General Purpose Financial Statements - WIley

Question 1

Define “current liability.”

Answer 1

A liability expected to be extinguished through the use of current assets or by the incurrence of other current liabilities

Question 2

How are current assets listed on the balance sheet?

Answer 2

Declining order of liquidity

Question 3

Define “measurement base.”

Answer 3

The attribute of an account being measured and reported

Question 4

Describe the formula for quick or acid test ratio.

Answer 4

(Cash + Short-term investments + Accounts receivable)/Current liabilities

Question 5

Define “net realizable value.”

Answer 5

The amount the firm expects to receive from the sale or collection of an item

Question 6

What is a valuation account used for?

Answer 6

Used to increase or decrease the book value of an item to a measure of current value

Question 7

What is the operating cycle?

Answer 7

The period of time from the purchase of inventory, to payment of the payable on inventory purchase, to the sale of goods, to the collection of receivable, and then to purchasing inventory all over again

Question 8

What is another name for the balance sheet?

Answer 8

The statement of financial position

Question 9

Define “expenses.”

Answer 9

Decreases in net assets or incurrence of liabilities through the provision of goods or services

Question 10

Define “gains.”

Answer 10

Increases in equity or net assets from peripheral or incidental transactions

Question 11

Define “losses.”

Answer 11

Decreases in equity or net assets from peripheral or incidental transactions

Question 12

What items are not shown on the income statement?

Answer 12

1. Prior-period adjustments
2. Foreign currency translation adjustments
3. Unrealized gains and losses on available for sale (AFS) securities
4. Unrecognized pension items
5. Cumulative effect of changes in accounting principle
6. Unrealized gains and losses on cash flow hedges

Question 13

What is economic income?

Answer 13

The change in the net worth of a business enterprise during an accounting period

Question 14

What is the order of income statement presentation?

Answer 14

1. Income from continuing operations
2. Income from discontinued operations (net of tax)
3. Net income

Question 15

How are unusual and/or infrequent items reported?

Answer 15

They must be separately reported if material as a component of income from continuing operations.

Question 16

What represent increases in net assets or settlements of liabilities by providing goods and services?

Answer 16

Revenues

Question 17

Does accounting income take a transactions-based determination of income or a change in net worth?

Answer 17

Accounting income is transaction based.

Question 18

What does the single-step income statement present?

Answer 18

Total revenues and gains less total expenses and losses

Question 19

What does the multiple-step income statement present?

Answer 19

Includes multiple subtotals of revenues, expenses, gains, and losses Sales - Cost of Goods Sold = Gross profit; Gross profit - Operating expenses = Income from operations; Income from operations + or − Other income / expenses= Income before taxes Income before taxes − Taxes = Net Income

Question 20

What is operating margin?

Answer 20

The excess of operating revenues over operating expenses

Question 21

What is comprehensive income?

Answer 21

Net income plus or minus unrealized gains and losses on securities available for sale, unrealized pension cost, certain unrealized gains and losses on derivatives, and foreign currency translation adjustments

Question 22

What are other comprehensive income items?

Answer 22

1. Unrealized gains and losses on securities available for sale
2. Unrecognized pension gains and losses
3. Foreign currency translation adjustments
4. Certain derivative gains and losses

Question 23

What type of account is accumulated other comprehensive income (AOCI)?

Answer 23

Owner’s equity

Question 24

What are the two ways of reporting comprehensive income?

Answer 24

1. As a separate statement of comprehensive income

2. As part of the income statement

Question 25

What are the types of statements of other comprehensive income?

Answer 25

1. Single statement of net income and comprehensive income

2. Two separate statements: a statement of net income and a statement of comprehensive income

Question 26

What is net income plus or minus other components of comprehensive income?

Answer 26

Comprehensive income

Question 27

What are the forms of the statement of comprehensive income?

Answer 27

1. Single statement

2. Two statements

Question 28

What is the main purpose of disclosing comprehensive income?

Answer 28

To report the net change in equity in a single amount

Question 29

What is other comprehensive income (OCI) reclassification adjustment?

Answer 29

When an OCI item from a previous year is removed from accumulated other comprehensive income (AOCI)

Question 30

List the other names for statement of changes in equity.

Answer 30

1. Statement of changes in owners’ equity
2. Owners’ equity statement
3. Statement of shareholders’ equity
4. Statement of owners’ equity

Question 31

In what type of format does the statement of changes in equity appear?

Answer 31

The format is vertical and horizontal.

Question 32

How are accounts listed in the vertical format?

Answer 32

They are listed in separate columns.

Question 33

What do vertical format statements allow accountants to do?

Answer 33

Check accuracy by comparing total owner’s equity (OE) computed as (1) the sum of each transaction affecting OE and (2) the sum of individual OE account balances

Question 34

Does accumulated other comprehensive income (AOCI) have its own column in the vertical format?

Answer 34

Yes, it has its own column.

Question 35

How many years of owners’ equity (OE) must be reported by Securities and Exchange Commission (SEC) registrants?

Answer 35

Three years of OE statements

Question 36

Is the statement of changes in equity required under international financial reporting standards (IFRS)?

Answer 36

Yes, it is required.