000 \
 \text {Advertising...............................................  } &150,000\
 \text { Freight-out............................................... } &75,000\
 \text { Interest.................................................... } &60,000\
 \text { Loss on sale of long-term investments......... } &30,000\
 \text {Officers' salaries..........................................  } &180,000\
 \text { Rent for office space................................... } &160,000\
 \text { Sales salaries and commissions................... } &110,000\
 \text {  } &\
\end{array}$
 One-half of the rented premises is occupied by the sales department.
-How much of the expenses listed above should be included in Oskar's general and administrative expenses for 2020?

Accepted Answer

A)  $380,000 
B)  $410,000 
C)  $440,000 
D)  $470,000 
A)  $380,000 
B)  $410,000 
C)  $440,000 
D)  $470,000

Question 6

The following information is available for Royal Corp. for 2020: $\begin{array}{llcc}
  \text {Accounts payable, beginning............................................................  } &\$14,000  \
 \text {Cash payments on account during year.............................................  } &7,000\
 \text {Purchase discounts taken during year on 2020 purchases ................ } &1,200\
 \text { Purchases....................................................................................... } &10,000\
\end{array}$
 Assuming that all purchases are made on account, accounts payable at the end of the year are

Accepted Answer

A)  $17,000 
B)  $22,800 
C)  $15,800 
D)  $24,000 
A)  $17,000 
B)  $22,800 
C)  $15,800 
D)  $24,000

Question 7

Discontinued operations
Hibou Ltd., a private company based in Vancouver, decided to sell its Industrial Design Division. After two years of losses and heavy competition, a plan to dispose of the division was put in place. At the end of 2020, the plan was finalized and approved by the board of directors. The sale is anticipated to be completed by June 30, 2021.
Other information:1. Hibou's 2020 after-tax net income (excluding the results from the Industrial Design Division) was $450,000.
2. During the year, the division reported an after-tax loss of $120,000 (revenues: $30,000, expenses: $150,000).
"3. Management estimates that after-tax legal and audit fees of $32,000 as well as severance payments of $66,000 will be required to finalize the disposal plan. A portion of these costs is expected to be offset by the after-tax proceeds of $61,000 from the sale of the division's assets.
Instructions
Assuming the Industrial Design Division qualifies for treatment as a discontinued operation, prepare a partial income statement for Hibou for 2020. The statement should begin with income from continuing operations and include an appropriate footnote pertaining to the disposal of the Industrial Design Division."

Accepted Answer

The answer of  Discontinued operations
Hibou Ltd., a private company...

Question 8

Earnings management
Explain the concept of earnings management. Why is it of concern to investors and financial statement users? Do you think this practice should be allowed?

Accepted Answer

Earnings management is the process of ta

Question 9

The following information is available for Quiny Inc. for 2020: $\begin{array}{llcc}
  \text { Disbursements for purchases........................ } &\$715,000  \
 \text {Increase in trade accounts payable.................  } &63,800\
 \text { Decrease in merchandise inventory.............. } &30,800\
\end{array}$
 Cost of goods sold for 2020 was

Accepted Answer

A)  $715,000. 
B)  $778,800. 
C)  $770,000. 
D)  $809,600. 
A)  $715,000. 
B)  $778,800. 
C)  $770,000. 
D)  $809,600.

Question 10

The income statement captures an entity's

Accepted Answer

A)  financing activities. 
B)  investing activities. 
C)  operating activities. 
D)  interrelationship between activities. 
A)  financing activities. 
B)  investing activities. 
C)  operating activities. 
D)  interrelationship between activities.

Question 11

Unsure Inc. made a very large arithmetical error in the preparation of its year-end financial statements by incorrect placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the correct amount. When Unsure discovered the error in the following year, correction of the error should be treated as a(n)

Accepted Answer

A)  adjustment to beginning retained earnings, net of tax. 
B)  increase in depreciation expense for the year in which the error is discovered. 
C)  gain for the year in which the error was made. 
D)  component of income for the year in which the error is discovered, but separately listed on the income statement and fully explained in a note to the financial statements. 
A)  adjustment to beginning retained earnings, net of tax. 
B)  increase in depreciation expense for the year in which the error is discovered. 
C)  gain for the year in which the error was made. 
D)  component of income for the year in which the error is discovered, but separately listed on the income statement and fully explained in a note to the financial statements.

Question 12

The calculation of earnings per share is generally based on which income figure?

Accepted Answer

A)  Other comprehensive income 
B)  Income from discontinued operations 
C)  Net income 
D)  All-inclusive income 
A)  Other comprehensive income 
B)  Income from discontinued operations 
C)  Net income 
D)  All-inclusive income

Question 13

Which of the following is a required disclosure in the income statement when reporting the disposal of a segment of the business?

Accepted Answer

A)  The gain or loss on disposal should be reported as an unusual item. 
B)  Results of operations of a discontinued segment should be disclosed in other comprehensive income. 
C)  Earnings per share from both continuing operations and for the discontinued segment should be disclosed either on the face of the statement or in the notes. 
D)  The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations. 
A)  The gain or loss on disposal should be reported as an unusual item. 
B)  Results of operations of a discontinued segment should be disclosed in other comprehensive income. 
C)  Earnings per share from both continuing operations and for the discontinued segment should be disclosed either on the face of the statement or in the notes. 
D)  The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations.

