Chapter 4

Question 0

Income statement limitations

Answer 0

1) Companies omit items that cannot be measured reliably
2) income is affected by the accounting methods employed
3) income measurement involves judgement

Question 1

Usefulness of income statement

Answer 1

1) evaluate past performance
2) predicting future performance
3) help assess the risk or uncertainty of achieving future cash flows

Question 2

Elements of the income statement

Answer 2

1) Revenues
2) expenses
3) gains
4) losses

Question 3

Revenues

Answer 3

Inflows or other enhancements of assets or settlements of liabilities that constitute the entity’s ongoing major or central operations

Question 4

Expenses

Answer 4

Outflows or other using up of assets or incurrences of liabilities that constitute the entity’s ongoing major or central operations

Question 5

Gains

Answer 5

Increases in equity from peripheral or incidental transactions

Question 6

Losses

Answer 6

Decreases in equity from peripheral or incidental transactions

Question 7

Single step income statement

Answer 7

Revenues
(Expenses)
= net income

No distinction between operating and non-operating categories

Question 8

Intermediate components of the multiple step income statement

Answer 8

1. Operating section
2. Nonoperating section
3. Income tax
4. Discontinued operations
5. Extraordinary items
6. Earnings per share

Question 9

Irregular item categories

Answer 9

1. Discontinued operations 
2 extraordinary items 
3 unusual gains and losses 
4 changes in accounting principle
5 changes in estimates
6 corrections of errors

Question 10

Discontinued operations

Answer 10

1. Company eliminates the results of operations and cash flows of a component.
2. There is no significant continuing involvement in that component.