ACCT 304 WEEK 8 FINAL EXAM (solution 50/50)
1. Income from continuing operations sometimes includes gains from nonoperating activities. (2 points)
True
False
2. Income from continuing operations is an after-tax number consisting of revenues, expenses, gains, and losses. (2 points)
True
False
3. Income from continuing operations equals net income only in the absence of separately reported items. (2 points)
True
False
4. Intraperiod tax allocation is the process of associating income tax effects with the income statement components that create those effects. (2 points)
True
False
5. If the effective tax rate is 40%, a $200,000 before-tax extraordinary gain would increase net income by $120,000. (2 points)
True
False
6. If General Motors ceased production of the Corvette, it would report any material gains or losses that would result under discontinued operations. (2 points)
True
False
7. Discontinued operations require reclassification of prior years’ income statements but no change in prior years’ net income. (2 points)
True
False
8. Operating income or loss from discontinued operations up to the disposal date is separately reported. (2 points)
True
False
9. The measurement and disposal dates of discontinued operations must fall within the same fiscal year. (2 points)
True
False
10. If an overall loss from discontinued operations is expected, then the loss is reported in the year in which the measurement date falls. (2 points)
True
False
11. Estimated gains from discontinued operations can be reported in the measurement year only to the extent of estimated losses. (2 points)
True
False
12. An item must meet the subjective criteria of being both unusual and infrequent to be reported as extraordinary. (2 points)
True
False
13. The definition of what constitutes an extraordinary item should be independent of the operating environment. (2 points)
True
False
14. Material restructuring costs are reported as an element of income from continuing operations. (2 points)
True
False
15. The cumulative effect of a change in accounting principle is the difference between the ending balance in retained earnings and what the balance would have been had the new method been applied all year. (2 points)
True
False
16. A change in reporting entity is shown separately on the income statement in the year of the change. (2 points)
True
False
17. All corporations must disclose EPS. (2 points)
True
False
18. EPS disclosure is required for all items reported net of tax on the income statement. (2 points)
True
False
19. Net income is the starting point in disclosing comprehensive income. (2 points)
True
False
20. Quality of earnings refers to the ability of reported earnings or income to predict future earnings. (2 points)
True
False
21. The distinction between operating and nonoperating income relates to: (2 points)
a. Continuity of income.
b. Principal activities of the reporting entity.
c. Consistency of income stream.
d. Reliability of measurements.
22. The principal benefit of separately reporting discontinued operations, extraordinary items, and cumulative effects of changes in accounting principles is to enhance: (2 points)
a. Predictive ability.
b. Consistency in reporting.
c. Intraperiod continuity.
d. Comprehensive reporting.
23. Interperiod income tax allocation relates primarily to the principle of: (2 points)
a. Valuation.
b. Going concern.
c. Matching.
d. Measurement.
24. An extraordinary event for financial reporting purposes is both: (2 points)
a. Unusual and material.
b. Infrequent and significant.
c. Material and infrequent.
d. Unusual and infrequent.
25. The cumulative effect of a change in accounting principle is reported as: (2 points)
a. A restatement of retained earnings.
b. A separate line component of income.
c. A prior period adjustment.
d. Income from modified operations.
26. The amount reported for the cumulative effect of a change in accounting principle is the net-of-tax difference between: (2 points)
a. The current year’s income under the old principle and the current year’s income under the new principle.
b. The current year’s ending retained earnings under the old principle and under the new principle.
c. The preceding year’s ending retained earnings under the old principle and under the new principle.
d. The current year’s beginning retained earnings under the old principle and the current year’s net income under the new principle.
27. The financial statement presentation of the cumulative effect of a change in accounting principle is most similar to that of reporting: (2 points)
a. Changes in accounting estimates.
b. Prior period adjustments.
c. Correction of errors.
d. Extraordinary items.
28. In its Dec. 31, 2000 financial statements, MisterCard estimated that losses on its current receivables would be $18.2 million. During 2001, MisterCard determined that the losses on the Dec. 31, 2000 receivables were actually $19.4 million. Ignoring taxes, MisterCard would report, in its 2001 financial statements, the additional $1.2 million loss on receivables as: (2 points)
a. An extraordinary item.
b. A prior period adjustment.
c. A retroactive adjustment.
d. A current year’s expense.
29. Which of the following is not true about EPS? (2 points)
a. It must be reported by all corporations whose stock is publicly traded.
b. It may be disclosed either on the face of the income statement or in a disclosure note.
c. It must be reported separately for discontinued operations.
d. It must be reported separately for extraordinary items.
30. The Gargas Corporation’s income statement includes net income, extraordinary items, and the cumulative effect of a change in accounting principle. Earnings per share information would be provided for: (2 points)
a. Net income only.
b. Extraordinary items and net income.
c. The cumulative effect of a change in accounting principle and net income.
d. Extraordinary items, the cumulative effect of a change in accounting principle, and net income.
31. A reconciliation between net income and comprehensive income would include: (2 points)
a. Unrealized losses but not unrealized gains.
b. Unrealized gains but not unrealized losses.
c. Unrealized losses and unrealized gains.
d. Neither unrealized losses nor unrealized gains.