Question 14

The business model may be broken down into three activities:

Accepted Answer

A)  investing, operating, allocating. 
B)  investing, operating, financing. 
C)  financing, operating, and comprehensive income. 
D)  balance sheet, income statement, cash flow statement. 
A)  investing, operating, allocating. 
B)  investing, operating, financing. 
C)  financing, operating, and comprehensive income. 
D)  balance sheet, income statement, cash flow statement.

Question 15

Meg Inc. incurred the following infrequent losses during 2020: A $\$ 135,000$ write down of equipment leased to others (net of tax) 
$A \$60,000$ adjustment of accruals on long-term contracts (net of tax) 
A $90,000 write off of obsolete inventory (net of tax) Of those losses, what amount should be included in Meg's 2020 income from continuing operations?

Accepted Answer

A)  $285,000 
B)  $225,000 
C)  $195,000 
D)  $150,000 
A)  $285,000 
B)  $225,000 
C)  $195,000 
D)  $150,000

Question 16

Changes in accounting principles
Describe how changes in accounting principles are applied and affect the financial statements.

Accepted Answer

Changes in accounting principle are gene

Question 17

Cash basis
Argent Inc. reported the following information for their 2020 fiscal year:
$\begin{array}{llcc}
  \text {Revenue on the income statement.....................................  } &\$114,000  \
 \text {  Accounts receivable, Jan 1...............................................} &3,200\
 \text {Accounts receivable, Dec 31..............................................  } &6,120\
 \text { Unearned revenue, Jan 1.................................................. } &1,200\
 \text {  Unearned revenue, Dec 31................................................} &1,840\
\end{array}$

Instructions
Calculate the revenue for the year on a cash basis.

Accepted Answer

$114,000 - $4,500 +

Question 18

Income statement performance assessment
Explain how the income statement can be used to evaluate an enterprise's past performance and profitability. What other information might be useful for performance and profitability evaluation?

Accepted Answer

By examining revenues, expenses, gains,

Question 19

Earnings management
Consider the practice of earnings management. Describe a scenario where a company might have an incentive to report lower earnings. Describe some earnings management approaches they might take to achieve this objective.

Accepted Answer

A company might decrease current earning

Question 20

Recycled items
Under IFRS, some items included in other comprehensive income are "recycled" or reclassified which means that they are recognized first in OCI and then reclassified later to net income. Identify which of the following items should be recycled/reclassified and which should not by using the letter "Y" for yes and the letter "N" for no.

Accepted Answer

The answer of Recycled items
Under IFRS, some items included in...

The single-step income statement emphasizes

Which of the following is NOT a generally practiced method of presenting the income statement?

Which of the following is(are) NOT recommended to be included in notes to the financial statements?

Earnings management Explain the concept of earnings management. Why is it of concern to investors and financial statement users? Do you think this practice should be allowed?

The following information is available for Quiny Inc. for 2020: Disbursements for purchases........................ \7 15,000 Increase in trade accounts payable................. 63,800 Decrease in merchandise inventory.............. 30,800 Cost of goods sold for 2020 was

The income statement captures an entity's

The calculation of earnings per share is generally based on which income figure?

Which of the following is a required disclosure in the income statement when reporting the disposal of a segment of the business?

The business model may be broken down into three activities:

Changes in accounting principles Describe how changes in accounting principles are applied and affect the financial statements.

Income statement performance assessment Explain how the income statement can be used to evaluate an enterprise's past performance and profitability. What other information might be useful for performance and profitability evaluation?

Earnings management Consider the practice of earnings management. Describe a scenario where a company might have an incentive to report lower earnings. Describe some earnings management approaches they might take to achieve this objective.

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

Measurement

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Inventory

Investments

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Intangible Assets and Goodwill

Accounting Information Systems and Adjusting Entries: A Comprehensive Guide

Filters

Exam 4: Reporting Financial Performance

The single-step income statement emphasizes

Which of the following is NOT a generally practiced method of presenting the income statement?

Which of the following is(are) NOT recommended to be included in notes to the financial statements?

Earnings management Explain the concept of earnings management. Why is it of concern to investors and financial statement users? Do you think this practice should be allowed?

The following information is available for Quiny Inc. for 2020: Disbursements for purchases........................ \7 15,000 Increase in trade accounts payable................. 63,800 Decrease in merchandise inventory.............. 30,800 Cost of goods sold for 2020 was

The income statement captures an entity's

The calculation of earnings per share is generally based on which income figure?

Which of the following is a required disclosure in the income statement when reporting the disposal of a segment of the business?

The business model may be broken down into three activities:

Changes in accounting principles Describe how changes in accounting principles are applied and affect the financial statements.

Income statement performance assessment Explain how the income statement can be used to evaluate an enterprise's past performance and profitability. What other information might be useful for performance and profitability evaluation?

Earnings management Consider the practice of earnings management. Describe a scenario where a company might have an incentive to report lower earnings. Describe some earnings management approaches they might take to achieve this objective.

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

Measurement

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Inventory

Investments

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Intangible Assets and Goodwill

Accounting Information Systems and Adjusting Entries: A Comprehensive Guide

Filters