Ch. 4 (IFSA) Summary

Question 1

___ presents revenue, expenses, and net income.

Answer 1

The income statement

Question 2

The income statement presents ___, expenses, and net income.

Answer 2

revenue

Question 3

The income statement presents revenue, ___, and net income.

Answer 3

expenses

Question 4

The income statement presents revenue, expenses, and ___.

Answer 4

net income

Question 5

The components of ___ include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS

Answer 5

the income statement

Question 6

The components of the income statement include:
- ___
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS

Answer 6

revenue

Question 7

The components of the income statement include:
- revenue
- ___
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS

Answer 7

cost of sales

Question 8

The components of the income statement include:
- revenue
- cost of sales
- ___
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS

Answer 8

sales, general, and administrative expenses

Question 9

The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- ___
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS

Answer 9

other operating expenses

Question 10

The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- ___
- gains and losses
- nonrecurring items
- net income
- EPS

Answer 10

nonoperating income and expenses

Question 11

The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- ___
- nonrecurring items
- net income
- EPS

Answer 11

gains and losses

Question 12

The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- ___
- net income
- EPS

Answer 12

nonrecurring items

Question 13

The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- ___
- EPS

Answer 13

net income

Question 14

The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- ___

Answer 14

EPS

Question 15

___ that presents a subtotal for gross profit (revenue minus cost of goods sold) is said to be presented in a multi-step format. One that does not present this subtotal is said to be presented in a single-step format.

Answer 15

An income statement

Question 16

An income statement that presents a subtotal for ___ (revenue minus cost of goods sold) is said to be presented in a multi-step format. One that does not present this subtotal is said to be presented in a single-step format.

Answer 16

gross profit

Question 17

An income statement that presents a subtotal for gross profit (___) is said to be presented in a multi-step format. One that does not present this subtotal is said to be presented in a single-step format.

Answer 17

revenue minus cost of goods sold

Question 18

An income statement that presents a subtotal for gross profit (revenue minus cost of goods sold) is said to be presented in ___ format. One that does not present this subtotal is said to be presented in a single-step format.

Answer 18

a multi-step

Question 19

An income statement that presents a subtotal for gross profit (revenue minus cost of goods sold) is said to be presented in a multi-step format. One that does not present this subtotal is said to be presented in ___ format.

Answer 19

a single-step

Question 20

___ is recognized in the period it is earned, which may or may not be in the same period as the related cash collection. Recognition of revenue when earned is a fundamental principal of accrual accounting.

Answer 20

Revenue

Question 21

Revenue is recognized in ___, which may or may not be in the same period as the related cash collection. Recognition of revenue when earned is a fundamental principal of accrual accounting.

Answer 21

the period it is earned

Question 22

Revenue is recognized in the period it is earned, which ___. Recognition of revenue when earned is a fundamental principal of accrual accounting.

Answer 22

may or may not be in the same period as the related cash collection

Question 23

Revenue is recognized in the period it is earned, which may or may not be in the same period as the related cash collection. Recognition of revenue when earned is a fundamental principal of ___.

Answer 23

accrual accounting

Question 24

In limited circumstances, ___ may be applicable, including:
- percentage of completion
- completed contract
- installment sales
- cost recovery.

Answer 24

specific revenue recognition methods

Question 25

In limited circumstances, specific revenue recognition methods may be applicable, including: - ___ - completed contract - installment sales - cost recovery.

Answer 25

percentage of completion

Question 26

In limited circumstances, specific revenue recognition methods may be applicable, including: - percentage of completion - ___ - installment sales - cost recovery.

Answer 26

completed contract

Question 27

In limited circumstances, specific revenue recognition methods may be applicable, including: - percentage of completion - completed contract - ___ - cost recovery.

Answer 27

installment sales

Question 28

In limited circumstances, specific revenue recognition methods may be applicable, including: - percentage of completion - completed contract - installment sales - ___.

Answer 28

cost recovery

Question 29

An analyst should ___ and adjust reported revenue where possible to facilitate comparability. Where the available information does not permit adjustment, an analyst can characterize the revenue recognition as more or less conservative and thus qualitatively assess how differences in policies might affect financial ratios and judgments about profitability.

Answer 29

identify differences in companies’ revenue recognition methods

Question 30

An analyst should identify differences in companies’ revenue recognition methods and ___. Where the available information does not permit adjustment, an analyst can characterize the revenue recognition as more or less conservative and thus qualitatively assess how differences in policies might affect financial ratios and judgments about profitability.

Answer 30

adjust reported revenue where possible to facilitate comparability

Question 31

An analyst should identify differences in companies’ revenue recognition methods and adjust reported revenue where possible to facilitate comparability. Where the available information does not permit adjustment, an analyst can characterize the revenue recognition as ___ and thus qualitatively assess how differences in policies might affect financial ratios and judgments about profitability.

