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Statement of Comprehensive Income (Reviewer)

1. The income statement presents key financial performance metrics of a company over a period of time. It includes revenues, expenses, gains, and losses to arrive at net income. 2. Comprehensive income includes all changes in equity during a period except those from transactions with owners. It captures a broader view of performance than net income alone. 3. Certain items are reported separately on the income statement, such as discontinued operations, extraordinary items, and prior period adjustments, to distinguish unusual or nonrecurring events from normal business activities.

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289 views4 pages

Statement of Comprehensive Income (Reviewer)

1. The income statement presents key financial performance metrics of a company over a period of time. It includes revenues, expenses, gains, and losses to arrive at net income. 2. Comprehensive income includes all changes in equity during a period except those from transactions with owners. It captures a broader view of performance than net income alone. 3. Certain items are reported separately on the income statement, such as discontinued operations, extraordinary items, and prior period adjustments, to distinguish unusual or nonrecurring events from normal business activities.

Uploaded by

Chin
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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STATEMENT OF COMPREHENSIVE INCOME (REVIEWER)

The income statement is useful for helping to assess the risk or uncertainty of
TRUE
achieving future cash flows.
A strength of the income statement as compared to the statement of financial
FALSE position is that items that cannot be measured reliably can be reported in the
income statement.
Earnings management generally makes income statement information more
FALSE
useful for predicting future earnings and cash flows.
The transaction approach of income measurement focuses on the income-related
TRUE
activities that have occurred during the period.
Income from operations represents a company’s results before any gain or loss
FALSE
on discontinued operations.
TRUE Both revenues and gains increase both net income and equity.
Companies frequently report income tax as the last item before net income on the
TRUE
income statement.
The income statement presents subtotals for gross profit, income before
FALSE
continuing operations, income before income tax, and net income.
The nature-of-expense method identifies the major cost drivers and helps users to
FALSE
assess whether these amounts are appropriate for the revenue generated.
Income before income taxes is computed by deducting interest expense from
TRUE
income from operations.
The IASB takes the position that both revenues and expenses and other income
TRUE
and expense should be reported as part of income from operations.
Companies report the results of operations of a component of a business that will
TRUE
be disposed of separately from continuing operations.
Discontinued operations and gains and losses are both reported net of tax in the
FALSE
income statement.
A company that reports a discontinued operation has the option of reporting per
FALSE
share amounts for this item.
Intraperiod tax allocation relates the income tax expense of the period to the
TRUE
specific items that give rise to the amount of the tax provision.
A company recognizes a change in estimate by making a retrospective
FALSE
adjustment to the financial statements.
Prior period adjustments can either be added or subtracted in the Retained
TRUE
Earnings Statement.
Companies only restrict retained earnings to comply with contractual requirements
FALSE
or current necessity.
Comprehensive income includes all changes in equity during a period except
FALSE
those resulting from distributions to owners.
STATEMENT OF COMPREHENSIVE INCOME (REVIEWER)

TRUE Comprehensive income can be reported in a statement of changes in equity.


Losses are decreases in equity from incidental transactions of an entity and from
TRUE all other transactions and events affecting the entity except those that result from
expenses or distributions to owners.
Most losses such as losses from the sale of used equipment, losses from natural
FALSE catastrophes, and losses from disposition of investments are examples of
expenses that are directly related to revenues for the period.
Most administrative costs, such as salaries and utilities, are recognized as
*TRUE
periodic expenses.
Under generally accepted accounting principles, revenue recognition normally
FALSE
occurs when cash is received.
The financial capital maintenance concept of income determination assumes that
an enterprise has income "only if the peso amount of an enterprise's net assets at
*TRUE
the end of the period exceeds the peso amount of net assets at the beginning of
the period after excluding the effects of transactions with owners."

Net income minus preferred dividends divided


by the weighted average of shares Earnings per share
outstanding.
All changes in equity during a period except
those resulting from investments by owners Comprehensive income
and distributions to owners.
A correction of an error is reported as a Prior period adjustment
An event or transaction which is unusual in
Extraordinary item
nature and infrequent in occurrence.
The income statement category for a disposal
Discontinued operations
of a component of a business.
Relating tax expense to specific items on the
Intraperiod tax allocation
income statement.
STATEMENT OF COMPREHENSIVE INCOME (REVIEWER)

Indicate the major section or subsection of a multiple-step income statement in which each of
the following items would usually appear:

a. Advertising Selling expense


b. Depletion Cost of goods sold
c. Dividend revenue Other revenue
d. Freight-in Cost of goods sold as an addition to purchases
e. Loss on disposal of a component of
Discontinued operations
the business, net of tax
f. Income taxes; subtracted from income before
Income taxes on income
income taxes in arriving at net income
g. Major casualty loss, net of tax Extraordinary items
h. Purchase discounts Cost of goods sold as a subtraction from purchases
i. Sales discounts Subtracted from gross revenues
j. Officers' salaries Administrative or general expenses
k. Freight-out Selling expense
l. Sinking fund income Other revenue

Listed below in scrambled order are 13 income statement categories. Use the numerals 1
through 13 to indicate the order in which these categories should appear on a multiple-step
income statement.

(10) Discontinued operations. (5) Income from operations.


(2) Cost of goods sold. (7) Income from continuing operations
before income taxes.
(6) Other revenues and gains.
(4) Operating expenses.
(13) Net income.
(12) Extraordinary item.
(8) Income taxes.
(11) Income before extraordinary items.
(1) Sales.
(9) Income from continuing operations.
(3) Gross profit on sales.
STATEMENT OF COMPREHENSIVE INCOME (REVIEWER)

For each of the items listed below, indicate how it should be treated in the financial statements.
Use the following letter code for your selections:
a. Ordinary or unusual (but not extraordinary) item on the income statement
b. Discontinued operations
c. Extraordinary item on the income statement
d. Prior period adjustment

a 1. The bad debt rate was increased from 1% to 2%, thus increasing bad debt expense.
.
a 2. Obsolete inventory was written off. This was the first loss of this type in the company's
. history.
c. 3. An uninsured casualty loss was incurred by the company. This was the first loss of this
type in the company's 50-year history.
d 4. Recognition of income earned last year which was inadvertently omitted from last
. year's income statement.
a 5. The company sold one of its warehouses at a loss.
.
a 6. Settlement of litigation with federal government related to income taxes of three years
. ago. The company is continually involved in various adjustments with the federal
government related to its taxes.
c. 7. A loss incurred from expropriation (the company owned resources in South America
which were taken over by a dictator unsympathetic to American business).
d 8. The company neglected to record its depreciation in the previous year.
.
a 9. Discontinuance of all production in the United States. The manufacturing operations
. were relocated in Mexico.
a 10. Loss on sale of investments. The company last sold some of its investments two
. years ago.
b 11. Loss on the disposal of a component of the business.
.

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