Chapter 4. The income statement, comprehensive income, and the statement of cash flow Flashcards

1
Q

_________ represent the costs of providing goods & services

A

Expenses

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2
Q
Which of the following items are classified as cash outflows from operating activities on the statement of cash flows
A) Retirement of common stock
B) purchase of supplies
C) interest paid on bonds
D) purchase of a building
E) Payment on account
A

B) purchase of supplies
C) interest paid on bonds
E) Payment on account

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3
Q
Which of the following is an increase in equity that is not a direct result from operations but is from a peripheral or incidental transaction?
A) Revenue
B) gain
C) other comprehensive income
D) Loss
A

B) gain

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4
Q

True or False Net income is a portion of comprehensive income

A

True

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5
Q

The _______ ________ establishes a causal relationship between revenues and expense of the same period

A

Matching principle

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6
Q

what is comprehensive income

A

is defined as the total change in equity for a reporting period other than transactions with owners.
Traditional net income plus other non-owner changes in equity

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7
Q

An inflow of resources resulting from providing goods or services to customers is a ____________ _____________

A

Revenue Account

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8
Q
Identify which items on an income statement are included in calculating income from continuing operations
A) Loss
B) interest expense
C) discontinued Operations
D) Revenue
A

A) Loss
B) interest expense
D) Revenue

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9
Q

List the two items that are excluded from continuing operations on the income statement

A

Extraordinary items

Discontinued operations

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10
Q

Pro forma earnings are
A) exclusively used for financial statement analysis
B) managements estimates and view of earnings
C) historical earnings for the previous 3 years
D) a good performance measure because they are audited

A

B) managements estimates and view of earnings

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11
Q

The three types of accounting changes are a ________ a ________ and a ________

A

a change in accounting principle
a change in accounting estimate
a change in reporting entity

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12
Q

When a component has been sold and qualifies for treatment as a discontinued operation, the reported income effects disclosed will include which of the following items?
A) operating income or loss from the date the decision was made to dispose of component
B) no effects from income, but gains from disposal of the component
C) Gain or loss on disposal of the components assets
D) operating income or loss of the component from the beginning of the reporting period to the disposal date

A

C) Gain or loss on disposal of the components assets

D) operating income or loss of the component from the beginning of the reporting period to the disposal date

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13
Q

The cumulative total of other comprehensive income is reported as ______

A

accumulated other comprehensive income

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14
Q

What are Extraordinary items

A

Material events and transactions that are both unusual in nature and infrequent in occurrence

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15
Q

What are Discontinued operations

A

is a component that either (a) has been disposed of or (b) is classified as held for sale.
The cash flows must be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity

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16
Q
An extraordinary item is a material event that is both
A) a result of a normal business risk
B) unusual in nature
C) a major loss from operations
D) infrequent in occurrence
A

B) unusual in nature

D) infrequent in occurrence

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17
Q

The two approaches for preparing an income statement are ______ and ________

A

Single, multi-step

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18
Q

Earnings quality refers to
A) the ability of reported earnings to predict future earnings
B) the strength of the regression model used to analyze earnings
C) the historical earnings of the company
D) the earnings score assigned by a financial analyst

A

A) the ability of reported earnings to predict future earnings

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19
Q

Accumulated other comprehensive income represents
A) gains and losses reported in net income for the period
B) the change in retained earnings from net income of the period
C) extraordinary items reported in earnings of the period
D) the total of other comprehensive income to date

A

D) the total of other comprehensive income to date

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20
Q

Comprehensive income includes net income as well as other ______ and _______ that change shareholders equity but are not included in traditional net income

A

Gains, Losses

21
Q

If a component of the business qualifies for discontinued operations treatment, which of the following statements are true.
A) The tax expense effect is removed from continuing operations
B) Revenue fro the discontinued operations is listed immediately below revenue in the operating section of the income statement
C) All revenues, expenses, gains, and losses must be removed from continuing operations
D) Revenues and expenses are reported in continuing operations but gains and losses are reported as discontinued operations

A

C) All revenues, expenses, gains, and losses must be removed from continuing operations

22
Q

A prior period adjustment requires an adjustment to
A) the ending balance of other comprehensive income
B) the income statement in the current year
C) the beginning balance of retained earnings
D) net income in the current year and future years

A

C) the beginning balance of retained earnings

23
Q

The formula for calculating an impairment of a discontinued operation held for sale is the _______ value of the component minus the _______ value of the component less costs to sell

A

Book, Fair

24
Q

Carol Corp has a component that is a discontinued operation. The revenues and expenses of the component were $100,000 and $160,000, respectively. The component was sold with a resulting gain of $200,000. The tax rate is 40%. What is the total gain or loss on discontinued operations (net of tax effects) that will be reported on the income statement

