jmkerstell
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"The income statement and the statement of cash flows."

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ACC 301: Chapter 5 (theory)

ACC 301: Chapter 5 (theory)

Question 1 of 33

1

The income statement may be used to do all of the following except:

Select one of the following:

  • evaluate profitability and assess the return on investment.

  • evaluate management's performance.

  • obtain a snapshot of the company's financial position at a moment in time.

  • assess the company's operating capability and financial performance for the current period.

Explanation

Question 2 of 33

1

An income statement provides information that is useful

Select one of the following:

  • to investors, creditors, and other external users.

  • for evaluating financial performance.

  • for predicting future cash flows.

  • for all of these choices.

Explanation

Question 3 of 33

1

Which of the following would not be found on a single-step income statement?

Select one of the following:

  • revenues

  • gross profit

  • expenses

  • net income

Explanation

Question 4 of 33

1

Which of the following make up cost of goods sold?

Select one of the following:

  • the cost of inventory available for sale

  • the cost of inventory that was actually sold

  • the operating expenses incurred in generating sales

  • all of these

Explanation

Question 5 of 33

1

Basic earnings per share (EPS) is computed as

Select one of the following:

  • all earnings divided by all shares of stock.

  • all earnings divided by outstanding shares of common stock.

  • net income available to common shareholders divided by weighted average outstanding shares of common stock.

  • dividends to preferred shareholders divided by weighted average outstanding shares of preferred stock.

Explanation

Question 6 of 33

1

Basic earnings per share (EPS) is used by investors and analysts in evaluating

Select one of the following:

  • the book value of the company's assets.

  • the value of a share of the company's common stock.

  • the value of a share of the company's preferred stock.

  • the risk factor of the company's dilutive securities.

Explanation

Question 7 of 33

1

Which of the following is not an element of the income statement?

Select one of the following:

  • revenues

  • liabilities

  • expenses

  • gains

Explanation

Question 8 of 33

1

When should revenues be recognized?

Select one of the following:

  • at the point of agreement regarding the transaction price

  • when performance obligations can be identified

  • when payment is received

  • when performance obligations have been satisfied

Explanation

Question 9 of 33

1

The three major sections of the statement of cash flows are:

Select one of the following:

  • net income, adjustments to net income, and other activities.

  • operating activities, investing activities, and financing activities.

  • indirect activities, investing activities, and operating activities.

  • operating activities, financing activities, and other activities.

Explanation

Question 10 of 33

1

Using the indirect method, depreciation expense would appear on the statement of cash flows

Select one of the following:

  • in the operating activities section as an addition to reverse out the effects of a non-cash transaction.

  • in the operating activities section as a deduction because it represents a non-cash transaction.

  • in the investing activities because it is related to investments in property, plant, and equipment.

  • in the other activities section, because it is a non-cash transaction.

Explanation

Question 11 of 33

1

Which of the following would not appear in the financing activities section of the statement of cash flows?

Select one of the following:

  • receipts from the issuance of bonds

  • receipts from the issuance of common stock

  • payments for the purchase of factory equipment

  • payments of dividends

Explanation

Question 12 of 33

1

Fill the blank space to complete the text.

is the change in equity of a company during a period from transactions, other events, and circumstances relating to nonowner sources.

Explanation

Question 13 of 33

1

Fill the blank space to complete the text.

is measured as revenues - expenses + gains - losses.

Explanation

Question 14 of 33

1

Fill the blank space to complete the text.

measure and report the efforts or sacrifices made to conduct business activities.

Explanation

Question 15 of 33

1

Fill the blank space to complete the text.

Management's salaries and most selling and administrative costs are recognized using the principle because the costs provide no discernible future benefits.

Explanation

Question 16 of 33

1

Which of the following items are included in a company's operating income?

Select one of the following:

  • cost of goods sold

  • dividend income

  • interest revenue

  • all the choices are correct

Explanation

Question 17 of 33

1

Fill the blank space to complete the text.

involves allocating a corporation's total income tax obligation as an expense across various accounting periods because of temporary (timing) differences between its taxable income and pretax financial income.

Explanation

Question 18 of 33

1

Fill the blank spaces to complete the text.

is necessary to give a fair presentation of the after-tax impact of the major components on net income and retained earnings. The portion of the income tax expense applicable to results from discontinued operations and each extraordinary item is or to the financial statements.

Explanation

Question 19 of 33

1

Which of the following items are included in a company’s results from discontinued operations?

