Test Bank with Answers Intermediate Accounting 12e by Kieso Chapter 04 PDF

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To download more slides, ebook, solutions and test bank, visit downloadslide.blogspot CHAPTER 4 INCOME STATEMENT AND RELATED INFORMATION TRUE-FALSE—Conceptual Answer T F F T T T F F T F T F F T F F T F F T No. Description 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Usefuln...

Description

CHAPTER 4 INCOME STATEMENT AND RELATED INFORMATION TRUE-FALSE—Conceptual Answer T F F T T T F F T F T F F T F F T F F T

No.

Description

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Usefulness of the income statement. Limitations of the income statement. Earnings management. Transaction approach of income measurement. Single-step income statement. Revenues and gains. Multiple-step vs. single-step income statement. Multiple-step income statement. Multiple-step vs. single-step income statement. Current operating performance approach. Reporting discontinued operations. Reporting extraordinary items. Irregular items. Intraperiod tax allocation. Reporting earnings per share. Computation of earnings per share. Prior period adjustments. Retained earnings restrictions. Comprehensive income definition. Reporting other comprehensive income.

MULTIPLE CHOICE—Conceptual Answer c d b d d b d a b c b b a d d a

No. 21. 22. 23. S 24. S 25. 26. 27. 28. 29. S 30. P 31. P 32. 33. 34. 35. 36.

Description Elements of the income statement. Usefulness of the income statement. Limitations of the income statement. Use of an income statement. Income statement reporting. Single-step income statement. Methods of preparing income statements. Income statement presentation. Event with no income statement effect. Net income effect. Selling expenses. Reporting merchandise inventory. Definition of an extraordinary item. Classification of an extraordinary item. Identification of an extraordinary item. Identification of an extraordinary item.

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Test Bank for Intermediate Accounting, Twelfth Edition

MULTIPLE CHOICE—Conceptual (cont.) Answer d a d d c c d d c c d c d d c c

No. 37. 38. 39. 40. 41. 42. 43. 44. S 45. S 46. P 47. 48. 49. 50. 51. 52.

Description Identification of an extraordinary item. Presentation of unusual or infrequent items. Identification of a change in accounting principle. Classification of extraordinary items. EPS disclosures on income statement. Reporting discontinued operations. Intraperiod tax allocation. Purpose of intraperiod tax allocation. Reporting unusual or infrequent items. Earnings per share disclosure. Reporting correction of an error. Retained earnings statement. Prior period adjustment. Identification of a prior period adjustment. Comprehensive income items. Providing information about components of comprehensive income.

MULTIPLE CHOICE—Computational Answer a c c c a a a a c b a b c c c c c a b c d d d a P S

No.

Description

53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76.

Single-step income statement. Multiple-step income statement. Multiple-step income statement. Calculation of net sales. Presentation of gain on sale of plant assets. Extraordinary items. Extraordinary items. Calculate income before extraordinary items. Calculate income before taxes and extraordinary items. Calculate extraordinary loss. Events affecting income from continuing operations. Calculation of events affecting net income. Disposal of a major business component. Tax effect on irregular items. Tax effect on irregular items. Earnings per share. Earnings per share. Retained earnings statement. Retained earnings statement. Retained earnings statement. Retained earnings statement. Calculate balance of retained earnings. Calculate other comprehensive income. Calculate comprehensive income.

Note: these questions also appear in the Problem-Solving Survival Guide. Note: these questions also appear in the Study Guide.

Income Statement and Related Information

MULTIPLE CHOICE—CPA Adapted Answer d a a a d c a b a b

No.

Description

77. 78. 79. 80. 81. 82. 83. 84. 85. 86.

Calculate selling expenses. Calculate general and administrative expenses. Calculate selling expenses. Calculate general and administrative expenses. Calculate cost of goods manufactured. Calculate income before extraordinary item. Determine extraordinary loss. Determine infrequent gains not extraordinary. Determine infrequent losses not extraordinary. Identification of prior period adjustment.

EXERCISES Item

Description

E4-87 E4-88 E4-89 E4-90 E4-91 E4-92 E4-93 E4-94 E4-95

Definitions. Terminology. Income statement disclosures. Calculate net income from change in stockholders’ equity. Calculate net income from change in stockholders’ equity. Income statement classifications. Income statement relationships. Multiple-step income statement. Classification of income and retained earnings statement items.

PROBLEMS Item P4-96 P4-97 P4-98 P4-99 P4-100

Description Multiple-step income statement. Income statement form. Multiple-step income statement. Single-step income statement. Income statement and retained earnings statement.

CHAPTER LEARNING OBJECTIVES 1.

Understand the uses and limitations of an income statement.

2.

Prepare a single-step income statement.

3.

Prepare a multiple-step income statement.

4.

Explain how to report irregular items.

5.

Explain intraperiod tax allocation.

6.

Identify where to report tax earnings per share information.

7.

Prepare a retained earnings statement.

8.

Explain how to report other comprehensive income.

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Test Bank for Intermediate Accounting, Twelfth Edition

SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item

Type

Item

Type

Item

1. 2.

