Exam 4: The Income Statement, Comprehensive Income, and the Statement of Cash Flows

The trial balance of Rollins Inc. included the following accounts as of December 31, 2018: Rollins had 100,000 shares of stock outstanding throughout the year. Income tax expense has not yet been accrued. The effective tax rate is 40%. -Required: Prepare a 2018 multiple-step income statement for Rollins Inc. with earnings per share disclosure.

A decrease in the receivables turnover ratio indicates a decrease in the time between credit sales and cash collection.

A change in accounting principle that is implemented using the modified retrospective approach includes implementing the change in the current period only and not adjusting for the cumulative effects on prior periods.

On September 1, 2018, Jacob Furniture Mart enters into a tentative agreement to sell the assets of its office equipment division. This division qualifies as a component of the entity according to GAAP regarding discontinued operations. The division's contribution to Jacob's operating income for 2018 was a $3 million loss before taxes. Jacob has an average tax rate of 30%. Required: Consider independently the appropriate accounting by Jacob under the three scenarios below. -Scenario 2: Assume that Jacob had not yet sold the division's assets by the end of 2018. Further, assume that the fair value less costs to sell of the division's assets at December 31, 2018, was $24 million and was expected to remain the same when the assets are sold in 2019. The book value of the division's assets was $19 million at the end of 2018. Under these assumptions, what would Jacob report in its 2018 income statement regarding the office equipment division? Explain where this information would be presented.

Which of the following mostly likely would be classified as restructuring costs?

Cendant Corporation's results for the year ended December 31, 2018, include the following material items: Cendant Corporation's income from continuing operations before income taxes for 2018 is:

Misty Company reported the following before-tax items during the current year: -Misty's effective tax rate is 40%. What is Misty's net income for the current year?

Changes in estimates are accounted for using which approach?

The following information is for Redwood Inc. for the year ended December 31, 2018. Redwood had a balance for cash and cash equivalents of $5,200 on January 1, 2018. Required: Prepare a statement of cash flows for the year using the direct method for operating activities

The distinction between operating and nonoperating income relates to:

On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2018. The following additional facts pertain to the transaction: • The Footwear Division qualifies as a component of the entity according to GAAP Regarding discontinued operations. • The book value of Footwear's assets totaled $48 million on the date of the sale. • Footwear's operating income was a pre-tax loss of $10 million in 2018. • Foxtrot's income tax rate is 40%. - In the income statement for the year ended December 31, 2018, Foxtrot Co. would report:

Income from continuing operations consists only of those items expected to be permanent components of earnings.

Income statements prepared according to both U.S. GAAP and International Financial Reporting Standards (IFRS) require the separate reporting of discontinued operations.

Explain, using an example, how a company can use earnings management and justify it by conservatism.

Excerpts from Dowling Company's December 31, 2018 and 2017, financial statements and key ratios are presented below (all numbers are in millions): -Dowling's 2018 average collection period is (rounded):

Briefly explain how you can determine if a company is effectively using leverage.

Cash flows from financing activities include:

Using the information provided above, use the DuPont framework to briefly summarize the operating performance of McDonald's relative to its benchmark competitors.

On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2018. The following additional facts pertain to the transaction: • The Footwear Division qualifies as a component of the entity according to GAAP Regarding discontinued operations. • The book value of Footwear's assets totaled $48 million on the date of the sale. • Footwear's operating income was a pre-tax loss of $10 million in 2018. • Foxtrot's income tax rate is 40%. - In the income statement for the year ended December 31, 2018, Foxtrot Co. would report:

Cash flows from investing activities do not include: