In general, the income statement helps satisfy the objectives of financial reporting by providing investors, lenders and other stakeholders with important information:About a company's comprehensive income.To assess the amounts, timing, and uncertainty of future net cash inflows.a. II onlyb. Neither I nor IIc. I onlyd. I and II
d. I and II
The purposes of the income statement include all of the following except:a. Assess the impact of economic factors on a company.b. Assess the company's risk.c. Compare the company's performance against other companies.d. Report the resources of a firm and the claims on the firm as of a specific date.
d. Report the resources of a firm and the claims on the firm as of a specific date.
To provide relevant and faithfully represented information about financial performance and income to investors, lenders, and other creditors, the company must:a. Identify the elements that must be recognized in income.b. Decide where to report the elements on the income statement.c. Determine the timing of recognition of income elements.d. All of the choices are correct.
d. All of the choices are correct.
The four specific revenue recognition criteria emphasized by the SEC include all of the following except:a. Collection has occurred or is reasonably certain to occur.b. The seller's price to the buyer is fixed or determinable.c. Persuasive evidence of a sales arrangement must exist.d. Delivery has occurred or services have been rendered.
a. Collection has occurred or is reasonably certain to occur.
Gains or losses may be classified into which of the following categorie(s)?I. Gains or losses resulting from nonreciprocal transfers between a company and nonowners.II. Gains and losses resulting from the company's ongoing primary activities in producing and delivering goods and services to customers.III. Gains or losses from holding resources or obligations while their values change.a. II and III only.b. I and III onlyc. I, II, and IIId. I and II only.
b. I and III only
Which of the following items are included in a company's operating income?a. Cost of goods soldb. Interest revenuec. Dividend incomed. All of the choices are correct
a. Cost of goods sold
Which of the following items are included in a company's income from continuing operations?Extraordinary items.Interest expense.Unusual and nonrecurring gains and losses.a. I, II, and III.b. II and III only.c. I and II only.d. I and III only.
b. II and III only.
Which of the following items are included in a company's results from discontinued operations?Gain or loss on the sale of the discontinued component.Income or loss from the operations of a discontinued component.a. I only.b. I and II.c. Neither I nor II.d. II only.
b. I and II.
Earnings per share:a. Reflects the market price a share of the company's stock can be sold for currently.b. Is computed by dividing the net income available to common shareholders by the weighted average number of common shares outstanding throughout the year.c. Is disclosed in the footnotes to a company's financial statements.d. All of the choices are correct.
b. Is computed by dividing the net income available to common shareholders by the weighted average number of common shares outstanding throughout the year.
Currently, under U.S. GAAP, which of the following items are excluded from a company's other comprehensive income?a. Certain gains and losses on derivative financial instruments that hedge future cash flows.b. Certain gains or losses resulting from events or transactions that are either unusual in nature or infrequent in occurrence, but not both.c. Translation adjustments from converting the financial statements of its foreign operations into U.S. dollars.d. Unrealized gains or losses in the fair value of its investments in available-for-sale securities.
b. Certain gains or losses resulting from events or transactions that are either unusual in nature or infrequent in occurrence, but not both.
What of the following alternatives does a company have for reporting its comprehensive income under U.S. GAAP and IFRS?I. Present net income in the income statement and present comprehensive income in a separate, but consecutive, statement of comprehensive income.II. Present net income in the income statement and present comprehensive income in a footnote to the financial statements.III. Present net income and comprehensive income in a single continuous performance statement.a. I, II and III.b. I and III only.c. II and III only.d. I and II only.
b. I and III only.
Differences between IFRS and U.S. GAAP in regard to a company's presentation and content of the income statement include all of the following excepta. IFRS terminology may differ, for instance "turnover" can be used to refer to sales.b. IFRS require the multiple-step format for the income statement.c. IFRS prohibit the reporting of items that are unusual in nature and infrequent in occurrence as extraordinary items.d. The definition of a component of an operation is defined much more broadly under IFRS than under U.S. GAAP.
b. IFRS require the multiple-step format for the income statement.
The primary purpose(s) of a statement of cash flows is to:a. Provide relevant information about a company's cash receipts and cash payments during the period.b. Report the resources of a firm and the claims on the firm as of a specific date.c. Inform stakeholders so they can evaluate profitability and assess the return on investment in the company and assess the company's operating capability and financial performance for the current period and over time.d. All of the choices are correct.
a. Provide relevant information about a company's cash receipts and cash payments during the period.
Which of these is not a major section of the statement of cash flows?Operating activitiesFinancing activitiesInvesting activitiesDiscontinued business activities
Discontinued business activities
When used with a company's other financial statements, the statement of cash flows helps external users assess all of the following except:a. The company's ability to meet its obligations.b. The company's capital raised from external financing sources and repayments of external financing.c. The company's profitability and the return on investment in the company.d. The differences between the company's net income and associated cash receipts and payments.
c. The company's profitability and the return on investment in the company.
The ______ indicates a company's ability to generate revenues and control the costs of producing and delivering its products and services.a. Net profit margin.b. Operating margin.c. Coterm-16mprehensive income margin.d. Gross profit margin.
d. Gross profit margin.
The tests to determine whether an operating segment is a reportable segment include all of the following except:a. Its segment liabilities are 10% or more of the combined liabilities of all operating segments.b. Its reported revenues (including sales to external customers and intersegment sales) are 10% or more of the combined revenues of all the company's operating segments.c. Its segment assets are 10% or more of the combined assets of all operating segments.d. The absolute amount of its profit (loss) is 10% or more of the combined reported profits of all operating segments that did not report a loss.
a. Its segment liabilities are 10% or more of the combined liabilities of all operating segments.
Financial statement users are interested in segment financial reports because they:Are more timely than annual reports.Provide financial data on a disaggregated basis.Enable to users understand financial performance of a company's operating segments.a. I, II, and III.b. I and II onlyc. II and III onlyd. I and III only
c. II and III only
Which of the following is expensed under the principle of systematic and rational allocation?a. transportation to customersb. electricity to light office buildingc. insurance premiumsd. salespeople's monthly salaries
c. insurance premiums
What are the three determinants of a company's rate of return on common equity?a. Operating capability, profitability, and leverage.b. Interest coverage ratio, profitability, and operating capability.c. Leverage, earnings quality, and profitability.d. Earnings quality, interest coverage ratio, and operating capability.
a. Operating capability, profitability, and leverage.
A loss from the sale of a component of a business enterprise is reported separately as a component of income:a. after income from continuing operationsb. before income from continuing operationsc. in income from continuing operationsd. after income tax expense
a. after income from continuing operations
In a statement of cash flows, receipts from sales of property, plant, and equipment generally are classified as:a. selling activitiesb. investing activitiesc. operating activitiesd. financing activities
b. investing activities
Dobbin Corporation, a manufacturer of household paints, is preparing annual financial statements at year end. Because of a recently proven health hazard in one of its paints, the government required Dobbin to recall all cans of this paint sold in the last 6 months. The management of Dobbin estimates that this recall cost $1,000,000. What accounting recognition, if any, should be accorded this situation?a. no recognitionb. operating expense of $1,000,000c. liability of $1,000,000d. footnote disclosure
b. operating expense of $1,000,000