T or F, Net Income is a portion of comprehensive income
True- Net Income includes items that meet certain criteria to be recognized on the income statement. Comprehensive income includes items that do not meet certain revenue recognition.
T or F, Extraordinary Gain or Loss requires separate disclosures after income from continuing operations.
True
Three types of accounting changes
Change in accounting principle, change in accounting estimate, change in reporting entity
A change in depreciation method is accounted for by
prospectively applying the new method
When a company changes accounting principles, the FS are adjusted by adjusting
The beginning balance of RE of the earliest period presented.
The two types of adjustments to net income for the indirect method are adjustments for
changes in operating assets and liabilities during the period that affected cash and were not in the net income; and components of net income that do not affect cash
What characteristics would qualify a component that has been sold or is held for sale as a discounted operation
a business that meets the criteria to be classified as held for sale on acquisition; and separate major line of business or major geographical area of operation
General and administrative expenses, R&D expense, COGS
all included in calculating operating income
An Income Statement prepared in accordance with IFRS classifies expenses by
function and nature
Cash collected for the period
Sales on account + cash sales + the change in cash receivables = cash collected for the period.
Cash outflows from financing
repay borrowing from bank, pay dividends
When FASB mandates a change in accounting principle, the board may allow companies to account for the change ---------, or to report the change
retrospectively
A characteristic of income smoothing is that income has a
smooth, upward, slope
Where are extraordinary items presented on the financial statements
On the income statement after discontinued operations.
The Financial Statement Presentation project proposes changes to the
Income and Comprehensive Changes, Statement of Financial Position, & Statement of Cash Flows
The indirect method of preparing the operating section of the statement of cash flows begins with net income and adjusts for items that do not affect
cash
The following are cash inflows from financing activities
issuing stock to investors for cash & borrowing from a bank
The formula for calculating the impairment of a discontinued operation held for sale is the
book value of the component minus the fair value of the component less costs to sell
Calculate basic earnings per share
Net income divided by end of year common stock
In calculating the basic earnings per share, what is divided by the weighted average common shares outstanding
net income less any preferred stock dividends
To qualify as an operation for purposes of determining discontinued operations, what must occur
The operation must be clearly distinguished operationally and for financial accounting purposes, and the operation must be a component of the entity
With IFRS, interest received can be classified as
investing or operating activity
Single step income statement- Revenue and Gains less Expenses and Losses
Cash outflows from investing activities
purchase of land, purchase of available-for-sale securities
T or F- Assets and Liabilities held for sale in a discontinued operation should be classified as current or noncurrent based on when the company expects to complete the sale
True
Operating income or loss of the component during the period and an impairment loss of the asset
If Bike Co. manufactures bikes and sells a building at a loss, how will that loss be disclosed in the income statement
as a loss in calculating income from continuing ops
When are restructuring cost recognized on the income statement
In the period the exit or disposal obligation is incurred
The Financial Statement Presentation project proposed these new categories in the income statement and the balance sheet
Financing, Investing, and Operating
The FASB and IASB propose that the statement of cash flows must be prepared under what method
Direct
Effects if a strike or loss of a major customer do NOT qualify
for extraordinary treatment on an income statement prepared in accordance with GAAP
Operating, investing, and financing, are new categories in income/comprehensive income statement and the
balance sheet
Includes net income as as well as other gains and losses that change shareholder's equity but are not included in traditional net income
Comprehensive income
What of the following is disclosed on the comprehensive income statement?
