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

A segment must pass all of the tests in order for it to be considered a reportable segment. These tests include the revenue, profit, and asset tests.

In 2014, Walker Company wrote off a $300,000 debt from a major customer, lost $2,250,000 when a foreign country devalued its currency, gained $2,500,000 when a manufacturing plant was destroyed by a unusual and infrequent flood, lost $600,000 on the early retirement of its long-term bonds, and lost $75,000 on the sale of stock from its investment portfolio. What amount of extraordinary items (before income taxes) will Walker report in 2014?

The following income statement information for 2014 and 2015 was obtained from the accounting records of Upperco Company. Required: Fill in the blanks for the missing data.

When a parent company owns a majority of the common shares of a subsidiary company but not 100% of them, the parent company will consolidate all of the subsidiary's revenues and expenses into its financial statements.

Below is a list of terms: 1) Expenses 2) Extraordinary items 3) Gains 4) Income from continuing operations 5) Losses 6) Net income 7) Operating Income 8) Other comprehensive income items 9) Revenues Required: Match the appropriate term with the definition below. a) Increases in assets or settlement of liabilities from delivering goods or producing goods b) Outflows or using up assets c) Other increases in equity resulting from transactions other than revenue producing d) Decreases in equity e) Top portion of the income statement f) Main body of the income statement g) Bottom line of the income statement h) With net income in a single continuous statement i) Below the discontinued operations results

Comprehensive income consists of

The income statement predicts a company's future income and cash flows.

The following are accounting items taken from the records of Sterling Company for 2014: Required: Prepare the statement of cash flows for Sterling Company for 2014 using the indirect method.

Which of the following are components of the income statement?

Baxter, Inc., reported income from continuing operations (before taxes) of $55,000. In addition, there was a $15,000 loss from an unusual and infrequent flood. Taxes of $16,500 (30%) were paid. Required: Prepare the bottom portion of the income statement.

Which of the following is not a purpose of the income statement?

The SEC reported that overstating revenue and recognizing revenue too soon was the culprit in more than half of the financial reporting frauds in the United States. As such Staff Accounting Bulletin No. 104 provided additional guidance on revenue recognition. It emphasized four criteria for revenue recognition. What are these criteria?

For an event or transaction to be classified as an extraordinary item in the income statement, it should be

Gains or losses associated with derivative financial instruments would be included in income from continuing operations.

Depreciation is an example of which expense recognition principle?

Earnings per share is an important disclosure because

The amount of money that can be distributed to shareholders as a return on capital, without being a return of capital, is the capital financial concept.

Which of the following is an acceptable way of reporting a company's comprehensive income?

Information from the accounts of Gause Company is shown below: The merchandise inventory on January 1, 2014, was $3,200,000. There were 250,000 shares of common stock outstanding during the entire year. Required: Assuming a 30% income tax rate, prepare a 2014 income statement for Gause Company. Use a multiple-step format.

Who is the income statement designed to inform?