A

The loss from operating the component is $100,000 - $160,000 = (60,000). The loss from operating the discontinued operation is then netted against the gain on sale of the discontinued operations -$60,000 + $200,000 = $140,000. The gain net of tax is $140,000 x (1-0.40) = $84,000

25
Q

The accounting treatment required for a material error in financial statements that have been issued is to
A) account for the change retrospectively in the financial statements
B) account for the error prospectively in the financial statements
C) correct the error in the current year and in future years
D) restate the financial statements of the previous periods affected

A

D) restate the financial statements of the previous periods affected

26
Q

Prospectively

A

revising future years

27
Q

Retrospectively

A

revising prior years

28
Q

Net cash flos from financing activities represents the difference between the ______ and _________ of cash from financing activities

A

Inflows, Payments

29
Q
A change in accounting principle should be accounted for 
A) retrospectively
B) regressively
C) currently
D) prospectively
A

A) retrospectively (prior years)

30
Q

Which of the following situations qualifies for treatment as a change in accounting principle
A) change in inventory methods
B) Change in revenue recognition methods
C) Change from aging method to percent-of-credit sales metod for bad debts
D) change to a new standard issued by the FASB

A

A) change in inventory methods
B) Change in revenue recognition methods
D) change to a new standard issued by the FASB

31
Q

Roger Corporation reports accumulated other comprehensie income of $10 million at 12/31/12. For the year ended 12/31/13, the company reports net income of $12 million and total comprehensive income of $15 million. On 12/31/13, Roger Corporation should report accumulated other comprehensive income of

A

13 million

32
Q

The type of tax allocation that associates income tax expense with each major component of revenue is referred to as ___________ tax allocation

A

intraperiod

33
Q
When a company changes from one acceptable accounting method to another, this is treated as a change in accounting
A) estimate
B) principle
C) objectives
D) entity
A

B) principle

34
Q

Which of the following information must be included in the notes to the financial statements regarding discontinued operations
A) The major classes of assets and liabilities of the component
B) The reason for the discontinuance
C) The identity of the buyer of the component
D) The identify of the component
E) The number of employees affected by the discontinuance

A

A) The major classes of assets and liabilities of the component
B) The reason for the discontinuance
D) The identify of the component

35
Q

A change in depreciation method is accounted for by
A) retrospectively restating the prior year financial statement
B) prospectively applying the new method

A

B) prospectively applying the new method

36
Q

When a component classified as a discontinued operation is sold, what two elements are included in calculating the total gain or loss from discontinued operations displayed on the income statement
A) Revenues and expenses of the component
B) Extraordinary loss on the sale of the asset and the related tax benefit
C) Net income and loss on disposal of the component
D) operating income or loss for the period and gain or loss on disposal

A

D) operating income or loss for the period and gain or loss on disposal

37
Q

operating income includes

A

revenues and expenses directly related to the principal revenue-generating activities of the company

38
Q

non-operating income includes

A

gains and losses and revenues and expenses related to peripheral or incidental activities of the company

39
Q

Pro forma earnings are

A

actual (GAAP) earnings reduced by any expenses the reporting company feels are unusual and should be excluded

40
Q

Intraperiod tax allocation

A

Associates (allocates) income tax expenses (or income tax gross profit net sales benefit if there is a loss) with each major component of income that causes it.

41
Q

Other comprehensive income (OCI)

A

certain gains and losses that are excluded from the calculation of net income, but included in the calculation of comprehensive income

42
Q

Accumulated other comprehensive income (AOCI)

A

amount of other comprehensive income (non-owner changes in equity other than net income) accumulated over the current and prior periods

43
Q

Financial activities on statement of cash flow includes

A

cash inflows and outflows from transactions with creditors and owners

44
Q

Income statement includes the following main sections

A

1) Income from continuing operations
2) Separately reported items
3) Earnings per share

45
Q

Income from continuing operations includes

A

1) operating income (day to day)
2) Other income (Interest, gain,)
3) 1 + 2 = income from continuing operations before income taxes and extraordinary item
4) 3 - Income tax expenses = Income from continuing operations before extraordinary items

46
Q

Separately reported items includes

A

1) Discontinued operations (loss or gain)
2) Income tax benefit
3) = 1+2 = Loss on discontinued operations
4) Income from continuing operations before extraordinary items (D&E) - 3 = Net income

47
Q

Income statement includes the following main sections

A

1) Income from continuing operations
2) Separately reported items
3) Earnings per share

48
Q

Income from continuing operations includes

A

1) operating income (day to day)
2) Other income (Interest, gain,)
3) 1 + 2 = income from continuing operations before income taxes and extraordinary item
4) 3 - Income tax expenses = Income from continuing operations before extraordinary items

49
Q

Separately reported items includes

A

1) Discontinued operations (loss or gain)
2) Income tax benefit
3) = 1+2 = Loss on discontinued operations
4) Income from continuing operations before extraordinary items (D&E) - 3 = Net income