Question 1

Accumulated other comprehensive income would be reported in

Accepted Answer

A)  shareholders' equity. 
B)  retained earnings. 
C)  net income. 
D)  net income from continuing operations.

Question 2

Which one of the following types of losses is excluded from the determination of net income in the income statement?

Accepted Answer

A)  material losses resulting from correction of errors related to prior periods 
B)  material losses resulting from sale of assets not originally acquired for resale 
C)  material losses resulting from write off of intangibles 
D)  material losses resulting from sale of investments

Question 3

Comprehensive income
Oiseau Inc. reported the following for 2020:
 $\begin{array}{llcc}
  \text { Net sales............................................ } & \$1,470,000 \
 \text { Cost of goods sold.............................. } &850,000\
 \text { Selling and admin expenses ...............} &210,000\
 \text {Loss on disposal of equipment..............  } &(12,000)\
 \text {Unrealized gain OCL............................  } &14,000\
\end{array}$
 Instructions
Prepare a statement of comprehensive income. Ignore income tax and EPS. Assume Oiseau follows IFRS.

Accepted Answer

The answer of Comprehensive income
Oiseau Inc. reported the following for...

Question 4

Characteristics of high-quality earnings
Describe the characteristics of high-quality earnings.

Accepted Answer

The answer of Characteristics of high-quality earnings
Describe the characteristics of...

Question 5

Statement of income terminology
The statement of income/earnings has many names. Distinguish among the income statement, statement of profit or loss and statement of comprehensive income, and the statement of financial performance.

Accepted Answer

The answer of Statement of income terminology
The statement of income/earnings...

Question 6

The first step in the financial risk management process is

Accepted Answer

A)  buying insurance. 
B)  identifying risks. 
C)  managing risks. 
D)  monitoring risks.

Question 7

A useful statement of income

Accepted Answer

A)  has feedback value. 
B)  has predictive value. 
C)  helps stakeholders understand the business. 
D)  all of the above

Question 8

Income statement, including corrections
During calendar 2020, Scone Corporation reported income from continuing operations of $800,000 (after taxes). In addition, the following information, which has not yet been considered or included in the above figure, has been revealed:
1. On December31, 2020, Scone adopted the average cost method of inventory valuation. The company had previously used the FIFO method. The change decreases income for 2020 by $50,000 (pre-tax) and the cumulative effect of the change on prior years' income was a $60,000 (pre-tax) decrease.
2. A machine was sold for $140,000 cash during the year at a time when its book value was $100,000. (Depreciation has been correctly recorded.)
3. Scone decided to discontinue its stereo division in 2020. During the current year, the loss on the disposal of this segment was $150,000 (before applicable taxes).
Instructions
Present in good form the income statement of Scone Corporation for 2020 starting with "income from continuing operations." Assume that Scone's tax rate is 20% and that 100,000 common shares were outstanding during the year.

Accepted Answer

The answer of Income statement, including corrections
During calendar 2020, Scone...

Question 9

Papaya Inc. has 100,000 common shares outstanding and has a policy of paying a $1.30 annual dividend for each of these shares. Papaya has an income tax rate of 35%, and its retained earnings statement for 2020 reported a closing balance of $1,452,000. Assuming an opening retained earnings balance of zero, dividend payments according to its usual policy, and no other adjustments, Papaya's 2020 net income was

Accepted Answer

A)  $1,536,500. 
B)  $2,364,846. 
C)  $1,452,000. 
D)  $1,582,000.

Question 10

Which of the following statements regarding high-quality earnings is NOT true?

Accepted Answer

A)  The shares of companies with high-quality earnings are valued higher in capital markets. 
B)  High-quality earnings make verifiable promises about future performance. 
C)  High-quality earnings provide higher-quality information. 
D)  High-quality earnings have a lower likelihood of potential misstatement.

Question 11

Comprehensive income terminology
Explain the difference(s) between other comprehensive income, comprehensive income, and accumulated other comprehensive income.

Accepted Answer

The answer of Comprehensive income terminology
Explain the difference(s) between other...

