Chapter 4 Flashcards

1
Q

The income statement can be used to assess:

liquidity.

solvency.

creditworthiness.

all of these answer choices are correct.

A

creditworthiness.

The business and investment community uses the income statement to determine profitability, investment value, and creditworthiness.

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2
Q

The ________ approach focuses on the income-related activities that have occurred during the period.

transaction.

capital maintenance.

earnings quality.

classification.

A

transaction

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3
Q

Which of the following occur from peripheral or incidental transactions?

Sales revenue.

Cost of goods sold.

Gain on the sale of equipment.

Operating expenses.

A

Gain on the sale of equipment.

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4
Q

In the single-step income statement:

interest revenue and rental revenue are reported as other revenues and gains.

just two groupings exist - revenues and expenses.

expenses are classified by functions, such as merchandising, selling and administration.

an income from operations figure is presented.

A

just two groupings exist - revenues and expenses.

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5
Q

Which of the following is an acceptable method of presenting the income statement?

A classified income statement.

A current operating performance income statement.

A condensed income statement.

None of these answer choices are correct.

A

A condensed income statement.

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6
Q

How should an unusual event not meeting the criteria for an extraordinary item be disclosed in the financial statements?

Shown as a separate item in operating revenues or expenses if material and supplemented by a footnote if deemed appropriate.

Shown in operating revenues or expenses if material but not shown as a separate item.

Shown net of income tax after ordinary net earnings but before extraordinary items.

Shown net of income tax after extraordinary items but before net earnings.

A

Shown as a separate item in operating revenues or expenses if material and supplemented by a footnote if deemed appropriate.

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7
Q

Which of the following is not considered an irregular item on the income statement?

Income tax expense.

Extraordinary gains.

Discontinued operations.

Extraordinary losses.

A

Income tax expense.

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8
Q

Noncontrolling interest:

Is not shown on the face of the income statement.

Is reported as a separate item below net income or loss.

Is shown in a separate section of the income statement after continuing operations but before extraordinary items, net of tax.

Is shown in a separate section of the income statement after extraordinary items, net of tax.

A

Is reported as a separate item below net income or loss.

Noncontrolling interest is reported as a separate item below net income or loss as an allocation of the net income or loss (that is, it is not an item of income or expense).

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9
Q

Extraordinary items must be either unusual in nature or infrequent in occurrence.

True

False

A

False

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10
Q

Income reporting follows which of the following approaches?

Current operating performance.

Modified all-inclusive.

All-inclusive.

Modified current operating performance.

A

Modified all-inclusive.

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11
Q

Companies are required to highlight certain items in the financial statements so that users can better determine the long-run earning power of the company. Which of the following is not one of those items?

Unusual gains and losses.

Noncontrolling interest.

Changes in accounting principle.

Discontinued operations.

A

Changes in accounting principle.

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12
Q

Earnings per share (EPS) is calculated using only the weighted average number of shares of common stock outstanding.

True

False

A

True

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13
Q

A change in the method of inventory pricing from FIFO to LIFO would be accounted for as a (an):

part of discontinued operations.

extraordinary item.

change in accounting principle.

change in estimate.

A

change in accounting principle.

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14
Q

When a company transfers an amount of restricted retained earnings into a different account, that account is titled

Appropriated Retained Earnings.

Unappropriated Retained Earnings.

Noncontrolling Retained Earnings.

Comprehensive Retained Earnings.

A

Appropriated Retained Earnings.

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15
Q

Gains and losses that bypass net income but affect stockholders’ equity are referred to as:

comprehensive income.

other comprehensive income.

prior period income.

unusual gains and losses.

A

other comprehensive income.

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16
Q

The nature-of-expense method:

is simple to apply.

is viewed as more relevant.

identifies the major cost drivers of the company.

all of these answer choices are correct.

A

is viewed as more relevant.

The function-of-expense method is viewed as more relevant because it identifies the major cost drivers of the company and therefore helps users assess whether these amounts are appropriate for the revenue generated.