View Attempt 1 of 2: Student Response Value

View Attempt 1 of 2
Title: CH REVIEW 5
Started: September 19, 2010 1:47 PM
Submitted: September 19, 2010 2:53 PM
Time spent: 01:06:14
Total score: 32.4/99.9 = 32.4324% Total score adjusted by 0.0 Maximum possible score: 99.9
Done
1. Chapter 5The Income Statement and Statement of Cash Flows Question MC #1

Which of the following is the best description of issues associated with the income statement?
Student Response Value

A. The income statement can alternatively be referred to as a statement of
financial position.
B. The income statement is the most important financial statement in the annual
report.
C. The income statement serves as a link between the statement of retained
earnings and the balance sheet.
D. The income statement summarizes the results of a company's cash operations 0%
for the accounting period.
Score: 0/2.7
What income measurement approach is identified by the following equation?
Net income = Net assets at the end of the year - Net assets at the beginning of the year -
Additional investment by owners + Distributions to owners

A. capital maintenance 100%
B. historical cost
C. cash flow
D. transactional
Score: 2.7/2.7
Financial flexibility is generally defined as

A. a measure of overall company performance
B. the uncertainty or unpredictability of the future results of a company
C. a company's ability to maintain a given level of operations
C. a company's ability to maintain a given level of operations
D. the ability of a company to adapt to unexpected needs and opportunities 100%
Score: 2.7/2.7
Operating capability refers to

A. a company's ability to maintain a given level of operations
B. the uncertainty or unpredictability of the future results of a company 0%
C. the ability of a company to adapt to unexpected needs and opportunities
D. a measure of overall company performance
Score: 0/2.7
In general, revenue is recognized as being earned

A. at the time cash is received
B. during the production process
C. at the time goods are sold or services are rendered 100%
D. at the completion of the production process
Score: 2.7/2.7
Which of the following is not a pervasive expense recognition principle?

A. immediate recognition
B. cash payment 100%
C. systematic and rational allocation
D. association of cause and effect
Score: 2.7/2.7
Realization of revenue occurs when

A. the actual exchange of noncash resources into cash
B. the item is formally recorded and reported in the financial statements 0%
C. a company sells goods or provides a service.
D. when a transaction is both realized and realizable.
Score: 0/2.7

The income statement is considered an important financial statement for all of the following
reasons, except for

A. the income statement allows users to assess the amount of net cash inflows
resulting from operating, financing, and investing activities
B. past income statements can be useful indicators in predicting current and future 0%
cash dividend payments as well as future stock prices
C. the income statement provides useful information concerning the corporation's
ability to generate sufficient cash flows from operations for use in payment of
its operating obligations
D. the income statement supports the stewardship function by helping stockholders
evaluate management's operating effectiveness
Score: 0/2.7
Depreciation is an example of which expense recognition principle?

A. cost recovery 0%
B. association of cause and effect
C. systematic and rational allocation
D. immediate recognition
Score: 0/2.7
The gross profit of Abel Company for 2006 is $300,000, cost of goods manufactured is $400,000,
the beginning inventories of goods in process and finished goods are $28,000 and $35,000,
respectively, and the ending inventories of goods in process and finished goods are $50,000 and
$70,000, respectively. The cost of goods sold of Abel Company for 2006 must have been

A. $365,000 100%
B. $378,000
C. $278,000
D. $265,000
Score: 2.7/2.7
Examples of matching expenses against revenues using the association of cause and effect
include all of the following, except for

A. costs of products sold
B. sales commissions
C. transportation costs for delivery of goods to customers
D. insurance costs 100%
Score: 2.7/2.7
In 2007, the Damon Company had sales of $600,000; cost of sales of $430,000; interest
expense of $12,000; a gain on the sale of a component of $12,000; and an extraordinary loss of
$20,000. For its income statement, Damon uses the single-step format and the all-inclusive
concept. What was Damon's reported pretax income from continuing operations?

