Question 1

In which section of the income statement is interest expense reported?

Accepted Answer

A)   Gross profit.
B)   Income from operations.
C)   Income before income taxes.
D)   Non-controlling interest.

Question 2

Income before income taxes is computed by deducting interest expense from income from operations.

Accepted Answer

A) True 
 B)False

Question 3

The income statement information would help in which of the following tasks?

Accepted Answer

A)   Evaluate the liquidity of a company.
B)   Evaluate the solvency of a company.
C)   Estimate future cash flows.
D)   Estimate future financial flexibility.

Question 4

Changes in estimates affect reported amounts

Accepted Answer

A)   retrospectively only.
B)   prospectively only.
C)   currently and prospectively.
D)   currently and retrospectively.

Question 5

The definition of expenses includes

Accepted Answer

A)   losses only.
B)   expenses and losses.
C)   expenses only.
D)   expenses, losses and unrealized losses on available-for-sale securities.

Question 6

Which of the following does not appear on a statement of retained earnings?

Accepted Answer

A)   Net loss.
B)   Prior period adjustments.
C)   Preference share dividends.
D)   Other comprehensive income.

Question 7

Which of the following is included in comprehensive income?

Accepted Answer

A)   Investments by owners.
B)   Unrealized gains on non-trading equity securities.
C)   Distributions to owners.
D)   Changes in accounting principles.

Question 8

Which of the following is an example of managing earnings down?

Accepted Answer

A)   Changing estimated bad debts from 3 percent to 2.5 percent of sales.
B)   Revising the estimated life of equipment from 10 years to 8 years.
C)   Not writing off obsolete inventory.
D)   Reducing research and development expenditures.

Question 9

Income taxes are allocated to

Accepted Answer

A)   continuing operations.
B)   discontinued operations.
C)   prior period adjustments.
D)   All of these answers are correct.

Question 10

Earnings management generally makes income statement information more useful for predicting future earnings and cash flows.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is true about intraperiod tax allocation?

Accepted Answer

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 the 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.
D)   Its purpose is to relate the income tax expense to the items which affect the amount of tax.

Question 12

Comprehensive income can be reported in a statement of changes in equity.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)   a prior period adjustment.
B)   an other income and expense item.
C)   an amount after continuing operations and before net income.
D)   a bulk sale of plant assets included in income from continuing operations.S56. Gains or losses on the disposal of investments should be shown in the income statement

Question 14

Which of the following is not a generally practiced method of presenting the income statement?

Accepted Answer

A)   Including prior period adjustments in determining net income.
B)   The condensed income statement.
C)   The consolidated income statement.
D)   Including gains and losses from discontinued operations of a component of a business in determining net income.

Question 15

The major elements of the income statement are

Accepted Answer

A)   revenue, cost of goods sold, selling expenses, and general expense.
B)   operating section, nonoperating section, discontinued operations and cumulative effect.
C)   revenues, expenses, gains, and losses.
D)   All of these.

Question 16

A strength of the income statement as compared to the statement of financial position is that items that cannot be measured reliably can be reported in the income statement.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not an acceptable way of displaying the components of other comprehensive income?

Accepted Answer

A)   Combined statement of retained earnings.
B)   Second income statement.
C)   Combined statement of comprehensive income.
D)   All of the above are acceptable.

Question 18

Which of the following items will not appear in the retained earnings statement?

Accepted Answer

A)   Net loss.
B)   Prior period adjustment.
C)   Discontinued operations.
D)   Dividends.

Question 19

Earnings per share relate to

Accepted Answer

A)   preference shares only.
B)   ordinary shares only.
C)   both preference and ordinary shares.
D)   neither preference nor ordinary shares.

Question 20

Which of the following situations involving different accounting methods or accounting estimates results in comparison difficulties between companies?

Accepted Answer

A)   Estimated useful lives for depreciable assets.
B)   Inventory methods.
C)   Estimates of bad debts.
D)   All of the above.

Exam 4: Income Statement and Related Information

Income before income taxes is computed by deducting interest expense from income from operations.

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The income statement information would help in which of the following tasks?

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Changes in estimates affect reported amounts

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Earnings per share relate to

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Which of the following is included in comprehensive income?

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The definition of expenses includes

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Which of the following does not appear on a statement of retained earnings?

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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

Correct AnswerverifiedShow Answer

Which of the following is true about intraperiod tax allocation?

Correct AnswerverifiedShow Answer

A strength of the income statement as compared to the statement of financial position is that items that cannot be measured reliably can be reported in the income statement.

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Which of the following situations involving different accounting methods or accounting estimates results in comparison difficulties between companies?

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Comprehensive income can be reported in a statement of changes in equity.

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Which of the following is an example of managing earnings down?

Correct AnswerverifiedShow Answer

Which of the following is not a generally practiced method of presenting the income statement?

Correct AnswerverifiedShow Answer

In which section of the income statement is interest expense reported?

Correct AnswerverifiedShow Answer

The major elements of the income statement are

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Which of the following items will not appear in the retained earnings statement?

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Earnings management generally makes income statement information more useful for predicting future earnings and cash flows.

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Which of the following is not an acceptable way of displaying the components of other comprehensive income?

Correct AnswerverifiedShow Answer

Income taxes are allocated to

Correct AnswerverifiedShow Answer

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