Chapter 3 - Income Statement and Comprehensive Income

Question 1

how many years does the IS report?

Answer 1

3

Question 2

Single-step often still presents

Answer 2

income before income taxes

Question 3

Section 1 of MS IS

Answer 3

Operating

Question 4

Section 2 of MS IS

Answer 4

Non-Operating

Question 5

Section 3 of MS IS

Answer 5

Income Tax Provision

Question 6

Section 4 of MS IS

Answer 6

Discontinued operations

Question 7

Section 5 of MS IS

Answer 7

NI and EPS

Question 8

Nature approach to classifying expenses

Answer 8

classifies by the source of the expense

Question 9

Functional approach to classifying expenses

Answer 9

by the use of the expense

Question 10

tools to “manage” earnings

Answer 10

income smoothing, classification shifting, “borrow” from tomorrow

Question 11

restructuring costs are classified as…

Answer 11

operating expense

Question 12

restructuring costs are recognized in the period of

Answer 12

exit or disposal

Question 13

Buffalo Manufacturing Company is restructuring and closing the platinum mining
division. The mine will be closed and its assets sold off over the course of the
next three years. When should the costs related to the closing of the mine be
recognized?

Answer 13

in the year the costs are actually incurred

Question 14

examples of unusual/infrequent items

Answer 14

casualty loss, impairment of assets, unusual sale

Question 15

where to report unusual items

Answer 15

a separate item in an income from continuing operations

Question 16

report discontinued operations when

Answer 16

1. a COMPONENT of an entity has been sold, disposed, or held for sale
2. disposal represents a strategic shift that will have a major effect on the company

Question 17

when the discontinued component is sold before the end of the reporting period, the income effects will be

Answer 17

1. income or loss from operations
2. gain or loss on the disposal

Question 18

when the discontinued component has not been sold before the end of the reporting period, the income effects will be

Answer 18

1. income or loss from operations
2. impairment loss

Question 19

Basic EPS =

Answer 19

(Net income - preferred dividends)/ weighted average # of common shares

Question 20

comprehensive income =

Answer 20

Net income + OCI

Question 21

OCI flows to

Answer 21

accumulated OCI on balance sheet

Question 22

NI flows to

Answer 22

RE on icon statement

Question 23

OCI is a special type of…

Answer 23

gains and losses not included in the income statement

Question 24

OCI valuation adjustment sources

Answer 24

pensions unrealized holding gains/losses on certain debt investments, unrelated holdings on certain derivatives, foreign currency derivatives

Question 25

Common characteristics of OCI

Answer 25

low probability of cash realization in the short run, transitory with high volatility, not part of normal operations

Question 26

record OCI on a ____ basis in the balance sheet and as ______

Answer 26

cumulative, additional component of SE

Question 27

Statement of SE components

Answer 27

paid-in capital, RE, accumulated OCI

Question 28

changes in estimates should be accounted for on a ____ basis

Answer 28

prospective (do not change prior results)

Question 29

voluntary change in accounting principle should be accounted for in a ______ adjustment

Answer 29

retrospective (rewrite history)

Question 30

record material error in…

Answer 30

the period the error is discovered