32. Operating cash flows would exclude: (2 points)
a. Interest received.
b. Interest paid.
c. Dividends paid.
d. Dividends received.
33. The statement of cash flows reports cash flows from the activities of: (2 points)
a. Operating, purchasing, and investing.
b. Borrowing, paying, and investing.
c. Financing, investing, and operating.
d. Using, investing, and financing.
34. Cash flows from financing activities include: (2 points)
a. Interest received.
b. Interest paid.
c. Dividends received.
d. Dividends paid.
35. Changes in accounting estimates are reported: (2 points)
a. Currently and prospectively.
b. Retroactively and currently.
c. Retroactively, currently, and prospectively.
d. Prospectively.
36. Precepts Inc. incurred a material loss which was not unusual in character, but was clearly an infrequent occurrence. This loss should be reported as: (2 points)
a. An extraordinary loss.
b. A separate line item between income from continuing operations and income from dis continued operations.
c. A separate line item within income from continuing operations.
d. A separate line item in the retained earnings statement.
37. Sulvane Co. reports income of $300,000 from continuing operations before income taxes and a before-tax extraordinary loss of $80,000. All income is subject to a 30% tax rate. In the year’s income statement, Sulvane would show the following line-item amounts for income tax expense and net income: (2 points)
a. $66,000 and $210,000.
b. $90,000 and $154,000.
c. $90,000 and $276,000.
d. $66,000 and $220,000.
38. LeFever Construction Co.’s 2000 income from continuing operations before income taxes was $280,000. LeFever reported a before-tax extraordinary gain of $50,000. All tax items are subject to a 40% tax rate. In its income statement for 2000, LeFever would show the following line-item amounts for before-tax net income and income tax expense: (2 points)
a. $198,000 and $112,000.
b. $230,000 and $92,000.
c. $330,000 and $132,000.
d. $198,000 and $79,000.
39. Northridge Printers purchased an offset press on January 1, 1997 at a cost of $120,000. The press had an estimated eight-year life with no residual value Northridge uses straight-line depreciation. At December 31, 2000, Northridge estimated that the press would have only two more years of remaining life with no residual value. For 2000, Northridge would report depreciation expense of: (2 points)
a. $25,000.
b. $15,000.
c. $20,000.
d. $30,000.
40. Triptic Travel reported revenue of $300,000 for its year ended December 31, 2000. Accounts receivable at December 31, 1999 and 2000 were $32,000 and $35,500, respectively. During 2000, accounts totaling $1,500 were deemed to be uncollectible and were written off. Using the direct method for reporting cash flows from operating activities, Triptic would report cash collected from customers of: (2 points)
a. $300,000.
b. $295,000.
c. $303,000.
d. $302,000.
41. Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows: (2 points)
a. Operating, $2,000; financing $16,000.
b. Operating, $0; financing $18,000.
c. Operating, $12,000; financing $6,000.
d. Operating, $18,000; financing $0.
42. Parvo Dog Food Co. reported net income of $45,000 for the year ended December 31, 2000. January 1 balances in accounts receivable and accounts payable were $23,000 and $26,000 respectively. Year-end balances in these accounts were $22,000 and $28,000, respectively. Assuming that all relevant information has been presented, Parvo’s cash flows from operating activities would be: (2 points)
a. $48,000.
b. $44,000.
c. $46,000.
d. $45,000.
43. Anthrax Beef Processors reported net income of $216,000 for its year ended December 31, 2000. Purchases totaled $152,000. Accounts payable balances at the beginning and end of the year were $36,000 and $33,000, respectively. Beginning and ending inventory balances were $44,000 and $46,000, respectively. Assuming that all relevant information has been presented, Anthrax would report operating cash flows of: (2 points)
a. $155,000.
b. $221,000.
c. $211,000.
d. $151,000.
44. In Case B, Alpha would report a gain or (loss) from disposal in 2000 of: (2 points)
a. $40,000.
b. $(10,000).
c. $15,000.
d. $65,000.
45. In Case C, Alpha would report a (loss) from disposal in 2000 of: (2 points)
a. $(50,000).
b. $(20,000).
c. $(10,000).
d. $0.
46. What would be Misty’s net income for the current year? (2 points)
a. $148.
b. $168.
c. $112.
d. None of the amounts given are correct.
47. In Case B, Omega would report a gain from disposal in 2000 of: (2 points)
a. $75,000.
b. $60,000.
c. $100,000.
d. $0.
48. In Case C, Omega would report a gain from disposal in 2000 of: (2 points)
a. $30,000.
b. $70,000.
c. $100,000.
d. $0.
49. In Case D, Omega would report a gain (loss) from disposal in 2000 of: (2 points)
a. $30,000.
b. $(40,000).
c. $20,000.
d. $0.
50. Rallod would report net cash inflows (outflows) from investing activities in the amount of: (2 points)
a. $(4,000).
b. $100.
c. $(3,900).
d. $(1,900).
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