Intermediate Accounting Multiple Income Statement - DOC by ixl12463

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									MULTIPLE CHOICE
     1.   General-purpose financial statements are the product of
          a. financial accounting.
          b. managerial accounting.
          c. both financial and managerial accounting.
          d. neither financial nor managerial accounting.

     2.   Users of financial reports include all of the following except
          a. creditors.
          b. government agencies.
          c. unions.
          d. All of these are users.

     3.   The financial statements most frequently provided include all of the following except the
          a. balance sheet.
          b. income statement.
          c. statement of cash flows.
          d. statement of retained earnings.

     4.   The information provided by financial reporting pertains to
          a. individual business enterprises, rather than to industries or an economy as a whole
             or to members of society as consumers.
          b. business industries, rather than to individual enterprises or an economy as a whole
             or to members of society as consumers.
          c. individual business enterprises, industries, and an economy as a whole, rather than
             to members of society as consumers.
          d. an economy as a whole and to members of society as consumers, rather than to
             individual enterprises or industries.

     5.   All the following are differences between financial and managerial accounting in how
          accounting information is used except to
          a. plan and control company's operations.
          b. decide whether to invest in the company.
          c. evaluate borrowing capacity to determine the extent of a loan to grant.
          d. All the above.


     6.   Which of the following represents a form of communication through financial reporting
          but not through financial statements?
          a. Balance sheet.
          b. President's letter.
          c. Income statement.
          d. Notes to financial statements.

7.        The process of identifying, measuring, analyzing, and communicating financial
          information needed by management to plan, evaluate, and control an organization’s
          operations is called
          a. financial accounting.
          b. managerial accounting.
      c. tax accounting.
      d. auditing.

 8.   How does accounting help the capital allocation process attract investment capital?
      a. Provides timely, relevant information.
      b. Encourages innovation.
      c. Promotes productivity.
      d. a and b above.

 9.   Whether a business is successful and thrives is determined by
      a. markets.
      b. free enterprise.
      c. competition.
      d. all of these.

10.   An effective capital allocation process
      a. promotes productivity.
      b. encourages innovation.
      c. provides an efficient market for buying and selling securities.
      d. all of these.

11.   Financial statements in the early 2000s provide information related to
      a. nonfinancial measurements.
      b. forward-looking data.
      c. hard assets (inventory and plant assets).
      d. none of these.

12.   Which of the following is not a major challenge facing the accounting profession?
      a. Nonfinancial measurements.
      b. Timeliness.
      c. Accounting for hard assets.
      d. Forward-looking information.

13.   What is a major objective of financial reporting?
      a. Provide information that is useful to management in making decisions.
      b. Provide information that clearly portray nonfinancial transactions.
      c. Provide information that is useful to assess the amounts, timing, and uncertainty of
         perspective cash receipts.
      d. Provide information that excludes claims to the resources.

14.   What is a major objective of financial reporting?
      a. Provide information that is useful to the Internal Revenue Service in determining the
         amount of federal income taxes payable.
      b. Provide information that is useful in assessing the amounts and timing of revenue.
      c. Provide information that is comprehensible only by sophisticated investors.
      d. Provide information that clearly portrays the economic resources of an enterprise.

15.   Which of the following statements is not an objective of financial reporting?
      a. Provide information that is useful in investment and credit decisions.
      b. Provide information about enterprise resources, claims to those resources, and
         changes to them.
       c. Provide information on the liquidation value of an enterprise.
       d. Provide information that is useful in assessing cash flow prospects.

 16.   Accrual accounting is used because
       a. cash flows are considered less important.
       b. it provides a better indication of ability to generate cash flows than the cash basis.
       c. it recognizes revenues when cash is received and expenses when cash is paid.
       d. none of the above.

 17.   One objective of financial reporting is to provide
       a. information about the investors in the business entity.
       b. information about the liquidation values of the resources held by the enterprise.
       c. information that is useful in assessing cash flow prospects.
       d. information that will attract new investors.

