Chapter 11 Financial Accounting

Question 1

Continuing Operations

Answer 1

Income from day to day normal business activities

Question 2

What 3 things does Continuing Operations include?

Answer 2

Revenues and operating expenses
Gains and losses
Income tax expense

Question 3

Discontinued Operations

Answer 3

Company sells a segment of the business

Question 4

How is Discontinued Operations recorded?

Answer 4

Reported beneath income from continuing operations

Question 5

Extraordinary Items

Answer 5

Gains and losses that are both infrequent and unusual

Question 6

What do Extraordinary Items include?

Answer 6

Include losses from natural disasters and expropriation of assets by foreign governments

Question 7

What do Extraordinary Items NOT include?

Answer 7

Does not include gains and losses from lawsuits, restructuring or sale of Plant Assets

Question 8

How are Extraordinary Items recorded?

Answer 8

Reported after continuing operations net of income taxes

Question 9

Cumulative Effect of Change in Accounting Method

Answer 9

Change from one Accounting method to another

Question 10

What are 2 examples of Cumulative Effect of Change in Accounting Method?

Answer 10

FIFO to LIFO

Straight Line depreciation to double declining balance

Question 11

What does Cumulative Effect of Change in Accounting Method make difficult?

Answer 11

To compare year to year statements

Question 12

How is Cumulative Effect of Change in Accounting Method reported?

Answer 12

Reported in special section usually after Extraordinary Items

Question 13

How is Earning Per Share (EPS) recorded?

Answer 13

Recorded for each element of net income

Question 14

Comprehensive Income

Answer 14

Change in stockholders equity from all non owner transactions

Question 15

What is the Federal Corporate Income Tax Rate?

Answer 15

21%

Question 16

For corporate income tax expense what are 2 characteristics of income tax expense?

Answer 16

Reported on income statement

Based on current year earnings

Question 17

For corporate income tax expense what are 2 characteristics of income tax payable?

Answer 17

Current liability on the balance sheet

Amount to be paid to government

Question 18

What are the differences between Accounting income and taxable income in terms of the income statement?

Answer 18

Reports results of operations

Based on accrual Accounting

Question 19

What are the differences between Accounting income and taxable income in terms of the income tax return?

Answer 19

Filed with IRS to determine taxes owed

Based on tax laws

Question 20

What are the differences between Accounting income and taxable income in terms of depreciation common difference?

Answer 20

Straight line for accounting purposes

Accelerated for tax purposes

Question 21

Deferred Taxes

Answer 21

When corporations use different methods for accounting and taxes

Question 22

In terms of deferred taxes income tax expense does not equal…

Answer 22

Income tax payable

Question 23

The result of deferred taxes is what?

Answer 23

A deferred tax liability or asset

Question 24

When income tax payable is greater than income tax expense it is what in terms of deferred taxes?

Answer 24

Deferred tax liability

Question 25

When income tax payable is less than income tax expense it is what in terms of deferred taxes?

Answer 25

Deferred tax asset

Question 26

Prior Period Adjustments

Answer 26

Correction of an accounting error from a previous period

Question 27

What is adjusted during prior period of adjustments?

Answer 27

Beginning retained earnings is adjusted for the amount of the error

Question 28

Managements Responsibility

Answer 28

Internal controls over financial reporting in accordance with GAAP

Question 29

What are 2 responsibilities that management has to fulfill in order to stay in accordance with GAAP?

Answer 29

Standard for preparing financial statements

-Designed to produce relevant and reliable information for investors and creditors

Question 30

Who do companies hire to perform their auditors report?

Answer 30

Certified Public Accountants (CPAs)

Question 31

When a Certified Public Accountant (CPAs) perform an examination it is called—-

Answer 31

External audit

Question 32

CPAs have to be what?

Answer 32

Independent of the company they are auditing

Question 33

What are the 4 types of audit reports?

Answer 33

Unqualified
Qualified
Adverse
Disclaimer

Question 34

Unqualified audit report

Answer 34

Clean opinion, statements are fairly presented

Question 35

Qualified Audit Report

Answer 35

Except for opinion, statements are reliable except for one or more Items

Question 36

Adverse Audit Report

Answer 36

Statements are unreliable and not in according with GAAP

Question 37

Disclaimer Audit Report

Answer 37

No opinion, auditor was unable to form an opinion

Question 38

Sustainability Reporting

Answer 38

A process for publicly disclosing an organizations economic, environmental and social performance

Question 39

What are 4 benefits of Sustainability Reporting?

Answer 39

Better Reputation
Meeting the expectations of employees
Improved access to capital
Increased efficiency and waste reduction

Question 40

What are 2 costs of Sustainability Reporting?

Answer 40

Greater transparency

Expensive