Other Comprehensive income
Comprehensive income is defined as the total change in WHAT for a reporting period other than transaction with owners
equity
T/F - If an item does not meet the criteria of infrequent and unusual, the item should be reported as a separate gain or loss net of tax in the operating section of the income statement
Falso- if the item is not extraordinary, it is included in the continuing ops section of the income statement, However, it is not disclosed net of tax
list the Change statements
income statement, statement of owner's equity, statement of cash flows.
income tax expense is reported in which section of the income statement
income from continuing ops
Earnings per share is disclosed at the bottom of the
income statement
A change in accounting estimate affects info in which periods
current and future
Two items that are treated differently on the statement of cash flow for GAAP & IFRS are
dividends and interest
Impairment of goodwill and impairment of long-lived assets would be included where
other gains and losses in calculating income from continuing ops
T/F- Intraperiod tax allocation allocates income tax expense or benefit with each major component of income that causes it
True
IFRS, dividends received can be classified as
Operating or investing activity
Method for preparing the statement of cash flows beginning with net income and working backward to calculate net cash flow from operating activities
Indirect method
If a component of the business qualifies for discontinued ops treatment then all revenues, expenses, and losses must be
removed from continuing ops & the tax expense effect is removed also
which items require separate allocation of income tax expense or benefit
income from continuing ops, discon. items, extra. items
The accounting treatment required for a material error in financial statements that have been issued is to
restate the financial statements of the previous periods affected
T/F-interest expense, gain from sale of land, & interest income may be classified as nonoperating income for a tv co.
True
What is required to correct a material error in the financial statements
include a disclosure note explaining the impact of the error on income, adjust the beginning balance in retained earning for the earliest period presented, restate the financial statement of all years presented
In order to provide more complete info, GAAP allows that any significant noncash investing and financing activities may be reported
on the face of the statement of cash flows and in the notes to financial statements
The calculation of comprehensive income begins with
Net Income
The proposed ASU on discontinued ops defines a disc. op as a component that either
is classified as held for sale or has been sold
The proposed major new category that would be shown in each financial statement is
business activities
The statement used to predict future profitability and a company's future cash-generating ability is the
income statement
Consistent with IFRS, dividends received can be classified as
operating activity or investing activity
A business that meets the criteria to be classified as a held for sale on acquisition and a separate major line of business or major geographical area of operations are characteristics that would qualify a component that has been sold or is held for sale
discontinued operation
What is used to calculate diluted earnings per share
options that can be converted to common stock & convertible securities
Although GAAP uses the term net income on the income statement, IFRS uses the terms
Profit and Loss
SOX requires that if pro forma earnings are included in a report or any public disclosure, the company must
Provide a reconciliation with the earnings according to GAAP
Taxes relating to OCI items
can be shown separately for each item or aggregated and reported as one line item
GAAP requires that a statement of cash flows must be presented for
each period for which results of ops are provided
Income statement classification and income shifting are
methods for manipulating income
Consistent with IFRS, dividends paid can be classified as
financing or operating activity
Consistent with IFRS, dividends received can be classified as
operating or investing
T/F- Consistent with the Financial Statement Presentation project proposal, the concept "cash equivalents" will be eliminated
True- the only surviving category will be cash
items that may be listed under the proposed multi-category transactions classification may arise from the
acquisition and sale of other companies
Revaluation surplus is reported as other comprehensive income under
IFRS
Under the proposed Financial Statement Presentation project, cash flows that would be classified as investing activities include
investments in bonds and stocks
What are the required disclosures in a note to the financial statements for a change in deprecation method
the reason for the change, the effect on earnings per share, the effect on net income
T/F a change in estimate for uncollectible accounts is a routine change that does not require a disclosure note if the amount is not material
true
Which methods are acceptable methods for reporting comprehensive income for GAAP
included in the statement of changes in owner's equity, included as an extension to the income statement, reported as a separate statement of comprehensive income.
A revaluation surplus occurs is equipment's
fair value exceeds its book value
Place the proposed categories for the statement of cash flows in the correct order
business, financing, multi-cat, income taxes, disc. ops
Two types of earnings per share reported
basic and diluted
Companies are required to reconcile the differences between ? income and ? income
comprehensive and net
List the info that must be included in the notes to the financial statements regarding disc. ops
the reason for the discontinuance, the major classes of assets and liabilities of the component, the identity of the component
T/F- consistent with efforts by FASB and IASB, in the future, extraordinary items likely will not be reported by US companies
True= IFRS does not permit them
Other gains and losses that do not qualify for extraordinary treatment are disclosed
as income from continuing ops on the income statement