 18.   Accounting principles are "generally accepted" only when
       a. an authoritative accounting rule-making body has established it in an official pro-
          nouncement.
       b. it has been accepted as appropriate because of its universal application.
       c. both a and b.
       d. neither a nor b.

 19.   A common set of accounting standards and procedures are called
       a. financial accounting standards.
       b. generally accepted accounting principles.
       c. objectives of financial reporting.
       d. statements of financial accounting concepts.

20.    Which of the following is a general limitation of "general purpose financial statements"?
       a. General purpose financial statements may not be the most informative for a specific
          enterprise.
       b. General purpose financial statements are comparable.
       c. General purpose financial statements are assumed to present fairly the company's
          financial operations.
       d. None of the above.




 21.   Generally accepted accounting principles
       a. are fundamental truths or axioms that can be derived from laws of nature.
       b. derive their authority from legal court proceedings.
       c. derive their credibility and authority from general recognition and acceptance by the
          accounting profession.
       d. have been specified in detail in the FASB conceptual framework.

 22.   A soundly developed conceptual framework of concepts and objectives should
       a. increase financial statement users' understanding of and confidence in financial
          reporting.
       b. enhance comparability among companies' financial statements.
       c. allow new and emerging practical problems to be more quickly solved.
          d. all of these.

    23.   Which of the following (a-c) are not true concerning a conceptual framework in account-
          ing?
          a. It should be a basis for standard-setting.
          b. It should allow practical problems to be solved more quickly by reference to it.
          c. It should be based on fundamental truths that are derived from the laws of nature.
          d. All of the above (a-c) are true.

    24.   What is a purpose of having a conceptual framework?
          a. To enable the profession to more quickly solve emerging practical problems.
          b. To provide a foundation from which to build more useful standards.
          c. Neither a nor b.
          d. Both a and b.
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    25.   Which of the following is not a benefit associated with the FASB Conceptual Framework
          Project?
          a. A conceptual framework should increase financial statement users' understanding of
             and confidence in financial reporting.
          b. Practical problems should be more quickly solvable by reference to an existing
             conceptual framework.
          c. A coherent set of accounting standards and rules should result.
          d. Business entities will need far less assistance from accountants because the
             financial reporting process will be quite easy to apply.

    26.   In the conceptual framework for financial reporting, what provides "the why"--the goals
          and purposes of accounting?
          a. Measurement and recognition concepts such as assumptions, principles, and
              constraints
          b. Qualitative characteristics of accounting information
          c. Elements of financial statements
          d. Objectives of financial reporting

    27.   The underlying theme of the conceptual framework is
          a. decision usefulness.
          b. understandability.
          c. reliability.
          d. comparability.

    28.   Which of the following is not an objective of financial reporting?
          a. To provide information about economic resources, the claims to those resources,
             and the changes in them.
          b. To provide information that is helpful to investors and creditors and other users in
             assessing the amounts, timing, and uncertainty of future cash flows.
          c. To provide information that is useful to those making investment and credit
             decisions.
          d. All of these are objectives of financial reporting.
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    29.   The objectives of financial reporting include all of the following except to provide
          information that
      a. is useful to the Internal Revenue Service in allocating the tax burden to the business
         community.
      b. is useful to those making investment and credit decisions.
      c. is helpful in assessing future cash flows.
      d. identifies the economic resources (assets), the claims to those resources (liabilities),
         and the changes in those resources and claims.

30.   What is a primary objective of financial reporting as indicated in the conceptual
      framework?
      a. provide information that is useful to those making investing and credit decisions.
      b. provide information that is useful to management.
      c. provide information about those investing in the entity.
      d. All of the above.

31.   What is a primary objective of financial reporting as indicated in the conceptual
      framework?
      a. Provide information that is helpful to present and potential investors, creditors, and
          other users in assessing the amounts, timing, and uncertainty of future cash flows.
      b. Provide information that is helpful to present investors, creditors, and other users in
          assessing the amounts, timing, and uncertainty of future cash flows.
      c. Provide information that is helpful to potential investors, creditors, and other users in
          assessing the amounts, timing, and uncertainty of future cash flows.
      d. None of the above.

