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symbol.
3,750
3,000
Operating expenses
79,500
Sales
255,000
Correct! The single-step income statement emphasizes total revenues and total expenses.
5. All of the following would meet the criteria for an extraordinary item except gains or
losses from:
A. a major casualty.
B. prohibition under a newly enacted law or regulation.
C. an expropriation of assets.
D. loss on exchange of foreign currencies.
Correct! All of the options would be classified as extraordinary items except gains or
losses from exchange of foreign currency.
B. False
Correct! Effects of a strike, including those against competitors and major suppliers are
not extraordinary items.
Correct! The FASB accords extraordinary item treatment to the loss from flood damages,
if flood damage in the locality is rare.
Correct! Income from continuing operations should be separated from irregular items to
provide statement users to differentiate between what normal and recurring and what is
not.
9. The occurrence which most likely would have no effect on 20x5 net income (assuming
that all amounts involved are material) is the
A. sale in 20x5 of an office building contributed by a stockholder in 20x1.
B. collection in 20x5 of a receivable from a customer whose account was written off
in 20x4 by a charge to the allowance account.
C. settlement based on litigation in 20x5 of previously unrecognized damages from a
serious accident which occurred in 20x3.
D. worthlessness determined in 20x5 of stock purchased on a speculative basis in
20x2.
Correct! The collection of a written off account would not affect net income.
10. The gain or loss from disposal of a component of a business is shown as a (an):
A. unusual gain or loss.
B. part of discontinued operations.
C. extraordinary item.
D. prior period adjustment.
Correct! Discontinued operations include the gain or loss from disposal of a component
of a business.
Correct! Noncontrolling interest is reported as a separate item below net income or loss
as an allocation of the net income or loss. It is not reported as an item of income or
expense.
Correct! Its purpose is to relate the income tax expense to the items which affect the
amount of tax.
Correct! Net income minus preferred dividends is divided by the weighted average of
common shares outstanding to compute earnings per share.
14. Clair, Inc. reports net income of $700,000. It declares and pays preferred dividends of
$100,000 for the year, one-half of which relate to the preferred shares. The weightedaverage 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):
A. $3.18.
B. $3.25.
C. $3.00.
D. $2.95.
Correct! Net income minus preferred dividends is divided by the weighted average of
common shares outstanding to compute earnings per share.
15. 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?
A. $250,000 of expense in the income statement as an ordinary item, $250,000 of
extraordinary expense (net of tax).
B.
Correct! Sawyer accounts for this change in estimate in the period of change by
reporting the newly calculated amount of bad debt expense as an ordinary item of
income. Changes in estimate are not considered an extraordinary item, an error
correction, or a change in accounting principle.
Correct! Prior period adjustments are added to (or deducted from) the beginning
retained earnings balance.
Sales revenue
$1,000,000
700,000
Operating expenses
110,000
40,000
4,000
Incorrect. $1,000,000 less $700,000 less $110,000 plus $40,000 plus $4,000 equals
$234,000.
Correct! IFRS identifies certain minimum items that should be presented on the income
statement.
GAAP has no minimum information requirements.
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