Question 1

Each of the following would be reported as items of other comprehensive income except:
A)Foreign currency translation gains.
B)Unrealized gains on investments accounted for as securities available for sale.
C)Deferred gains from derivatives.
D)Gains from the sale of equipment.

Accepted Answer

Gains from the sale of equipment are not reported as items of other comprehensive income. They are reported as part of net income on the income statement. Foreign currency translation gains, unrealized gains on investments accounted for as securities available for sale, and deferred gains from derivatives are all examples of items that would be reported as other comprehensive income.

Question 2

In its December 31, 2009 financial statements, E-Z Prices estimated that losses on its current receivables would be $10.2 million. During 2010, E-Z Prices determined that the losses on the Dec. 31, 2009, receivables were actually $12.4 million. Ignoring taxes, E-Z Prices would report, in its 2010 financial statements, the additional $2.2 million loss on receivables as:
A)An extraordinary item.
B)A prior period adjustment.
C)A retroactive adjustment.
D)A current year's expense.

Accepted Answer

The additional $2.2 million loss on receivables would be reported as a current year's expense because it reflects an adjustment to the estimate of losses on receivables made in the previous year.

Question 3

Which of the following is not true about EPS?
A)It must be reported by all corporations whose stock is publicly traded.
B)It must be reported separately for discontinued operations.
C)It must be reported separately for extraordinary items.
D)It must be reported on operating income.

Accepted Answer

EPS (Earnings Per Share) is calculated on net income, not on operating income. Therefore, it is not required to be reported on operating income.

Question 4

Harley Davis Inc. started its unicycle manufacturing business in 2007 and acquired $600,000 of equipment at the beginning of 2007. It decided to use the double-declining balance (DDB) depreciation on its equipment with no residual value and a 10-year useful life. In 2009 it changed to the straight-line depreciation method. Depreciation computed for 2007-8 is presented below: In 2009, Harley Davis would report depreciation of:
A)$96,000.
B)$38,400.
C)$60,000.
D)$48,000.

Accepted Answer

The double-declining balance method was used for 2007 and 2008, resulting in a book value of $360,000 at the end of 2008. Switching to straight-line depreciation in 2009 with 8 years remaining, the annual depreciation is $360,000 / 8 = $45,000.

Question 5

Cendant Corporation's results for the year ended December 31, 2009, include the following material items: Cendant Corporation's income from continuing operations before income taxes for 2009 is:
A)$900,000.
B)$880,000.
C)$820,000.
D)$320,000.

Accepted Answer

The answer of Cendant Corporation's results for the year ended...

Question 6

Pablo purchased a lathe on January 1, 2007, at a cost of $45,000. At the time of purchase, the lathe was expected to have a five-year economic life and a residual value of $3,000. Pablo uses straight-line depreciation. At the beginning of 2009, Pablo estimated the lathe to have a remaining life of four years with no residual value. For the year ended December 31, 2009, Pablo would report depreciation of:
A)$7,500.
B)$7,050.
C)$7,000.
D)$6,750.

Accepted Answer

The lathe has a total depreciable cost of $42,000 ($45,000 - $3,000). Using straight-line depreciation, the annual depreciation expense is $8,400 ($42,000 ÷ 5).

At the beginning of 2009, with a remaining life of four years, Pablo has already taken two years of depreciation. So the remaining depreciable cost at the beginning of 2009 is $25,200 ($42,000 - 2 years x $8,400).

For the year ended December 31, 2009, Pablo would report depreciation of $7,050 ($25,200 ÷ 4 remaining years).

Question 7

The financial statement presentation of a change in reporting entity is most similar to the reporting of a:
A)A change in accounting principle.
B)Change in accounting estimate.
C)Discontinued business operation.
D)Correction of a material error discovered after the year the error was made.

Accepted Answer

The answer of The financial statement presentation of a change...

Question 8

Jack's Fireworks, which was established in 2007, changed its method of accounting for inventories from the average cost method to the first-in, first-out (FIFO) method in 2009. Cost of goods sold for the periods 2007-2009 under FIFO and the average cost method were: Jack's Fireworks is subject to a 30% income tax rate. In its income statement for the year ended December 31, 2009, Jack's would report the cumulative effect of a change in accounting principle, net of income taxes, of:
A)$(15,400).
B)$ 0.
C)$ 19,600.
D)$ ( 4,200).

Accepted Answer

The answer of Jack's Fireworks, which was established in 2007,...

Question 9

Reconciliation between net income and comprehensive income would include:
A)Unrealized losses but not unrealized gains on available for sale securities.
B)Unrealized gains but not unrealized losses on available for sale securities.
C)Unrealized losses and unrealized gains on available for sale securities.
D)Neither unrealized losses nor unrealized gains on available for sale securities.

Accepted Answer

Comprehensive income includes both realized and unrealized gains and losses on available for sale securities, while net income only includes realized gains and losses. Therefore, the reconciliation between net income and comprehensive income would include both unrealized losses and unrealized gains on available for sale securities.

Question 10

On June 1, 2009, Romano Inc. changed the estimated useful life of its office equipment from 20 to 12 years. This change would be accounted for:
A)Prospectively.
B)Retrospectively.
C)As an accounting error.
D)None of these.

Accepted Answer

Changes in accounting estimates, such as the useful life of an asset, are accounted for prospectively, meaning the change affects the current and future periods only.

Question 11

Comprehensive income is the change in equity from:
A)Owner transactions.
B)Non-owner transactions.
C)Owner or non-owner transactions.
D)Capital transactions.

