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symbol.
Correct! The business and investment community uses the income statement to
determine profitability, investment value, and creditworthiness.
2. The ________ approach focuses on the income-related activities that have occurred
during the period.
A. transaction.
B. capital maintenance.
C. earnings quality.
D. classification.
Correct! The transaction approach focuses on the income-related activities that have
occurred during the period. These activities include revenue and expense transactions,
and gain and loss transactions.
Correct! Just two groupings exist in the single-step income statement - revenues and
expenses.
6. 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.
7. Which of the following is not considered an irregular item on the income statement?
8. Noncontrolling interest
A. Is not shown on the face of the income statement.
B. Is reported as a separate item below net income or loss.
C. Is shown in a separate section of the income statement after continuing operations
but before extraordinary items, net of tax.
D. Is shown in a separate section of the income statement after extraordinary items,
net of tax.
Correct! Noncontrolling interest is reported as a separate item below net income or loss
as an allocation of the net income or loss (that is, it is not an item of income or expense).
Correct! Both criteria must be met in order for an item to be considered extraordinary.
Correct! The accounting profession has adopted a modified all-inclusive concept for
income reporting and requires application of this approach in practice.
11. Companies are required to highlight certain items in the financial statements so that
users can better determine the long-run earning power of the company. Which of the
following is not one of those items?
A. Unusual gains and losses.
B. Noncontrolling interest.
C. Changes in accounting principle.
D. Discontinued operations.
12. Barger Enterprises has an extraordinary loss of $300,000, an unusual gain of $700,000,
and a tax rate of 30%. At what amount should Barger report each item?
Extraordinary loss Unusual gain
1.
$(300,000)
$700,000
2.
(300,000)
490,000
3.
(210,000)
700,000
4.
(210,000)
490,000
A. 1
B. 2
C. 3
D. 4
13. Earnings per share (EPS) is calculated using only the weighted average number of
shares of common stock outstanding.
A. True
B. False
Correct! EPS is calculated using only the weighted average number of shares of
common stock outstanding.
14. A change in the method of inventory pricing from FIFO to LIFO would be accounted
for as a (an):
A. part of discontinued operations.
B. extraordinary item.
C. change in accounting principle.
D. change in estimate.
15. When a company transfers an amount of restricted retained earnings into a different
account, that account is titled
A. Appropriated Retained Earnings.
B. Unappropriated Retained Earnings.
C. Noncontrolling Retained Earnings.
D. Comprehensive Retained Earnings.
16. Gains and losses that bypass net income but affect stockholders' equity are referred to
as:
A. comprehensive income.
B. other comprehensive income.
C. prior period income.
D. unusual gains and losses.
Correct! Other comprehensive income includes gains and losses that bypass net income.
18. Which limitation of an income statement occurs when one company uses an accelerated
depreciation method while another company uses straight-line depreciation?
A. Companies omit from the income statement items they cannot measure reliably.
B. Income measurement involves judgment.
C. Income numbers are affected by the accounting methods employed.
D. All of these answer choices are correct.
Correct! The major elements of the income statement are revenues, expenses, gains, and
losses.
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