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Solution to Quiz _3 Income Statement for posting_1_

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					II.              Income Statement & Statement of RE
                 Changes in Accounting Principles, Estimates and Error Corrections
                 Chapter 4 Questions 15,16 & 17, BE4-7, E4-4, E4-5, E4-8, E4-15, P4-3, CA4-7
                 Chapter 17 BE17-5, BE17-6, E17-6, E17-7
                 Chapter 22 Questions 2,8 & 18 BE 22-7
                                                  TSI Company
                                                Income Statement
                                      For the Year ended December 31, 2010

                 Sales
                 Cost of Goods Sold
                 Gross Margin                                        A
                 Total Operating Expenses:
                 Operating Income
                 Other Revenues & Expenses: ……………………………………………………………. B
                 Income from Continuing Operations before Tax
                 Income Tax Expense ………………………………………………………………...………C
                 Income from Continuing Operations

                 NONRECURRING Items:………………………………………………...………..                                             D
                 Net Income                                                                                $
                 Shown directly on the Statement or Retained Earnings …………...……………..…                      E
                 Not shown on the Income Statement or the Retained Earnings Statement………………
                                                                                          F

Indicate where each of the following material items would best be reflected in TSI's 2010 Income Statement by using the letters above. Mor
can be used to reflect items which managers have discretion over and thus, are able to report in more than one section of the Income Stateme
given as an example.

B                1. TSI has life insurance on each of the company's four founders. In 2010 the death of one
                 founder resulted in the company realizing $100,000 in excess of the cash surrender value.
A                2. A profit sharing bonus to employees computed as a percentage of net income.
              3. have B)
B (A ok, too must A payment was made in 2010 to settle a patent infringement law suit that was filed
              against the company three years ago; no loss provision has been made prior to the payment.
D                4. Taxes on stub period operating income of discontinued segment
E                5. Cash Dividends Declared
A or B           6. Loss on discontinued styles
A                7. Income Statement affect of Changing from Straight line to Accelerated Depreciation
must have E
(A ok too)       8. In 2002 the company expensed a warehouse that was expected to have a 10 year life.
F                9. Unrealized Holding Loss on Available for Sale Securities
                 10. In 2010 the company adjusted its estimate for Bad Debts expense to be 2.2% of sales, up from 2% used
A (B ok too)
                 in previous years. The 2010 Bad Debt expense is $180,000 instead of $163,000, where should the extra
                 $17,000 be recorded?
F                11. If the new bad debt expense rate had been used prior to 2010, the cumulative bad debt expense would
                 have been $95,000 greater, where should this additional $95,000 be recorded?
C                12. Taxes on Interest Revenue
D              13. Unusual and Infrequent loss from Earthquake damage

               14. Material write-off of Notes Receivable when realizability became unlikely upon receipt of bankruptcy
A or B         notice
                                                                                                       Ch 4 ? 17h, Ch 22 ?2 d, Po
D              15. Loss on Disposal of a major business component

A              16. Bad Debt Expense

A or B         17. Impairment of Goodwill

F              18. Sales Taxes Payable
E              19. Depreciation Expense omitted by accident in 2007

C              20. Tax reduction from loss on inventory write off due to obsolescence

Acctg 381 Accounting & Reporting
Ch 4, 17 & 22 Quiz #3 10am                                                                         Folder # or Color _______

II.            Multiple Choice and Short Answer
          1. Vitaliy''s Net Income for the last fiscal year was $400,000 and the number of share outstanding at year end was
             of the following is true in regards to Vitaliy's earnings per share: (EPS question 23 & 24, BE 4-8)
          a. EPS will be reported as $4 per share
          b. EPS could be less than $4 per share if the company has Preferred Stock
          c. EPS could be more than $4 per share if the company has Preferred Stock
          d. EPS could be less than $4 per share if part of the 100,000 shares were issued & outstanding for only a portion o
          e. both c & d