A. $150,000 0%
B. $170,000
C. $158,000
D. $138,000
Score: 0/2.7
The following information was taken from the accounts of the Gorme Manufacturing Company for
2006:
Finished goods inventory, 1/1 $50,000

Finished goods inventory, 12/31 25,000
Raw materials used 60,000
Direct labor 70,000
Factory depreciation 25,000
Sales salaries 30,000
Sales returns 8,000
Goods in process, 1/1 80,000
Goods in process, 12/31 90,000
Smith's cost of goods sold for 2006 was

A. $144,000 0%
B. $170,000
C. $152,000
D. $130,000
Score: 0/2.7
The comparison of the beginning and ending capital (net assets) after adjusting for any
additional investments or disinvestment during the period, and indicating the difference to be
corporate income, is termed the

A. physical capital maintenance concept
B. transactional approach
C. asset valuation approach 0%
D. financial capital maintenance concept
Score: 0/2.7
From the following information, compute cost of goods sold.
Purchase returns $ 200

Inventory, December 31 1,500
Freight-in 100
Inventory, January 1 1,800
Purchases 5,000

A. $5,000
B. $5,300 0%
C. $5,200
D. $5,100
Score: 0/2.7
Which of the following is not a limitation of the income statement?

A. The use of different formats by companies within the same industry may hide
differences in operating results.
B. Comparability between companies may suffer because companies don't have
enough leeway to choose between accounting methods.
C. The use of functional classifications, instead of activity classifications, for 0%
operating expenses may not provide sufficient information for predicting future
cash outflows.
D. The matching of allocated historical costs against current revenues may not
provide an accurate measure of a return on capital.
Score: 0/2.7
Intraperiod tax allocation

A. is used to allocate a company's total income tax expense to the components of 100%
net income and retained earnings
B. involves temporary (timing) differences between financial and taxable incomes
C. requires allocation of deferred taxes across accounting periods
D. results from differences between tax regulations and the principles followed to
determine financial income.
Score: 2.7/2.7
Intraperiod tax allocation requires a corporation's total income tax expense to be allocated to all
of the following, except for

A. extraordinary items
B. discontinued operations 0%
C. other revenues and expenses
D. prior period adjustments
Score: 0/2.7
When net assets are recorded at their historical cost and changes in those assets are not
recorded unless an event, transaction, or circumstance occurs, the

A. physical capital maintenance approach is being used 0%
B. transaction approach is being used
C. comprehensive income approach is being used
D. financial capital maintenance approach is being used
Score: 0/2.7
When an entity reports on a sale of a component of the business

A. all information related to the sold component should be reported solely in the
footnotes accompanying the financial statements
B. any gain or loss on the sale should always be presented in the extraordinary
gain or loss section of the income statement
C. current operating income or loss of the component and any gain or loss on sale
C. current operating income or loss of the component and any gain or loss on sale
of the component should be presented in a separate section of the income
statement
D. any income or loss from operations of the component should be reported in the 0%
income from continuing operations section, but any gain or loss on the sale of
the component should be presented below the income from continuing
operations section
Score: 0/2.7
The Nikel Company sold its cattle ranching component on June 30, 2006, for a gain of
$1,000,000. From January through June, the component had sustained operating income of
$300,000. The income tax rate is 30%. How should Nikel report the income and the sale on its
income statement?

A. net of tax, after income from continuing operations
B. as $300,000 operating income, and a $1,000,000 extraordinary gain 0%
C. as $210,000 operating income, and a $1,000,000 gain on sale of the
component, shown before extraordinary items
D. as a $1,300,000 extraordinary gain
Score: 0/2.7
Which is not a sale of a component?

A. sale by a meat-packing company of its (entire) 20% interest in a professional 0%
football team
B. sale by a food distributor of its wholesale supermarket division while
maintaining its wholesale fast-food restaurants division
C. sale by a communications company of its radio stations, but none of its
television stations
D. sale by an apparel manufacturer of a woolen suit manufacturing plant in order
to concentrate on the manufacture of suits from synthetic products
Score: 0/2.7
In 2006, the Sykes Company wrote off a $100,000 debt from a major customer; lost $1,250,000
when a foreign country devalued its currency; gained $2,000,000 when a manufacturing plant
was destroyed by a flood; lost $500,000 on the early retirement of its long-term bonds; and lost
$75,000 on the sale of stock from its investment portfolio. What amount of extraordinary items
(before income taxes) will Sykes report in 2006?