Question 12

The following items were among those reported on Harry's Ltd.'s income statement for the year ended December 31, 2020: $\begin{array}{llcc}
  \text {Legal and audit fees...........................  } &\$200,000  \
 \text { Rent for office space.......................... } &470,000\
 \text {interest on inventory loan....................  } &496,000\
 \text { Loss on abandoned equipment used in operations....... } &82,000\
\end{array}$
 The office space is used equally by Harry's sales and accounting departments. What amount should be classified as general and administrative expenses in Harry's multiple-step income statement for 2020?

Accepted Answer

A)  $235,000 
B)  $435,000 
C)  $670,000 
D)  $931,000

Question 13

In 2020, Junction Corporation has cash receipts from customers of $270,000 and cash payments for operating expenses of $168,000. At January 1, 2020, accounts receivable were $30,000; at December 31, 2020 they were $34,400. Total service revenue is

Accepted Answer

A)  $270,000. 
B)  $274,400. 
C)  $106,400. 
D)  $265,600.

Question 14

IFRS requires that expenses be presented in the income statement

Accepted Answer

A)  by amount or in alphabetical order. 
B)  by geographical area or by the single-step method. 
C)  by nature or by function. 
D)  by current or non-current.

Question 15

Calculation of net income from the change in shareholders' equity
Presented below is selected information pertaining to Pullman Enterprises Ltd. for last year:
 $\begin{array}{llcc}
  \text { Assets, January 1............................... } & \$240,000 \
 \text { Assets, December 31........................... } &320,000\
 \text { Liabilities, January 1 ..........................} &120,000\
 \text {Common shares, December 31 ...................  } &60,000\
 \text {Retained earnings, December 31 ................  } &20,000\
 \text { Common shares issued during the year.............. } &2,000\
 \text {Dividends declared during the year...........  } &32,000\
\end{array}$
 Instructions
Calculate the net income for last year.

Accepted Answer

The answer of Calculation of net income from the change...

Question 16

Net income represents

Accepted Answer

A)  revenues and gains less expenses and losses from continuing operations only. 
B)  revenues and gains less expenses and losses from both continuing and discontinued operations. 
C)  net income plus/minus other comprehensive income. 
D)  ongoing revenues and expenses before gains, losses, and discontinued operations.

Question 17

For the year ended June 30, 2020, Harry Corp. reported revenue of $900,000 in its accrual basis income statement. Additional information was as follows: $\begin{array}{llcc}
  \text {Accounts receivable June 30,2019.....................................  } &\$200,000  \
 \text {Accounts receivable June 30,2020  ....................................} &490,000\
 \text { Uncollectible accounts written off during the fiscal year.......... } &20,000\
\end{array}$
 Under the cash basis, Harry should report revenue of

Accepted Answer

A)  $590,000. 
B)  $610,000. 
C)  $630,000. 
D)  $1,190,000.

Question 18

The "risk/return" trade-off means

Accepted Answer

A)  using various techniques to manage risks. 
B)  the market demands a greater return when there is greater risk. 
C)  not investing in a risky business. 
D)  monitoring risks.

Question 19

Regarding classification of expenses by nature versus function, under ASPE, an entity is required to

Accepted Answer

A)  present an analysis of expenses based on their nature. 
B)  present their expenses according to their nature. 
C)  present expenses in a manner that is most transparent. 
D)  present their expenses according to their function.

Question 20

Groucho Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 2020, included the following accounts: $\begin{array}{llcc}
  \text { Accounting and legal fees......................... } & \$140,000 \
 \text {Advertising...............................................  } &160,000\
 \text { Freight-out............................................... } &80,000\
 \text { Interest.................................................... } &70,000\
 \text { Loss on sale of long-term investments......... } &30,000\
 \text {Officers' salaries..........................................  } &225,000\
 \text { Rent for office space................................... } &220,000\
 \text { Sales salaries and commissions................... } &170,000\
 \text {  } &\
\end{array}$

One-half of the rented premises is occupied by the sales department. Groucho's total selling expenses for 2020 are

Accepted Answer

A)  $520,000. 
B)  $440,000. 
C)  $410,000. 
D)  $350,000.

Exam 4: Reporting Financial Performance