Chapter 2: Financial Statements

Question 1

Gains from extinguishment of debt are most likely classified in

Answer 1

Income from continuing operations

Question 2

Foreign currency translation adjustments are initially recognized as components of

Answer 2

OCI

Question 3

Comprehensive income consists of

Answer 3

Net income and OCI

Question 4

An entity presents a full set of statements and is required to report comprehensive income. Accordingly, comprehensive income must be displayed in

Answer 4

One continuous statement or two separate by consecutive statements

Question 5

At the end of the each report period, other comprehensive income is closed to

Answer 5

Accumulated OCI

Question 6

In Year 1, an entity recognized an unrealized holding loss on bonds. The decline in the fair value below amortized cost was not due to credit losses. These bonds were classified as available-for-sale securities in the balance sheet. In year 2, the bonds were sold at a loss. The pre-tax entry to record the sale is

Answer 6

Debit loss and credit OCI

A decline in the fair value of an available-for-sale debt security below amortized cost that is not due to credit losses is recognized in OCI. Reclassification adjustments must be made for each component of OCI.

Cash $XX,XXX
Loss (to earnings) X,XXX
Bonds $XX,XXX
OCI (a reclassification adjustment) X,XXX

Question 7

Balance Sheet Classification

Preferred stock

Answer 7

Capital stock

Preferred stock’s par or stated value for shares issued is classified as

Question 8

Balance Sheet Classification

Trade Accounts Payable

Answer 8

Current liabilities

Question 9

Balance Sheet Classification

Bonds payable (due in 15 years)

Answer 9

Noncurrent liabilities

Question 10

Balance Sheet Classification

Note payable (due in 7 months)

Answer 10

Current liabilities

Question 11

Balance Sheet Classification

Direct costs of issuing common stock

Answer 11

Additional paid-in capital

Reduces both the net proceeds received and APIC

Question 12

Balance Sheet Classification

Tresury stock (at cost)

Answer 12

Other classification (Contra-equity account)

Recorded at cost is a reduction of total equity (a debit).

Question 13

Balance Sheet Classification

Appropriation for contingencies

Answer 13

Retained Earnings

Question 14

Balance Sheet Classification

Discount on bonds payable

Answer 14

Noncurrent liabilities

Linked to bond payable

Question 15

Balance Sheet Classification

Bonds on payable issue costs

Answer 15

Noncurrent liabilities

Linked to bond payable