          2.   Earnings Management: ( Ch 4 question 6,7 and DQ #3)                                         (Chapter 4 questions 6
          a.   helps stockholders, creditors and management by smoothing out bumps in earnings
          b.   always results in higher income in the current year and less income in the future
          c.   reduces the reliability of income because income is biased up or down
          d.   is prevented by Sarbanes Oxley

               Other Comprehensive Income (Ch 4 exercise 15, Ch 17 BE 5 and Ex 6)
               Foreign Currency often results in Companies reporting "Other Comprehensive Income"
               1. Explain what is accomplished on the Balance Sheet by reporting Foreign Currency in "Other Comprehensive Income"
               The foreign currency asset or liability is updated to fair market value on the Balance Sheet and the
               Stockholders' Equity account "Other Comprehensive Income" captures the net affect of changes unreal
               gains or losses to date.


               2. Explain what is accomplished on the Income Statement by reporting Foreign Currency in "Other Comprehensive Incom



               There is no impact to regular income on Income Statement for unrealized Foreign Currency Gains or Lo
               main reason to establish "other comprehensive income"; it avoids the need to record wild swings resulti
               in market value that have not been realized and may turn around before the transaction is finalized.
               There is no impact to regular income on Income Statement for unrealized Foreign Currency Gains or Lo
               main reason to establish "other comprehensive income"; it avoids the need to record wild swings resulti
               in market value that have not been realized and may turn around before the transaction is finalized.




Acctg 381 Accounting & Reporting
Ch 4, 17 & 22 Quiz #3 2pm                                                                 Folder # or Color _______

I.             Multiple Choice and Short Answer
          1.   Earnings Management: ( Ch 4 question 6,7 and DQ #3)                               (Chapter 4 questions 6
          a.   helps stockholders, creditors and management by smoothing out bumps in earnings
          b.   always results in higher income in the current year and less income in the future
          c.   reduces the reliability of income because income is biased up or down
          d.   is prevented by Sarbanes Oxley

          2. How does Other Comprehensive Income affect the Balance Sheet?
             Ch 4 exercise 15, Ch 17 BE 5 and Ex 6
          a. increases Retained Earnings
          b. updates some assets and liabilities to fair market value
          c. increases or decreases Retained Earnings
          d. increases or decreases Stockholders' Equity
          e. b and d

               EPS (Chapter 4 questions 23 & 24, BE 4-8)
               Vitaliy Inc.'s Net Income for the last fiscal year was $400,000 and the number of share outstanding at
               year end was 100,000. Please describe a situation which would cause Vitaliy's EPS to be more than
               $4 per share and a situation that would cause it to be less than $4 per share:


          1. V's EPS will be more than $4 if…..
               EPS will be more than $4 per share if some of the 100,000 shares were issued during the year. T
               average number of shares outstanding for the year being less than 100,000 and thus EPS will be


          2. V's EPS will be less than $4 if…..
               EPS will be less than $4 per share if more than 100,000 shares OUTSTANDING DURING the y
               BEFORE YEAR END (purchased as Treasury Stock). This will result average number of share
               year being more than 100,000 and thus EPS will be less than $4 per share.
               EPS will also be less than $4 per share if the company has preferred stock. Regardless of whethe
               dividends to Preferred Stockholders' the P.S. dividends are deducted from net income so that th
               EPS are earnings available to Common Shareholders.
Acctg 381 Accounting & Reporting
Ch 4, 17 & 22 Quiz #3 5:30 pm                                                                     Folder # or Color _______

I.                Multiple Choice and Short Answer

             1. Vitaliy''s Net Income for the last fiscal year was $400,000 and the number of share outstanding at year end was
                of the following is true in regards to Vitaliy's earnings per share: (EPS question 23 & 24, BE 4-8)
             a. EPS could be less than $4 per share if the company has Preferred Stock
             b. EPS could be more than $4 per share if the company has Preferred Stock
             c. EPS could be more than $4 per share if part of the 100,000 shares were issued & outstanding for only a portion
             d. both a & c
             e. both b & c

