ACCT 321 Chapter 4

  1. The income statement can be used to assess
    • profitability
    • investment value
    • creditworthiness
  2. The ________ approach focuses on the income-related activities that have occurred during the period.
  3. Which of the following occur from peripheral or incidental transactions?
    Gain on the sale of equipment
  4. In the single-step income statement
    just two groupings exist - revenues and expenses.
  5. Which of the following is an acceptable method of presenting the income statement?
    A condensed income statement
  6. How should an unusual event not meeting the criteria for an extraordinary item be disclosed in the financial statements?
    Shown as a separate item in nonoperating revenues or expenses if material and supplemented by a footnote if deemed appropriate
  7. What are considered irregular items on the income statement?
    Extraordinary gains/losses and discontinued operations.
  8. 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).
  9. Income reporting follows
    modified all-inclusive approach
  10. 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. What are those items?
    unusual gains and losses, noncontrolling interest, and discontinued operations.
  11. 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?
    $300,000 less 30% of $300,000, or $210,000 as an extraordinary loss and $700,000 as an unusual gain.
  12. A change in the method of inventory pricing from FIFO to LIFO would be accounted for as a (an):
    change in accounting principle
  13. When a company transfers an amount of restricted retained earnings into a different account, that account is titled
    Appropriated retained earnings
  14. Gains and losses that bypass net income but affect stockholders' equity are referred to as
    other comprehensive income
  15. The nature-of-expense method
    is simple to apply
  16. Which limitation of an income statement occurs when one company uses an accelerated method of depreciation while another uses straight-line?
    income numbers are affected by the accounting methods employed
  17. The major elements of the income statement are
    revenues, expenses, gains and losses
  18. What describes an expense?
    Outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.
  19. A multiple-step income statement
    • highlights certain components of income that analysts use to compute ratios for assessing the financial performance of companies.
    • separates operating transactions from non-operating transactions.
    • matches costs and expenses with related revenues
  20. Jackson, Inc. has the following information is available:
    Cost of goods sold $148,500
    Dividend revenue       3,750
    Income tax expense   3,000
    Operating expenses  79,500
    Sales                      255,000

    In Jackson’s multiple-step income statement, gross profit
    Will be reported at $106,500
  21. The single-step income statement emphasizes
    total revenues and total expenses
  22. What would meet the criteria for an extraordinary item?
    gains and losses from: a major casualty, prohibition under a newly enacted law or regulation, an expropriation of assets
  23. What are extraordinary losses?
    Flood damage losses to property where flooding is rare
  24. The occurrence which most likely would have no effect on 20x5 net income (assuming that all amounts involved are material) is the
    collection in 20x5 of a receivable from a customer whose account was written off in 20x4 by a charge to the allowance account.
  25. The gain or loss from disposal of a component of a business is shown as a (an)
    part of discontinued operations
  26. What is true about intraperiod tax allocation?
    Its purpose is to relate the income tax expense to the items which affect the amount of tax.
  27. Earnings per share is computed as:
    Net income minus preferred dividends divided by the weighted average of common shares outstanding.
  28. Clair, Inc. reports net income of $700,000. It declares and pays total dividends of $100,000 for the year, one-half of which relate to the preferred shares. The weighted-average number of common shares outstanding during the year is 200,000 shares, and the weighted-average number of preferred shares outstanding during the year is 10,000 shares. Earnings per share for Clair, Inc. is (round your answer to the nearest cent):
  29. Sawyer, Inc. consistently estimated its bad debt expense at 1 percent of credit sales. In 2014, however, Sawyer determines that it must revise upward the estimate of bad debts for the current year’s credit sales to 2 percent, or double the prior years’ percentage. Sawyer uses the revised estimate of 2% and calculates bad debt expense of $500,000. How is the change in the estimated bad debt expense reported in Sawyer’s 2014 financial statements?
    $500,000 of expense in the income statement as an ordinary item.
  30. Prior period adjustments are reported as:
    an addition to (or a deduction from) the beginning balance of retained earnings
  31. Josie Corporation reported the following information for 2014:
    Sales revenue $1,000,000
    Cost of goods sold 700,000

    Operating expenses 110,000
    Unrealized holding gain on available-for-sale securities                40,000
    Cash dividends received on the securities4,000For 2014, Josie would report comprehensive income of
  32. The statement of stockholders’ equity
    reports the change in each stockholders’ equity account and in total equity for the period
Card Set
ACCT 321 Chapter 4
for review for the midterm