A. $250,000
B. $1,425,000
C. $175,000
D. $2,000,000 100%
Score: 2.7/2.7
In an accrual-based transactional approach, net income is typically defined as

A. revenues - expenses + gains - losses
B. revenues - expenses + gains + losses
C. revenues - expenses 0%
D. increase in net assets from non-owner transactions
Score: 0/2.7
To be considered an extraordinary item, an event must be

A. unusual
B. infrequent and unusual 100%
C. infrequent
D. unusual or infrequent
Score: 2.7/2.7
Which of the following items would not be reported on a net-of-tax basis in an entity's financial
statements?

A. an adjustment to the financial statements that is accounted for as a prior-
period adjustment
B. a gain arising from the sale of a component of the business
C. a loss that qualifies as an extraordinary item
D. a revision in the remaining useful life of depreciable equipment, which is 100%
accounted for as a change in accounting estimate
Score: 2.7/2.7
Earnings per share is an important disclosure because
A. it forces common and preferred stockholders to read the financial statements.
B. it refers only to common stock.
C. it uses net income. 0%
D. Net Income disclosed in the financial statements can fluctuate based upon
management’s intentions.
Score: 0/2.7
How should the gain or loss that is considered infrequent but not unusual in nature be disclosed?

A. separately in the income statement as a component of income from continuing
operations
B. on a net-of-tax basis in the income statement immediately after income from
continuing operations
C. separately in the income statement immediately after income from continuing 0%
operations
D. as an extraordinary item
Score: 0/2.7
When a change in accounting principle occurs, the balance of the related asset or liability
account is recalculated

A. when the decision is made to change
B. at the end of the current period 0%
C. only if it doesn't affect the financial statements
D. at the beginning of the current period
Score: 0/2.7
A company is justified in changing from one generally accepted accounting principle to another
generally accepted accounting principle only if

A. the change produces more informative financial statements
B. the change decreases the entity's reported net income
C. approval is first obtained from the Financial Accounting Standards Board 0%
D. the change both improves the financial statement presentation and increases
the entity's reported net income
Score: 0/2.7
A material effect from changing accounting principles should be reported

A. by including the cumulative effect of the change as a separate line item in
current income from continuing operations
B. as a prior period adjustment
C. by including the cumulative effect of the change on prior periods' earnings as a 100%
component of net income in the period of the change
D. as an extraordinary item
Score: 2.7/2.7
Which of the following events would be accounted for as a prior period adjustment?

A. change in the depreciable lives of plant assets
B. an overstatement of depreciation expense in a prior year 100%
C. change in inventory cost flow assumption from first-in, first-out to last-in, first-
out
D. change in the method of computing depreciation of plant assets
Score: 2.7/2.7
Retained Earnings is important because

A. there is sufficient cash to pay dividends.
B. it is the total amount of corporate earnings that has not been returned to 0%
stockholders as dividends.
C. it is a major component of stockholders’ equity.
D. its existence is the difference between total assets and liabilities so an entity
knows its records are in balance.
Score: 0/2.7
Which of the following is not an acceptable way of reporting a company's comprehensive
income?

A. in the statement of retained earnings
B. in the statement of changes in stockholders' equity 0%
C. in a separate statement of comprehensive income
D. on the face of the income statement
Score: 0/2.7
The statement of cash flows helps external users to assess all of the following except for

A. a company's ability to meet its obligations and pay dividends
B. a company's ability to generate positive future cash flows 0%
C. the amount of a company's present liquidity
D. a company's need for external financing
Score: 0/2.7
The statement of cash flows contains the following sections, except for

A. financing activities
B. operating activities
C. selling activities
D. investing activities 0%
Score: 0/2.7
Comprehensive income is an important concept in accounting because it represents

A. the impact on equity of all transactions.
B. changes in Liabilities minus Assets
C. changes in equity from nonowner sources.
D. all changes in equity 0%
Score: 0/2.7
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1. Chapter 5​The Income Statement and Statement of Cash Flows Question MC #1

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8. Chapter 5​The Income Statement and Statement of Cash Flows Question MC #2

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Finished goods inventory, 1/1 $50,000

Smith's cost of goods sold for 2006 was

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Purchase returns $ 200

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