             2. How does Other Comprehensive Income affect the regular Income Statement? (1 point)
                  Ch 4 exercise 15, Ch 17 BE 5 and Ex 6
             a.   increases regular income on the GAAP Income Statement
             b.   decreases regular income on the GAAP Income Statement
             c.   may either increase or decrease regular income on the GAAP Income Statement
             d.   does not affect regular income on the GAAP Income Statement


Earnings Management: ( Ch 4 question 6,7 and DQ #3)
Explain how companies use Restructuring Charges or Creative Acquisition Accounting to "manage income"

Companies attempting to "manage earnings" may set up a larger than necessary reserve for restructuring charges. Th
to reverse the reserve in future periods and thus show stronger earnings in the future.

Companies attempting to "manage earnings" through "creative Acquisition Accounting" have classified a substantial p
purchase price to "in-process Research and Development". This enables them to expense this portion of the purchase p
immediately and thus have lower expenses in the future as there is no need to depreciate or amortize the cost if it is not
tangible or intangible assets acquired. This approach also helps them show stronger earnings in the future.
Explain what happens to Income in the year the of the acquisition or year the restructuring charges are first recorded?
Income in the current year is lower (see explanation above)




Explain what happens to Income in subsequent years?
Income in future years is higher (see explanation above)
              (19 points, 1 points each)




ment by using the letters above. More than one letter
 n one section of the Income Statement. The first one is


  death of one                      Ch 4 question 15 a


                                    Ch 4 question 15 b
                                    Ch 4 question 15 e
 the payment.
                                    Problem 4-3
                        Ch 4 Ex 8, ex 15 Ch 22 BE 7
                       Ch4 ? 17 a CA 4-7 Power Pt 9
                                     Ch 22 question 8b


                                            Ch 22 BE 7
                                      Ch 17 BE 5 Ex 6
 .2% of sales, up from 2% used
                                             Ch4 ? 17 c
 00, where should the extra
                                                 BE 4-7
 ive bad debt expense would                      BE 4-7


                               Ch 4 question 17f, Ex 5
                                  ch 4 Ex 5, Prob 3

y upon receipt of bankruptcy

       Ch 4 ? 17h, Ch 22 ?2 d, Power Point Slide 9
                        Ch 4 question 17d, prob 3

                                  Ch 4 question 17c

                                  Ch 22 question 8a

                                            CA 4-7
                    Ex 8, question 15 c, chapter 22
                                 question 2 b, BE 7
                                               Ex 8

               Name ____________________
   Folder # or Color ____________________

                (6 points, 2 points each)
 hare outstanding at year end was 100,000. Which
on 23 & 24, BE 4-8)




& outstanding for only a portion of the year



           (Chapter 4 questions 6 &7, Discussion Question #3)




in "Other Comprehensive Income"
the Balance Sheet and the
he net affect of changes unrealized



ncy in "Other Comprehensive Income"



 Foreign Currency Gains or Losses. This is the
ed to record wild swings resulting from changes
the transaction is finalized.
 Foreign Currency Gains or Losses. This is the
ed to record wild swings resulting from changes
the transaction is finalized.




               Name ____________________
   Folder # or Color ____________________

               (6 points, 2 points each)
          (Chapter 4 questions 6 &7, Discussion Question #3)
 in earnings




umber of share outstanding at
 italiy's EPS to be more than




 re issued during the year. This will result in a weighted
 00,000 and thus EPS will be greater than $4 per share.




 STANDING DURING the year, BUT RETIRED
 ult average number of shares outstanding for the
 share.
d stock. Regardless of whether the Company pays
 d from net income so that the earnings included in
                 Name ____________________
     Folder # or Color ____________________

                (6 points, 2 points each)

 hare outstanding at year end was 100,000. Which
on 23 & 24, BE 4-8)



 & outstanding for only a portion of the year




ment? (1 point)



nt




anage income"

e for restructuring charges. This enables them



" have classified a substantial portion of the
e this portion of the purchase price
or amortize the cost if it is not associated with
nings in the future.
arges are first recorded?

				
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