I. Gain or loss on the sale of the discontinued component.
II. Income or loss from the operations of a discontinued component

Select one of the following:

  • I only.

  • II only.

  • I and II.

  • Neither I nor II.

Explanation

Question 20 of 33

1

Select from the dropdown list to complete the text.

A loss from the write-down of obsolete inventories ( is not deemed an extraordinary item, is deemed an extraordinary item ) and is reported on the income statement as a component of income from continuing operations.

Explanation

Question 21 of 33

1

Fill the blank spaces to complete the text.

In its most basic form, earnings per share is computed by dividing the available to by the weighted average number of outstanding throughout the year. Diluted earnings per share takes into account potentially dilutive contingent claims on equity.

Explanation

Question 22 of 33

1

Currently, under U.S. GAAP, which of the following items are excluded from a company's other comprehensive income?

Select one of the following:

  • Unrealized gains or losses in the fair value of its investments in available-for-sale securities.

  • Translation adjustments from converting the financial statements of its foreign operations into U.S. dollars.

  • Certain gains or losses resulting from events or transactions that are either unusual in nature or infrequent in occurrence, but not both.

  • Certain gains and losses on derivative financial instruments that hedge future cash flows.

Explanation

Question 23 of 33

1

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 except:

Select one of the following:

  • IFRS prohibit the reporting of items that are unusual in nature and infrequent in occurrence as extraordinary items.

  • IFRS terminology may differ, for instance "turnover" can be used to refer to sales.

  • The definition of a component of an operation is defined much more broadly under IFRS than under U.S. GAAP.

  • IFRS require the multiple-step format for the income statement.

Explanation

Question 24 of 33

1

What are the three determinants of a company's rate of return on common equity?

Select one of the following:

  • Earnings quality, interest coverage ratio, and operating capability.

  • Interest coverage ratio, profitability, and operating capability.

  • Leverage, earnings quality, and profitability.

  • Operating capability, profitability, and leverage.

Explanation

Question 25 of 33

1

Fill the blank space to complete the text.

enables users to identify which items on the income statement are growing quickly or slowly over time.

Explanation

Question 26 of 33

1

Fill the blank space to complete the text.

The indicates a company's ability to generate revenues and control the costs of producing and delivering its products and services.

Explanation

Question 27 of 33

1

Fill the blank space to complete the text.

Under the indirect method, the net cash provided by operating activities is determined by reporting net income first, then adjusting net income by .

Explanation

Question 28 of 33

1

Select from the dropdown lists to complete the text.

In which section of the cash flow statement will the following transactions appear?

1. Purchases of goods for sale
( Operating activity, Financing, Investing )
2. Repayment of loan
( Financing activity, Operating activity, Investing activity )
3. Purchase and sale of fixed assets, eg. plant
( Investing activity, Financing activity, Operating Activity )

Explanation

Question 29 of 33

1

When used with a company's other financial statements, the statement of cash flows helps external users assess all of the following except:

Select one of the following:

  • The differences between the company's net income and associated cash receipts and payments.

  • The company's profitability and the return on investment in the company.

  • The company's ability to meet its obligations.

  • The company's capital raised from external financing sources and repayments of external financing.

Explanation

Question 30 of 33

1

The primary purpose(s) of a statement of cash flows is to:

Select one of the following:

  • Report the resources of a firm and the claims on the firm as of a specific date.

  • Provide relevant information about a company's cash receipts and cash payments during the period.

  • 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.

  • All of the choices are correct.

Explanation

Question 31 of 33

1

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.

Select one of the following:

  • I and II only.

  • I, II and III.

  • II and III only.

  • I and III only.

Explanation

Question 32 of 33

1

Currently, under U.S. GAAP, which of the following items are excluded from a company's other comprehensive income?

Select one of the following:

  • Certain gains and losses on derivative financial instruments that hedge future cash flows.

  • Unrealized gains or losses in the fair value of its investments in available-for-sale securities.

  • Certain gains or losses resulting from events or transactions that are either unusual in nature or infrequent in occurrence, but not both.

  • Translation adjustments from converting the financial statements of its foreign operations into U.S. dollars.

Explanation

Question 33 of 33

1

Select from the dropdown list to complete the text.

A loss from the write-down of obsolete inventories ( is not, is ) deemed an extraordinary item and is reported on the income statement as a component of income from continuing operations.

Explanation

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