Answer 31

more or less conservative

Question 32

An analyst should identify differences in companies’ revenue recognition methods and adjust reported revenue where possible to facilitate comparability. Where the available information does not permit adjustment, an analyst can characterize the revenue recognition as more or less conservative and thus qualitatively assess how differences in policies might affect ___.

Answer 32

financial ratios and judgments about profitability

Question 33

___ include the matching principle. Expenses are matched either to revenue or to the time period in which the expenditure occurs (period costs) or to the time period of expected benefits of the expenditures (e.g. depreciation).

Answer 33

The general principles of expense recognition

Question 34

The general principles of expense recognition include ___. Expenses are matched either to revenue or to the time period in which the expenditure occurs (period costs) or to the time period of expected benefits of the expenditures (e.g. depreciation).

Answer 34

the matching principle

Question 35

The general principles of expense recognition include the matching principle. Expenses are matched either to ___ or to the time period in which the expenditure occurs (period costs) or to the time period of expected benefits of the expenditures (e.g. depreciation).

Answer 35

revenue

Question 36

The general principles of expense recognition include the matching principle. Expenses are matched either to revenue or ___ (period costs) or to the time period of expected benefits of the expenditures (e.g. depreciation).

Answer 36

to the time period in which the expenditure occurs

Question 37

The general principles of expense recognition include the matching principle. Expenses are matched either to revenue or to the time period in which the expenditure occurs (___) or to the time period of expected benefits of the expenditures (e.g. depreciation).

Answer 37

period costs

Question 38

The general principles of expense recognition include the matching principle. Expenses are matched either to revenue or to the time period in which the expenditure occurs (period costs) or ___ (e.g. depreciation).

Answer 38

to the time period of expected benefits of the expenditures

Question 39

The general principles of expense recognition include the matching principle. Expenses are matched either to revenue or to the time period in which the expenditure occurs (period costs) or to the time period of expected benefits of the expenditures (e.g. ___).

Answer 39

depreciation

Question 40

In ___, choice of method (i.e., depreciation method and inventory cost method), as well as estimates (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s reported income.

Answer 40

expense recognition

Question 41

In expense recognition, ___ (i.e., depreciation method and inventory cost method), as well as estimates (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s reported income.

Answer 41

choice of method

Question 42

In expense recognition, choice of method (i.e., ___), as well as estimates (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s reported income.

Answer 42

depreciation method and inventory cost method

Question 43

In expense recognition, choice of method (i.e., depreciation method and inventory cost method), as well as ___ (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s reported income.

Answer 43

estimates

Question 44

In expense recognition, choice of method (i.e., depreciation method and inventory cost method), as well as estimates (i.e., ___) affect a company’s reported income.

Answer 44

uncollectible accounts, warranty expenses, assets’ useful life, and salvage value

Question 45

In expense recognition, choice of method (i.e., depreciation method and inventory cost method), as well as estimates (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s ___.

Answer 45

reported income

Question 46

To assess a company’s ___, it is helpful to separate those prior years’ items of income and expense that are likely to continue in the future from those items that are less likely to continue.

Answer 46

future earnings

Question 47

To assess a company’s future earnings, it is helpful to separate ___ that are likely to continue in the future from those items that are less likely to continue.

Answer 47

those prior years’ items of income and expense

Question 48

Some items from prior years clearly are not expected to continue in future periods and are ___. Two such items are (1) discontinued operations and (2) extraordinary items. Both of these items are required to be reported separately from continuing operations.

Answer 48

separately disclosed on a company’s income statement

Question 49

Some items from prior years clearly are not expected to continue in future periods and are separately disclosed on a company’s income statement. Two such items are (1) ___ and (2) extraordinary items. Both of these items are required to be reported separately from continuing operations.

Answer 49

discontinued operations

Question 50

Some items from prior years clearly are not expected to continue in future periods and are separately disclosed on a company’s income statement. Two such items are (1) discontinued operations and (2) ___. Both of these items are required to be reported separately from continuing operations.

Answer 50

extraordinary items

Question 51

Some items from prior years clearly are not expected to continue in future periods and are separately disclosed on a company’s income statement. Two such items are (1) discontinued operations and (2) extraordinary items. Both of these items are required to be reported separately from ___.

Answer 51

continuing operations

Question 52

For other items on a company’s income statement, such as ___ and accounting changes, the likelihood of their continuing in the future is somewhat less clear and requires the analyst to make some judgments.

Answer 52

unusual items

Question 53

For other items on a company’s income statement, such as unusual items and ___, the likelihood of their continuing in the future is somewhat less clear and requires the analyst to make some judgments.

Answer 53

accounting changes

Question 54

___ items are reported separately from operating items. For example, if a nonfinancial service company invests in equity or debt securities issued by another company, any interest, dividends, or profits from sales of these securities will be shown as nonoperating income.