TF TF

3. 4.

TF TF

21. 22.

5.

TF

6.

TF

26.

7. 8. 9. 27.

TF TF TF MC

28. 29. S 30. P 31.

MC MC MC MC

P

10. 11. 12. 13. 33. 34.

TF TF TF TF MC MC

35. 36. 37. 38. 39. 40.

MC MC MC MC MC MC

41. 42. S 45. 58. 59. 60.

14. 43.

TF MC

44. 66.

MC MC

67. 88.

15. 16.

TF TF

41. 46.

MC MC

68. 69.

17. 18. P 47.

TF TF MC

48. 49. 50.

MC MC MC

70. 71. 72.

19.

TF

20.

TF

51.

Note:

S

32. 54. 55. 56.

TF = True-False MC = Multiple Choice

Type

Item

Type

Item

Learning Objective 1 S MC 23. MC 25. S MC 24. MC 87. Learning Objective 2 MC 53. MC 99. Learning Objective 3 MC 57. MC 80. MC 77. MC 81. MC 78. MC 82. MC 79. MC 92. Learning Objective 4 MC 61. MC 82. MC 62. MC 83. MC 63. MC 84. MC 64. MC 85. MC 65. MC 87. MC 80. MC 88. Learning Objective 5 MC 96. P 98. E 97. P 99. Learning Objective 6 MC 87. E 98. MC 96. P 99. Learning Objective 7 MC 73. MC 87. MC 74. MC 88. MC 86. MC 95. Learning Objective 8 MC 52. MC 75.

E = Exercise P = Problem

Type

Item

Type

Item

Type

MC E

88. 89.

E E

90. 91.

E E

MC MC MC E

93. 94. 95. 96.

E E E P

98. 100.

P P

MC MC MC MC E E

95. 96. 97. 98. 99. 100.

E P P P P P

P P

100.

P

P P

100.

P

E E E

99. 100.

P P

MC

76.

MC

P

Income Statement and Related Information

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TRUE-FALSE—Conceptual 1. The income statement is useful for helping to assess the risk or uncertainty of achieving future cash flows. 2. A strength of the income statement as compared to the balance sheet is that items that cannot be measured reliably can be reported in the income statement. 3. Earnings management generally makes income statement information more useful for predicting future earnings and cash flows. 4. The transaction approach of income measurement focuses on the income-related activities that have occurred during the period. 5. Companies frequently report income tax expense as the last item before net income on a single-step income statement. 6. Both revenues and gains increase both net income and owners’ equity. 7. Use of a multiple-step income statement will result in the company reporting a higher net income than if they used a single-step income statement. 8. The primary advantage of the multiple-step format lies in the simplicity of presentation and the absence of any implication that one type of revenue or expense item has priority over another. 9. Gross profit and income from operations are reported on a multiple-step but not a singlestep income statement. 10. The accounting profession has adopted a current operating performance approach to income reporting. 11. Companies report the results of operations of a component of a business that will be disposed of separately from continuing operations. 12. Gains or losses from exchange or translation of foreign currencies are reported as extraordinary items. 13. Discontinued operations, extraordinary items, and unusual gains and losses are all reported net of tax in the income statement. 14. Intraperiod tax allocation relates the income tax expense of the period to the specific items that give rise to the amount of the tax provision. 15. A company that reports a discontinued operation or an extraordinary item has the option of reporting per share amounts for these items. 16. Dividends declared on common and preferred stock are subtracted from net income in the computation of earnings per share.

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17. Prior period adjustments can either be added or subtracted in the Retained Earnings Statement. 18. Companies only restrict retained earnings to comply with contractual requirements or current necessity. 19. Comprehensive income includes all changes in equity during a period except those resulting from distributions to owners. 20. The components of other comprehensive income can be reported in a statement of stockholders’ equity.

True False Answers—Conceptual Item 1. 2. 3. 4. 5.

Ans. T F F T T

Item 6. 7. 8. 9. 10.

Ans. T F F T F

Item 11. 12. 13. 14. 15.

Ans. T F F T F

Item 16. 17. 18. 19. 20.

Ans. F T F F T

MULTIPLE CHOICE—Conceptual 21.

The major elements of the income statement are a. revenue, cost of goods sold, selling expenses, and general expense. b. operating section, nonoperating section, discontinued operations, extraordinary items, and cumulative effect. c. revenues, expenses, gains, and losses. d. all of these.

22.

Information in the income statement helps users to a. evaluate the past performance of the enterprise. b. provide a basis for predicting future performance. c. help assess the risk or uncertainty of achieving future cash flows. d. all of these.

23.

Limitations of the income statement include all of the following except a. items that cannot be measured reliably are not reported. b. only actual amounts are reported in determining net income. c. income measurement involves judgment. d. income numbers are affected by the accounting methods employed.

S

24.

Which of the following would represent the least likely use of an income statement prepared for a business enterprise? a. Use by customers to determine a company's ability to provide needed goods and services. b. Use by labor unions to examine earnings closely as a basis for salary discussions. c. Use by government agencies to formulate tax and economic policy. d. Use by investors interested in the financial position of the entity.

