ACC 301: Chapter 5 (theory)

jmkerstell
Quiz by jmkerstell, updated more than 1 year ago
jmkerstell
Created by jmkerstell over 5 years ago
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"The income statement and the statement of cash flows."

Resource summary

Question 1

Question
The income statement may be used to do all of the following except:
Answer
  • 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.

Question 2

Question
An income statement provides information that is useful
Answer
  • to investors, creditors, and other external users.
  • for evaluating financial performance.
  • for predicting future cash flows.
  • for all of these choices.

Question 3

Question
Which of the following would not be found on a single-step income statement?
Answer
  • revenues
  • gross profit
  • expenses
  • net income

Question 4

Question
Which of the following make up cost of goods sold?
Answer
  • 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

Question 5

Question
Basic earnings per share (EPS) is computed as
Answer
  • 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.

Question 6

Question
Basic earnings per share (EPS) is used by investors and analysts in evaluating
Answer
  • 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.

Question 7

Question
Which of the following is not an element of the income statement?
Answer
  • revenues
  • liabilities
  • expenses
  • gains

Question 8

Question
When should revenues be recognized?
Answer
  • 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

Question 9

Question
The three major sections of the statement of cash flows are:
Answer
  • 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.

Question 10

Question
Using the indirect method, depreciation expense would appear on the statement of cash flows
Answer
  • 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.

Question 11

Question
Which of the following would not appear in the financing activities section of the statement of cash flows?
Answer
  • receipts from the issuance of bonds
  • receipts from the issuance of common stock
  • payments for the purchase of factory equipment
  • payments of dividends

Question 12

Question
[blank_start]Comprehensive income[blank_end] is the change in equity of a company during a period from transactions, other events, and circumstances relating to nonowner sources.
Answer
  • Comprehensive income

Question 13

Question
[blank_start]Net income[blank_end] is measured as revenues - expenses + gains - losses.
Answer
  • Net income

Question 14

Question
[blank_start]Expenses[blank_end] measure and report the efforts or sacrifices made to conduct business activities.
Answer
  • Expenses

Question 15

Question
Management's salaries and most selling and administrative costs are recognized using the [blank_start]immediate recognition[blank_end] principle because the costs provide no discernible future benefits.
Answer
  • immediate recognition

Question 16

Question
Which of the following items are included in a company's operating income?
Answer
  • cost of goods sold
  • dividend income
  • interest revenue
  • all the choices are correct

Question 17

Question
[blank_start]Interperiod tax allocation[blank_end] 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.
Answer
  • Interperiod tax allocation

Question 18

Question
[blank_start]Intraperiod tax allocation[blank_end] 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 [blank_start]disclosed parenthetically[blank_end] or [blank_start]in a note[blank_end] to the financial statements.
Answer
  • disclosed parenthetically
  • in a note
  • Intraperiod tax allocation

Question 19

Question
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
Answer
  • I only.
  • II only.
  • I and II.
  • Neither I nor II.

Question 20

Question
A loss from the write-down of obsolete inventories [blank_start]is not deemed an extraordinary item[blank_end] and is reported on the income statement as a component of income from continuing operations.
Answer
  • is not deemed an extraordinary item
  • is deemed an extraordinary item

Question 21

Question
In its most basic form, earnings per share is computed by dividing the [blank_start]net income[blank_end] available to [blank_start]common shareholders[blank_end] by the weighted average number of [blank_start]common shares[blank_end] outstanding throughout the year. Diluted earnings per share takes into account potentially dilutive contingent claims on equity.
Answer
  • net income
  • common shareholders
  • common shares

Question 22

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

Question 23

Question
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:
Answer
  • 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.

Question 24

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

Question 25

Question
[blank_start]Rate of change analysis[blank_end] enables users to identify which items on the income statement are growing quickly or slowly over time.
Answer
  • Rate of change analysis

Question 26

Question
The [blank_start]gross profit margin[blank_end] indicates a company's ability to generate revenues and control the costs of producing and delivering its products and services.
Answer
  • gross profit margin

Question 27

Question
Under the indirect method, the net cash provided by operating activities is determined by reporting net income first, then adjusting net income by [blank_start]adding back amortization expense[blank_end].
Answer
  • adding back amortization expense

Question 28

Question
In which section of the cash flow statement will the following transactions appear? 1. Purchases of goods for sale [blank_start]Operating activity[blank_end] 2. Repayment of loan [blank_start]Financing activity[blank_end] 3. Purchase and sale of fixed assets, eg. plant [blank_start]Investing activity[blank_end]
Answer
  • Operating activity
  • Financing
  • Investing
  • Financing activity
  • Operating activity
  • Investing activity
  • Investing activity
  • Financing activity
  • Operating Activity

Question 29

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

Question 30

Question
The primary purpose(s) of a statement of cash flows is to:
Answer
  • 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.

Question 31

Question
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.
Answer
  • I and II only.
  • I, II and III.
  • II and III only.
  • I and III only.

Question 32

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

Question 33

Question
A loss from the write-down of obsolete inventories [blank_start]is not[blank_end] deemed an extraordinary item and is reported on the income statement as a component of income from continuing operations.
Answer
  • is not
  • is
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