Exam 2

Question 1

Which of the following would an accountant report on both the statement of stockholders equity and the balance sheet

Answer 1

Accumulated other comprehensive income

Question 2

With regard to comprehensive income how does net income differ in a one statement approach compared to a two statement approach?

Answer 2

Net income is reported as a subtotal in a one statement approach but as a total on a two statement approach

Question 3

For the first quarter of 2018, Kabak industries paid a dividend of $500,000 to stockholders. The accountants at Kabak should record this distribution on the

Answer 3

Retained earnings statement

Question 4

Items that would be presented in the income statement only in the account affected and not in a separate section include

Answer 4

Changes in estimates

Question 5

Which of the following is a common line item on the income statement when reporting earnings per-share

Answer 5

Income from discontinued operations, net of tax

Question 6

Discontinued operations are reported in the income statement because of a concept called the

Answer 6

Modified all-inclusive concept

Question 7

Which item would likely be reported on the income statement as other expenses and losses?

Answer 7

Interest paid on bonds

Question 8

The IS for Byrd Enterprises shows “income from operations” in the amt. of $472000. Dividend revenue is $282000 and interest expense on bonds and notes is $117000. Thus, the “income before income tax” is?

Answer 8

$637000

Question 9

Which of the following is a benefit of a multi step income statement compared to the single step income statement

Answer 9

Multi step income statement shows gross margin and recognizes different types of costs and expenses

Question 10

Which of the following transactions would be least likely to have an effect on the income for 2017?

Answer 10

Correction of an error in the financial statements of a prior period Discovered subsequent to their issuance

Question 11

Which of the following is the primary reason the income statement is important to investors and creditors

Answer 11

Because of its ability to help predict the amount, timing, and uncertainty of Future cash flows

Question 12

3 ways to display other comprehensive income

Answer 12

Combined statement of RE
One statement approach
Two statement approach

Question 13

Gross profit

Answer 13

Sales - COGS

Question 14

In the statement of comprehensive income, the components of other comprehensive income are added to or subtracted from…?

Answer 14

Net income (loss)

Question 15

What are 3 things that creditors/investors use the IS for?

Answer 15

Evaluate the past performance of the company
provide a basis for predicting future performance
help assess the risk or uncertainty of achieving future cash flows

Question 16

Name 3 limitations of the IS:

Answer 16

Companies omit items from the income statement that they cannot measure reliably
income numbers are affected by the accounting methods employed
Income measurement involves judgment

Question 17

Elements of the income statement

Answer 17

Revenues
Expenses
Gains
Losses

Question 18

Main categories for single step IS

Answer 18

Revenues
Expenses
Net income

Question 19

Main categories for multi step IS

Answer 19

Sales
COGS
op. Exp. 
admin exp
Income from op. 
Other revenues and gains
Other exp. and losses
Net income for the year

Question 20

Advantages of multi-step

Answer 20

Disclosure of net sales because Cabrera reports regular revenues as a separate item

• reporting GP provides a useful # for evaluating performance and predicting future earnings
• disclosing income from op. Highlights the diff. Btwn regular and non-recurring or incidental activities

Question 21

Income statement sections

Answer 21

Operating section
Nonoperating section 
Income tax
Discontinued operations
Non-controlling interest 
EPS

Question 22

Common unusual or infrequent gains and losses

Answer 22

Losses on write-down of receivables; inventories; property/plant/equip.; good will or other intangible assets
Restructuring charges
Gain-loss from sale or abandonment of prop/plant/equip
Effects of a strike, including those against competition and major suppliers
Gains/losses related to casualties(fire/flood)
Gains/losses on extinguishment of debt obligations
Gains/losses on sale of investment securities

Question 23

A report of discontinued operations on income net of tax…is the tax added to it within the income statement of period
…is applied on income statement to discontinued operations and income from continued operation

Answer 23

Intraperiod tax allocation

Question 24

Discontinue operations occur when what 2 things happen?

Answer 24

1) A company eliminates the results of operations of a component of the business
2) The illumination of a component that represents a strategic shift, having a major effect on the company’s operations and financial results

Question 25

Formula for EPS

Answer 25

Net income - preferred dividends/

Weighted average common shares outstanding

Question 26

The portion of equity (net assets) interest in a subsidiary not attributable to the parent company

Answer 26

Noncontrolling interest

Question 27

Change in method of inventory pricing; FIFO to LIFO…
recorded as adjustment to beginning beginning retained earnings of earliest year presented
must make a retrospective adjustment(change all previous years)

Answer 27

Changes in accounting principle

Question 28

(Useful lives, salvage value, uncollectibles)

In period of change if they Affect only that period Or in the period of change in future. If the change affects both

Answer 28

Change in estimates

Question 29

Make proper entries in the account and report corrections in financial statements

Answer 29

Corrections of prior period errors

Question 30

How does allowance for DA affect the IS?

Answer 30

Reported in IS in the operating section

Question 31

Companies included items that bypass the income statement in a measure called…

Answer 31

Comprehensive income

Question 32

How is other comprehensive income displayed?

Answer 32

1) A single continuous statement

2) two separate but consecutive statements of net income and other comprehensive income

Question 33

Non-owner changes in equity that bypass the income statement

Answer 33

Other comprehensive income

Question 34

Elements of comprehensive income

Answer 34

All revenues and gains, expenses and losses reported in net income, and all gains and losses that bypass net income but affect stockholders equity

Question 35

Cash and other assets that the company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer

Answer 35

Current assets

Question 36

Examples of short-term investments

Answer 36

Held-to-maturity
Trading
Available-for-sale

Question 37

4 types of long-term investments

Answer 37

1) investments in securities such as bonds, common stock, or long-term notes
2) investments set aside in special funds, such as a sinking fund, pension fund, or plant expansion fund. This includes the cash surrender value of life insurance
3) investments in tangible fixed assets not currently used in operations, such as land held for speculation
4) investments in nonconsolidated subsidiaries or affiliated companies

Question 38

Obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities

Answer 38

Current liabilities

Question 39

Obligations that a company does not reasonably expect to liquidate within the normal operating cycle

Answer 39

Longterm liabilities