Income Statement and Related Information S

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25.

The income statement reveals a. resources and equities of a firm at a point in time. b. resources and equities of a firm for a period of time. c. net earnings (net income) of a firm at a point in time. d. net earnings (net income) of a firm for a period of time.

26.

The single-step income statement emphasizes a. the gross profit figure. b. total revenues and total expenses. c. extraordinary items and accounting changes more than these are emphasized in the multiple-step income statement. d. the various components of income from continuing operations.

27.

Which of the following is an acceptable method of presenting the income statement? a. A single-step income statement b. A multiple-step income statement c. A consolidated statement of income d. All of these

28.

Which of the following is not a generally practiced method of presenting the income statement? a. Including prior period adjustments in determining net income b. The single-step income statement c. The consolidated statement of income d. Including gains and losses from discontinued operations of a component of a business in determining net income

29.

The occurrence which most likely would have no effect on 2007 net income (assuming that all amounts involved are material) is the a. sale in 2007 of an office building contributed by a stockholder in 1983. b. collection in 2007 of a receivable from a customer whose account was written off in 2006 by a charge to the allowance account. c. settlement based on litigation in 2007 of previously unrecognized damages from a serious accident which occurred in 2005. d. worthlessness determined in 2007 of stock purchased on a speculative basis in 2003.

S

30.

P

31. Which of the following is not a selling expense? a. Advertising expense b. Office salaries expense c. Freight-out d. Store supplies consumed

The occurrence that most likely would have no effect on 2007 net income is the a. sale in 2007 of an office building contributed by a stockholder in 1961. b. collection in 2007 of a dividend from an investment. c. correction of an error in the financial statements of a prior period discovered subsequent to their issuance. d. stock purchased in 1993 deemed worthless in 2007.

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Test Bank for Intermediate Accounting, Twelfth Edition

32.

The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007. The January 1, 2007 merchandise inventory balance will appear a. only as an asset on the balance sheet. b. only in the cost of goods sold section of the income statement. c. as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet. d. as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

33.

In order to be classified as an extraordinary item in the income statement, an event or transaction should be a. unusual in nature, infrequent, and material in amount. b. unusual in nature and infrequent, but it need not be material. c. infrequent and material in amount, but it need not be unusual in nature. d. unusual in nature and material, but it need not be infrequent.

34.

Classification as an extraordinary item on the income statement would be appropriate for the a. gain or loss on disposal of a component of the business. b. substantial write-off of obsolete inventories. c. loss from a strike. d. none of these.

35.

Which of these is generally an example of an extraordinary item? a. Loss incurred because of a strike by employees. b. Write-off of deferred marketing costs believed to have no future benefit. c. Gain resulting from the devaluation of the U.S. dollar. d. Gain resulting from the state exercising its right of eminent domain on a piece of land used as a parking lot.

36.

Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes? a. Only if floods in the geographical area are unusual in nature and occur infrequently. b. Only if the flood damage is material in amount and could have been reduced by prudent management. c. Under any circumstances as an extraordinary item. d. Flood damage should never be classified as an extraordinary item.

37.

An item that should be classified as an extraordinary item is a. write-off of goodwill. b. gains from transactions involving foreign currencies. c. losses from moving a plant to another city. d. gains from a company selling the only investment it has ever owned.

38.

How should an unusual event not meeting the criteria for an extraordinary item be disclosed in the financial statements? a. Shown as a separate item in operating revenues or expenses if material and supplemented by a footnote if deemed appropriate. b. Shown in operating revenues or expenses if material but not shown as a separate item. c. Shown net of income tax after ordinary net earnings but before extraordinary items. d. Shown net of income tax after extraordinary items but before net earnings.

Income Statement and Related Information

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39.

Which of the following is a change in accounting principle? a. A change in the estimated service life of machinery b. A change from FIFO to LIFO c. A change from straight-line to double-declining-balance d. A change from FIFO to LIFO and a change from straight-line to double-decliningbalance

40.

Which of the following is never classified as an extraordinary item? a. Losses from a major casualty. b. Losses from an expropriation of assets. c. Gain on a sale of the only security investment a company has ever owned. d. Losses from exchange or translation of foreign currencies.

41.

Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business? a. The gain or loss on disposal should be reported as an extraordinary item. b. Results of operations of a discontinued component should be disclosed immediately below extraordinary items. c. Earnings per share from both continuing operations and net income should be disclosed on the face of the income statement. d. The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations.

42.

When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as a. a prior period adjustment. b. an extraordinary item. c. an amount after continuing operations and before extraordinary items. d. a bulk sale of plant assets included in income from continuing operations.

43.

Income taxes are allocated to a. extraordinary items. b. discontinued operations. c. prior period adjustments. d. all of these.

44.

Which of the following is true about intraperiod tax allocation? a. It arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return. b. It is required for extraordinary items and cumulative effect of accounting changes but not for prior period adjustments. c. Its purpose is to allocate income tax expense evenly over a number of accounting periods...