Answer 54

Nonoperating

Question 55

Nonoperating items are reported separately from operating items. For example, if a nonfinancial service company invests in equity or debt securities issued by another company, any interest, dividends, or profits from sales of these securities will be shown as ___.

Answer 55

nonoperating income

Question 56

___ is the amount of income available to common shareholders divided by the weighted average number of common shares outstanding over a period. The amount of income available to common shareholders is the amount of net income remaining after preferred dividends (if any) have been paid.

Answer 56

Basic EPS

Question 57

Basic EPS is ___ divided by the weighted average number of common shares outstanding over a period. The amount of income available to common shareholders is the amount of net income remaining after preferred dividends (if any) have been paid.

Answer 57

the amount of income available to common shareholders

Question 58

Basic EPS is the amount of income available to common shareholders divided by ___. The amount of income available to common shareholders is the amount of net income remaining after preferred dividends (if any) have been paid.

Answer 58

the weighted average number of common shares outstanding over a period

Question 59

Basic EPS is the amount of income available to common shareholders divided by the weighted average number of common shares outstanding over a period. ___ is the amount of net income remaining after preferred dividends (if any) have been paid.

Answer 59

The amount of income available to common shareholders

Question 60

Basic EPS is the amount of income available to common shareholders divided by the weighted average number of common shares outstanding over a period. The amount of income available to common shareholders is ___.

Answer 60

the amount of net income remaining after preferred dividends (if any) have been paid

Question 61

If a company has ___ (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its diluted EPS. If, however, a company has dilutive securities, its diluted EPS is lower than its basic EPS.

Answer 61

a simple capital structure

Question 62

If a company has a simple capital structure (i.e., ___), then its basic EPS is equal to its diluted EPS. If, however, a company has dilutive securities, its diluted EPS is lower than its basic EPS.

Answer 62

one with no potentially dilutive securities

Question 63

If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its ___ is equal to its diluted EPS. If, however, a company has dilutive securities, its diluted EPS is lower than its basic EPS.

Answer 63

basic EPS

Question 64

If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its ___. If, however, a company has dilutive securities, its diluted EPS is lower than its basic EPS.

Answer 64

diluted EPS

Question 65

If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its diluted EPS. If, however, a company has ___, its diluted EPS is lower than its basic EPS.

Answer 65

dilutive securities

Question 66

If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its diluted EPS. If, however, a company has dilutive securities, its ___ is lower than its basic EPS.

Answer 66

diluted EPS

Question 67

If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its diluted EPS. If, however, a company has dilutive securities, its diluted EPS is lower than its ___.

Answer 67

basic EPS

Question 68

___ is calculated using the if-converted method for convertible securities and the treasury stock method for options.

Answer 68

Diluted EPS

Question 69

Diluted EPS is calculated using ___ for convertible securities and the treasury stock method for options.

Answer 69

the if-converted method

Question 70

Diluted EPS is calculated using the if-converted method for ___ and the treasury stock method for options.

Answer 70

convertible securities

Question 71

Diluted EPS is calculated using the if-converted method for convertible securities and ___ for options.

Answer 71

the treasury stock method

Question 72

Diluted EPS is calculated using the if-converted method for convertible securities and the treasury stock method for ___.

Answer 72

options

Question 73

___ of the income statement involves stating each line item on the income statement as a percentage of sales. Common-size statements facilitate comparison across time periods and across companies of different sizes.

Answer 73

Common-size analysis

Question 74

Common-size analysis of ___ involves stating each line item on the income statement as a percentage of sales. Common-size statements facilitate comparison across time periods and across companies of different sizes.

Answer 74

the income statement

Question 75

Common-size analysis of the income statement involves stating each line item on the income statement as ___. Common-size statements facilitate comparison across time periods and across companies of different sizes.

Answer 75

a percentage of sales

Question 76

Common-size analysis of the income statement involves stating each line item on the income statement as a percentage of sales. Common-size statements facilitate comparison across ___ and across companies of different sizes.

Answer 76

time periods

Question 77

Common-size analysis of the income statement involves stating each line item on the income statement as a percentage of sales. Common-size statements facilitate comparison across time periods and across ___.

Answer 77

companies of different sizes

Question 78

Two income-statement-based indicators of ___ are net profit margin and gross profit margin.

Answer 78

profitability

Question 79

Two income-statement-based indicators of profitability are ___ and gross profit margin.

Answer 79

net profit margin

Question 80

Two income-statement-based indicators of profitability are net profit margin and ___.

Answer 80

gross profit margin

Question 81

___ includes both net income and other revenue and expense items that are excluded from the net income calculation.

Answer 81

Comprehensive income

Question 82

Comprehensive income includes both ___ and other revenue and expense items that are excluded from the net income calculation.

Answer 82

net income

Question 83

Comprehensive income includes both net income and ___.

Answer 83

other revenue and expense items that are excluded from the net income calculation