32.   Which of the following is a primary characteristic of useful accounting information?
      a. Comparability.
      b. Relevance.
      c. Consistency.
      d. Materiality.

33.   Which of the following is a primary characteristic of useful accounting information?
      a. Conservatism.
      b. Comparability.
      c. Reliability.
      d. Consistency.
34.   What is meant by comparability when discussing financial accounting information?
      a. Information has predictive or feedback value.
      b. Information is reasonably free from error.
      c. Information that is measured and reported in a similar fashion across companies.
      d. Information is timely.

35.   What is meant by consistency when discussing financial accounting information?
      a. Information that is measured and reported in a similar fashion across points in time.
      b. Information is timely.
      c. Information is measured similarly across the industry.
      d. Information is verifiable.

36.   Which of the following is an ingredient of relevance?
      a. Verifiability.
      b. Representational faithfulness.
      c. Neutrality.
       d. Timeliness.

 37.   Which of the following is an ingredient of reliability?
       a. Predictive value.
       b. Timeliness.
       c. Neutrality.
       d. Feedback value.

 38.   Changing the method of inventory valuation should be reported in the financial
       statements under what qualitative characteristic of accounting information?
       a. Consistency.
       b. Verifiability.
       c. Timeliness.
       d. Comparability.

 39.   Company A issuing its annual financial reports within one month of the end of the year is
       an example of which ingredient of primary quality of accounting information?
       a. Neutrality.
       b. Timeliness.
       c. Predictive value.
       d. Representational faithfulness.

 40.   What is the quality of information that enables users to better forecast future operations?
       a. Reliability.
       b. Materiality.
       c. Comparability.
       d. Relevance.

41. Factors that shape an accounting information system include the
      a. nature of the business.
      b. size of the firm.
      c. volume of data to be handled.
      d. all of these.

 42.   Maintaining a set of accounting records is
       a. optional.
       b. required by the Internal Revenue Service.
       c. required by the Foreign Corrupt Practices Act.
       d. required by the Internal Revenue Service and the Foreign Corrupt Practices Act.

 43.   Debit always means
       a. right side of an account.
       b. increase.
       c. decrease.
       d. none of these.

 44.   An accounting record into which the essential facts and figures in connection with all
       transactions are initially recorded is called the
       a. ledger.
       b. account.
       c. trial balance.
      d. none of these.

45.   A trial balance
      a. proves that debits and credits are equal in the ledger.
      b. supplies a listing of open accounts and their balances that are used in preparing
          financial statements.
      c. is normally prepared three times in the accounting cycle.
      d. all of these.

46.   Which of the following is a real (permanent) account?
      a. Goodwill
      b. Sales
      c. Accounts Receivable
      d. Both Goodwill and Accounts Receivable

47.   Which of the following is a nominal (temporary) account?
      a. Unearned Revenue
      b. Salary Expense
      c. Inventory
      d. Retained Earnings

48.   Nominal accounts are also called
      a. temporary accounts.
      b. permanent accounts.
      c. real accounts.
      d. none of these.

49.   The double-entry accounting system means
      a. Each transaction is recorded with two journal entries.
      b. Each item is recorded in a journal entry, then in a general ledger account.
      c. The dual effect of each transaction is recorded with a debit and a credit.
      d. More than one of the above.

50.   When a corporation pays a note payable and interest,
      a. the account notes payable will be increased.
      b. the account interest expense will be decreased.
      c. they will debit notes payable and interest expense.
      d. they will debit cash.


51.   Stockholders’ equity is not affected by all
      a. cash receipts.
      b. dividends.
      c. revenues.
      d. expenses.

52.   The debit and credit analysis of a transaction normally takes place
      a. before an entry is recorded in a journal.
      b. when the entry is posted to the ledger.
      c. when the trial balance is prepared.
      d. at some other point in the accounting cycle.
53.   The accounting equation must remain in balance
      a. throughout each step in the accounting cycle.
      b. only when journal entries are recorded.
      c. only at the time the trial balance is prepared.
      d. only when formal financial statements are prepared.

