Income Statement

Question 1

What is the income statement useful for?

Answer 1

Determining profitability, value for investment purposes, and credit worthiness

Question 2

What is mneumonic for the presentation order of the major components of an income statement?

Answer 2

IDE

Question 3

What is the presentation order of the major components of an income statement?

Answer 3

Income (or Loss) from Continuing Operations, Income (or Loss) from Discontinued Operations, and Extraordinary Items

Question 4

How is income (or Loss) from Continuing Operations reported?

Answer 4

Gross of tax

Question 5

How is income (or Loss) from Discontinued Operations reported?

Answer 5

Net of tax

Question 6

How is Extraordinary Items reported?

Answer 6

Net of tax

Question 7

What is reported on the Statement of Retained Earnings?

Answer 7

Cumulative Effect of Change in Accounting Principle

Question 8

How is the Cumulative Effect of Change in Accounting Principle reported?

Answer 8

Net of tax

Question 9

How is the single step income statement presented?

Answer 9

Total expenses are subtracted from total revenues

Question 10

The (normallhy) loss from discontinued operations can consist of?

Answer 10

An impairment loss, a gain/loss from actual operations, and a gain/loss on disposal

Question 11

Under IFRS, a component of an entity may be?

Answer 11

Major line of business or geographical area of operations, or a subsidiary acquired exclusively with a view to resale

Question 12

Both of the following conditions must be met in order to report in discontinued operations the results of operations of a component that has been disposed of or is held for sale?

Answer 12

Eliminated from ongoing operations and no significant continuing involvement

Question 13

What are the different types of items included in results of discontinued operations?

Answer 13

Results of operations of the component, gain or loss on disposal of the component, and impairment loss of the component

Question 14

Are assets within a discontinued operation depreciated or amortized?

Answer 14

No

Question 15

How to report a disposal to discontinued operations?

Answer 15

Calculate impairment loss(Fair value less cost - carrying value), Loss from operations(Loss amount x number of months), and total loss from discontinued operations(impairment loss + loss from operations x (1-tax rate))

Question 16

How to report sale of disposal?

Answer 16

Loss from operations(Amount of loss x number of months), Loss on sale(sale amount - fair value minus costs), and total loss from discontinued operations(Loss from operations + loss on sale x (1-tax rate)

Question 17

What does US GAAP require of liabilities dealing with exit or disposal activities?

Answer 17

Recognition of a liability for the costs associated with an exit or disposal activity

Question 18

An entity’s commitment to an exit or disposal plan by itself enough to result in liability recognition?

Answer 18

No

Question 19

How is liability measured in exit or disposal activities?

Answer 19

Fair value

Question 20

What must be disclosed in the notes of the financial statements dealing with exit or disposal activities?

Answer 20

Description of the exit or disposal activity and each major cost

Question 21

What are examples of non-extraordinary items?

Answer 21

Gain or loss from sale or abandonment of property, plant, or equipment used in the business, large write-downs or write-offs, gain or loss from foreign currency transactions or translation, losses from major strike by employees, and long-term debt extinguishments that are part of a common management strategy

Question 22

Accounting changes are broadly classified as?

Answer 22

Estimate, principle, or entity

Question 23

Are changes in accounting estimate prospective, retrospective, or restate?

Answer 23

Prospective

Question 24

Are changes in accounting principle prospective, retrospective, or restate?

Answer 24

Retrospective

Question 25

Are changes in accounting entity prospective, retrospective, or restate?

Answer 25

Restate

Question 26

What are events resulting in estimate changes?

Answer 26

Changes in the lives of fixed assets, ajustments of year end accruals, write-downs of obsolete inventory, material nonrecurring IRS adjustments, settlement of litigation, and changes in accounting principle that are inseparable from a change in estimate

Question 27

What are the direct effects of a change in accounting principle?

Answer 27

Adjustments that would be necessary to restate the financial statements of prior periods

Question 28

How are changes in accounting principle recognized?

Answer 28

Adjusting beginning retained earnings in the earliest period

Question 29

What are the 2 exceptions to the general rule for changes in accounting principles?

Answer 29

LIFO change and change in depreciation method

Question 30

Does IFRS include the concept of a change in accounting entity?

Answer 30

No

Question 31

What should be done for an error correction?

Answer 31

Restate