Chapter 4

Question 1

Accrual Accouting

Answer 1

the process that accountants raw transaction data into refined measures of a firm’s economic performance

Question 2

Comprehensive Income

Answer 2

the number used to reflect an overall measure of the change in a company’ wealth during the period

Question 3

Cost of Goods Sold

Answer 3

when a business sells good to customers, the cost of the goods sold is recorded as an expense

Question 4

Discontinued Operations

Answer 4

report the Hughes results in a separate category called income from discontinued operations

Question 5

Earnings Per Share (EPS)

Answer 5

the amount of net income associated with each share of stock

Question 6

Economic Value Added

Answer 6

a system of earnings-based compensation

Question 7

Expanded Accounting Equation

Answer 7

Assets = Liabilities + Paid-in-Capital + (Revenues - Expenses - Dividends)

Question 8

Expenses

Answer 8

the value of resources used in generating the reported revenue

Question 9

Extraordinary Items

Answer 9

gains and losses that result from transactions that are both unusual in nature and infrequent in occurrence

Question 10

Financial Capital Maintenance

Answer 10

the approach that accountants typically use in computing a company’s income is the first option described above in which inflation is ignored and a company is said to have income when its financial increase

Question 11

Gain

Answer 11

the amount of a company makes money on activities that are peripheral to its primary options

Question 12

Gross Profit

Answer 12

the difference between the selling price of the product and the cost of the product

Question 13

Income From Continuing Operations

Answer 13

the segments of a company’s business that it considers to be normal, and expects to operate in for the foreseeable future

Question 14

Loss

Answer 14

the of a company loses money on activities that are peripheral to its primary operation

Question 15

Matching

Answer 15

the concept typically used in practice to determine when an expense should be recognized

Question 16

Multiple-Step Income Statement

Answer 16

the multi-step income statement includes multiple sub-totals within the income statement

Question 17

Net Income

Answer 17

the accountant’s attempt to summarize in one number the overall economic performance of a company for a given period

Question 18

Operating Income

Answer 18

the performance of the fundamental business operations conducted by a company

Question 19

Physical Capital Maintenance

Answer 19

income is earned only when one experiences an increase in actual physical resources

Question 20

Restructuring Changes

Answer 20

the fact that companies have exercised considerable discretion in determining the amount and timing of a restructuring charge

Question 21

Revenue

Answer 21

the value of the goods and services provided by a company in its business operations

Question 22

Revenue Recognition

Answer 22

a cornerstone of accrual accounting together with matching principle. They both determine the accounting period, in which revenues and expenses are recognized

Question 23

Single-Step Income Statement

Answer 23

with this format, all revenues are grouped together, all expenses are grouped together, and net income is computed as the difference between total revenues and total expenses