54.   The difference between the accounting process and the accounting cycle is
      a. the accounting process results in the preparation of financial statements, whereas
         the accounting cycle is concerned with recording business transactions.
      b. the accounting cycle represents the steps taken to accomplish the accounting
         process.
      c. the accounting process represents the steps taken to accomplish the accounting
         cycle.
      d. merely semantic, because both concepts refer to the same thing.

55.   An optional step in the accounting cycle is the preparation of
      a. adjusting entries.
      b. closing entries.
      c. a statement of cash flows.
      d. a post-closing trial balance.

56.   Which of the following criteria must be met before an event or item should be recorded
      for accounting purposes?
      a. The event or item can be measured objectively in financial terms.
      b. The event or item is relevant and reliable.
      c. The event or item is an element.
      d. All of these must be met.

57.   Which of the following is a recordable event or item?
      a. Changes in managerial policy
      b. The value of human resources
      c. Changes in personnel
      d. None of these

58.   Which of the following is not an internal event?
      a. Depreciation
      b. Using raw materials in the production process
      c. Dividend declaration and subsequent payment
      d. All of these are internal transactions.
59.   External events do not include
      a. interaction between an entity and its environment.
      b. a change in the price of a good or service that an entity buys or sells, a flood or
         earthquake.
      c. improvement in technology by a competitor.
      d. using buildings and machinery in operations.

60.   A trial balance may prove that debits and credits are equal, but
      a. an amount could be entered in the wrong account.
      b. a transaction could have been entered twice.
      c. a transaction could have been omitted.
          d. all of these.

    61.   The major elements of the income statement are
          a. revenue, cost of goods sold, selling expenses, and general expense.
          b. operating section, nonoperating section, discontinued operations, extraordinary
             items, and cumulative effect.
          c. revenues, expenses, gains, and losses.
          d. all of these.

    62.   Information in the income statement helps users to
          a. evaluate the past performance of the enterprise.
          b. provide a basis for predicting future performance.
          c. help assess the risk or uncertainty of achieving future cash flows.
          d. all of these.

    63.   Limitations of the income statement include all of the following except
          a. items that cannot be measured reliably are not reported.
          b. only actual amounts are reported in determining net income.
          c. income measurement involves judgment.
          d. income numbers are affected by the accounting methods employed.
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    64.   Which of the following would represent the least likely use of an income statement
          prepared for a business enterprise?
          a. Use by customers to determine a company's ability to provide needed goods and
             services.
          b. Use by labor unions to examine earnings closely as a basis for salary discussions.
          c. Use by government agencies to formulate tax and economic policy.
          d. Use by investors interested in the financial position of the entity.
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    65.   The income statement reveals
          a. resources and equities of a firm at a point in time.
          b. resources and equities of a firm for a period of time.
          c. net earnings (net income) of a firm at a point in time.
          d. net earnings (net income) of a firm for a period of time.

    66.   The income statement information would help in which of the following tasks?
          a. Evaluate the liquidity of a company.
          b. Evaluate the solvency of a company
          c. Estimate future cash flows
          d. Estimate future financial flexibility

    67.   Which of the following is an example of managing earnings down?
          a. Changing estimated bad debts from 3 percent to 2.5 percent of sales.
          b. Revising the estimated life of equipment from 10 years to 8 years.
          c. Not writing off obsolete inventory.
          d. Reducing research and development expenditures.

    68.   Which of the following is an example of managing earnings up?
          a. Decreasing estimated salvage value of equipment.
          b. Writing off obsolete inventory.
          c. Underestimating warranty claims.
      d. Accruing a contingent liability for an ongoing lawsuit.

69.   What might a manager do during the last quarter of a fiscal year if she wanted to
      improve current annual net income?
      a. Increase research and development activities.
      b. Relax credit policies for customers.
      c. Delay shipments to customers until after the end of the fiscal year.
      d. Delay purchases from suppliers until after the end of the fiscal year.

70.   What might a manager do during the last quarter of a fiscal year if she wanted to
      decrease current annual net income?
      a. Delay shipments to customers until after the end of the fiscal year.
      b. Relax credit policies for customers.
      c. Pay suppliers all amounts owed.
      d. Delay purchases from suppliers until after the end of the fiscal year.

71.   Which of the following is an advantage of the single-step income statement over the
      multiple-step income statement?
      a. It reports gross profit for the year.
      b. Expenses are classified by function.
      c. It matches costs and expenses with related revenues.
      d. It does not imply that one type of revenue or expense has priority over another.

72.   The single-step income statement emphasizes
      a. the gross profit figure.
      b. total revenues and total expenses.
      c. extraordinary items and accounting changes more than these are emphasized in the
         multiple-step income statement.
      d. the various components of income from continuing operations.

73.   Which of the following is an acceptable method of presenting the income statement?
      a. A single-step income statement
      b. A multiple-step income statement
      c. A consolidated statement of income
      d. All of these




74.   Which of the following is not a generally practiced method of presenting the income
      statement?
      a. Including prior period adjustments in determining net income
      b. The single-step income statement
      c. The consolidated statement of income
      d. Including gains and losses from discontinued operations of a component of a
          business in determining net income
75.   The occurrence which most likely would have no effect on 2010 net income (assuming
      that all amounts involved are material) is the
      a. sale in 2010 of an office building contributed by a stockholder in 1983.
      b. collection in 2010 of a receivable from a customer whose account was written off in
          2009 by a charge to the allowance account.
           c. settlement based on litigation in 2010 of previously unrecognized damages from a
               serious accident which occurred in 2008.
           d. worthlessness determined in 2010 of stock purchased on a speculative basis in
               2006.
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    76.    The occurrence that most likely would have no effect on 2010 net income is the
           a. sale in 2010 of an office building contributed by a stockholder in 1961.
           b. collection in 2010 of a dividend from an investment.
           c. correction of an error in the financial statements of a prior period discovered
               subsequent to their issuance.
           d. stock purchased in 1996 deemed worthless in 2010.
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    77.   Which of the following is not a selling expense?
           a. Advertising expense
           b. Office salaries expense
           c. Freight-out
           d. Store supplies consumed
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    78.    The accountant for the Lintz Sales Company is preparing the income statement for 2010
           and the balance sheet at December 31, 2010. The January 1, 2010 merchandise
           inventory balance will appear
           a. only as an asset on the balance sheet.
           b. only in the cost of goods sold section of the income statement.
           c. as a deduction in the cost of goods sold section of the income statement and as a
               current asset on the balance sheet.
           d. as an addition in the cost of goods sold section of the income statement and as a
               current asset on the balance sheet.
    79.    In order to be classified as an extraordinary item in the income statement, an event or
           transaction should be
           a. unusual in nature, infrequent, and material in amount.
           b. unusual in nature and infrequent, but it need not be material.
           c. infrequent and material in amount, but it need not be unusual in nature.
           d. unusual in nature and material, but it need not be infrequent.
    80.    Classification as an extraordinary item on the income statement would be appropriate for
           the
           a. gain or loss on disposal of a component of the business.
           b. substantial write-off of obsolete inventories.
           c. loss from a strike.
           d. none of these.


PROBLEMS
Multiple-step income statement.
Presented below is information related to Farr Company.

Retained earnings, December 31, 2010                                                   $ 650,000
Sales                                                                                  1,400,000
Selling and administrative expenses                                                      240,000
Hurricane loss (pre-tax) on plant (extraordinary item)                                   290,000
Cash dividends declared on common stock                                                   33,600
Cost of goods sold                                                                       780,000
Gain resulting from computation error on depreciation charge in 2009 (pre-tax)           520,000
Other revenue                                                                    120,000
Other expenses                                                                   100,000

Instructions
Prepare in good form a multiple-step income statement for the year 2011. Assume a 30% tax
rate and that 80,000 shares of common stock were outstanding during the year. Also prepare
the following:
Per share of common stock –
      Income before extraordinary item
      Extraordinary item, net of tax
      Net income

								
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