FAR-2 Flashcards
Which of the following statements is correct regarding reporting comprehensive income?
Comprehensive income must include all changes in shareholders’ equity for the period.
A separate statement of comprehensive income is required.
Accumulated other comprehensive income is reported in the equity section of the balance sheet.
Comprehensive income is reported in the year-end statements but not in the interim statements.
Accumulated other comprehensive income is reported in the equity section of the balance sheet.
Total other comprehensive income is transferred to a component of equity separate from retained earnings and additional paid-in capital.
A statement of financial position provides a basis for all of the following except
Determining profitability and assessing past performance.
Assessing liquidity and financial flexibility.
Computing rates of return.
Evaluating capital structure.
Determining profitability and assessing past performance.
The statement of financial position, also known as the balance sheet, reports an entity’s financial position at a moment in time. It is therefore not useful for assessing past performance for a period of time. A balance sheet can be used to help users assess liquidity, financial flexibility, profitability, and risk.
As of December 1, Year 2, a company obtained a $1,000,000 line of credit maturing in 1 year on which it has drawn $250,000, a $750,000 secured note due in 5 annual installments, and a $300,000 3-year balloon note. The company has no other liabilities. How should the company’s debt be presented in its classified balance sheet on December 31, Year 2, if no debt repayments were made in December?
Current liabilities of $400,000; long-term liabilities of $900,000.
Current liabilities of $1,000,000; long-term liabilities of $1,050,000.
Current liabilities of $500,000; long-term liabilities of $1,550,000.
Current liabilities of $500,000; long-term liabilities of $800,000.
Current liabilities of $400,000; long-term liabilities of $900,000.
Current liabilities are obligations that are expected to be fulfilled within 1 year or the operating cycle, whichever is longer. Thus, the $250,000 of credit drawn and the current portion of the secured note ($750,000 ÷ 5 years = $150,000) are considered current liabilities ($250,000 + $150,000 = $400,000). The 3-year balloon note and the noncurrent portion of the secured note of $600,000 ($750,000 – $150,000) will be classified as long-term liabilities ($300,000 + $600,000). A balloon note is a loan in which only one payment is due upon maturity.
Which of the following items is not subject to the application of intraperiod income tax allocation?
Income from continuing operations.
Other comprehensive income.
Operating income.
Discontinued operations.
Operating income.
Items included in the determination of taxable income may be presented in different sections of the financial statements. Accordingly, intraperiod tax allocation is required. Income tax expense or benefit is allocated to (1) continuing operations, (2) discontinued operations, (3) other comprehensive income, and (4) items debited or credited directly to shareholders’ equity. Operating income is not one of the categories of income subject to intra-period income tax allocation.
A receivable classified as current on the statement of financial position is expected to be collected within
The current operating cycle.
The current operating cycle or 1 year, whichever is shorter.
1 year.
The current operating cycle or 1 year, whichever is longer.
The current operating cycle or 1 year, whichever is longer.
Current assets are reasonably expected to be realized in cash, sold, or consumed during the normal operating cycle of the business or within 1 year, whichever is longer. The operating cycle is the time between the acquisition of materials or services and the final cash realization from the earning process.
Rock Co.’s financial statements had the following balances at December 31:
Infrequently occurring gain $ 50,000
Foreign currency translation gain 100,000
Net income 400,000
Unrealized gain on available-for-sale 20,000
debt securities
What amount should Rock report as comprehensive income for the year ended December 31? $570,000 $420,000 $520,000 $400,000
$520,000
Comprehensive income includes all changes in equity of a business entity except those changes resulting from investments by owners and distributions to owners. Comprehensive income includes two major categories: net income and other comprehensive income (OCI). Net income includes the results of continuing and discontinued operations. Components of comprehensive income not included in the determination of net income are included in OCI, for example, unrealized gains and losses on available-for-sale debt securities and certain foreign currency items, such as a translation adjustment. The infrequently occurring gain of $50,000 has already been included in the determination of net income.
Thus, comprehensive income equals $520,000 ($400,000 net income + $100,000 translation gain + $20,000 unrealized gain on available-for-sale securities).
The following items were among those that were reported on Lee Co.’s income statement for the year ended December 31, Year 1:
Legal and audit fees $170,000
Rent for office space 240,000
Interest on inventory floor plan 210,000
Loss on abandoned data processing 35,000
equipment used in operations
The office space is used equally by Lee’s sales and accounting departments. What amount of the above-listed items should be classified as general and administrative expenses in Lee’s multiple-step income statement? $500,000 $410,000 $290,000 $325,000
$290,000
The interest expense and the loss on the abandoned data processing equipment should be classified as other expenses. The legal and audit fees and one-half of the rent for the office space should be classified as general and administrative expenses. The total is $290,000 [$170,000 + ($240,000 × 50%)].