Accepted Answer

Comprehensive income includes all non-owner transactions that affect equity, such as gains or losses from investments, foreign currency translation adjustments, and changes in the market value of available-for-sale investments. Owner transactions, such as dividends or share issuances, are not included in comprehensive income.

Question 12

Elmore Co. purchased an offset press on January 1, 2006, at a cost of $120,000. The press had an estimated eight-year life with no residual value. Elmore uses straight-line depreciation. At December 31, 2009, Elmore estimated that the press would have only two more years of remaining life with no residual value. For 2009, Elmore would report depreciation of:
A)$25,000.
B)$15,000.
C)$20,000.
D)$30,000.$75,000 3 = $25,000

Accepted Answer

The original annual depreciation was $15,000 ($120,000 / 8 years). By the end of 2009, 4 years of depreciation have been recorded, leaving a book value of $60,000. With a revised remaining life of 2 years, the new annual depreciation is $30,000 ($60,000 / 2 years).

Question 13

Reporting comprehensive income in the United States can be accomplished by which of the following methods:
A)In the statement of shareholders' equity.
B)A combined statement of income and comprehensive income.
C)A separate statement of comprehensive income.
D)All of these are acceptable methods.

Accepted Answer

All of these methods are acceptable according to Accounting Standards Update (ASU) 2011-05, which allows companies to report comprehensive income (the total of all gains and losses that cannot be reported on the income statement alone) in a separate statement, in the statement of shareholders' equity, or in a combined statement of income and comprehensive income. The choice of method is left to the company's discretion.

Question 14

Reporting comprehensive income according to International Accounting Standards can be accomplished by each of the following methods except:
A)In the statement of shareholders' equity.
B)A combined statement of income and comprehensive income.
C)A separate statement of comprehensive income.
D)All of these are acceptable methods.

Accepted Answer

Comprehensive income cannot be reported in the statement of shareholders' equity according to International Accounting Standards. It must be reported either in a combined statement of income and comprehensive income or in a separate statement of comprehensive income.

Question 15

The Maytag Corporation's income statement includes income from continuing operations, a loss from discontinued operations, and extraordinary items. Earnings per share information would be provided for:
A)Net income only.
B)Income from continuing operations and net income only.
C)Income from continuing operations, loss from discontinued operations and net income only.
D)Income from continuing operations, loss from discontinued operations, extraordinary items and net income.

Accepted Answer

Earnings per share should be reported for all categories of income on the income statement, including income from continuing operations, loss from discontinued operations, extraordinary items, and net income. Therefore, the best choice is option D, which includes all these categories.

Question 16

If Company A acquires Company B, required financial statement disclosures include all of the following except:
A)The effect of the change on net income.
B)The effect of the change on market share.
C)The effect of the change on income before extraordinary items.
D)The per share effects of the change.

Accepted Answer

The required financial statement disclosures for an acquisition include the effect of the change on net income, income before extraordinary items and the per share effects of the change. However, market share is not typically a financial statement disclosure required in an acquisition.

Question 17

The financial statement presentation of a change in depreciation method is most similar to that of reporting:
A)Changes in accounting estimates.
B)Prior period adjustments.
C)Correction of errors.
D)Extraordinary items.

Accepted Answer

A change in depreciation method is considered a change in accounting estimate since it involves a change in the useful life or salvage value of a long-term asset. The financial statement presentation of such a change is similar to the disclosure of changes in estimates, which requires prospective application and disclosure of the reasons for the change.

Question 18

Change statements include a:
A)Retained earnings statement, a balance sheet, and a cash flow statement.
B)Balance sheet, a cash flow statement, and an income statement.
C)Cash flow statement, an income statement, and a retained earnings statement.
D)Retained earnings statement, a balance sheet, and an income statement.

Accepted Answer

Change statements typically include a cash flow statement, an income statement, and a retained earnings statement, as they reflect changes in financial position and performance over a period.

Question 19

A change in depreciation method is accounted for:
A)Retrospectively.
B)As a cumulative adjustment to income in the year of change.
C)Prospectively, like changes in accounting estimates.
D)None of these.

Accepted Answer

A change in depreciation method is treated as a change in accounting estimate, which is accounted for prospectively.

Question 20

Changes in accounting estimates are reported:
A)Currently and prospectively.
B)Retroactively and currently.
C)Retroactively, currently, and prospectively.
D)By restating prior years.

Accepted Answer

Changes in accounting estimates are reported currently and prospectively, meaning they affect the financial statements in the period of change and future periods, not retroactively.

Quiz 4: The Income Statement and Statement of Cash Flows

Each of the following would be reported as items of other comprehensive income except:

Which of the following is not true about EPS?

Cendant Corporation's results for the year ended December 31, 2009, include the following material items: Cendant Corporation's income from continuing operations before income taxes for 2009 is:

The financial statement presentation of a change in reporting entity is most similar to the reporting of a:

Reconciliation between net income and comprehensive income would include:

On June 1, 2009, Romano Inc. changed the estimated useful life of its office equipment from 20 to 12 years. This change would be accounted for:

Comprehensive income is the change in equity from:

Reporting comprehensive income in the United States can be accomplished by which of the following methods:

Reporting comprehensive income according to International Accounting Standards can be accomplished by each of the following methods except:

The Maytag Corporation's income statement includes income from continuing operations, a loss from discontinued operations, and extraordinary items. Earnings per share information would be provided for:

If Company A acquires Company B, required financial statement disclosures include all of the following except:

The financial statement presentation of a change in depreciation method is most similar to that of reporting:

Change statements include a:

A change in depreciation method is accounted for:

Changes in accounting estimates are reported: