Questions

1.
Income from continuing operations sometimes includes gains from non-operating
activities.

2. Intraperiod
tax allocation is the process of associating income tax effects with the income
statement components that create those effects.

3. Material
restructuring costs are reported as an element of income from continuing
operations.
4. Earnings quality
refers to the ability of reported earnings (income) to predict future
earnings.

5. Gains, but not
losses, from discontinued operations must be separately reported in an income
statement.

6. An
item must meet the subjective criteria of being either unusual or infrequent to
be reported as extraordinary.

7. The
definition of what constitutes an extraordinary item should be independent of
the operating environment.

8. Income
statements prepared according to both U.S. GAAP and International Accounting
Standards require the separate reporting, as an extraordinary item, of material
gains and losses from events that are both unusual and infrequent.

9. A
change in depreciation method is accounted for by retrospectively revising
prior years’ financial statements.
10. Changes
in accounting estimates require disclosure of their effects, if material, on
current year net income and EPS but do not require restatement of prior years’
financial statements.

11. The income effect of a change in
reporting entity is shown separately in the income statement in the year of the
change.

12. EPS
disclosure is required only for income from continuing operations.
13. Comprehensive
income reports an expanded version of income to include four types of gains and
losses not included in traditional income statements.

14. Comprehensive
income is the total change in shareholders’ equity that occurred during the
period.

15. The
direct and indirect methods of reporting the statement of cash flows present
different information for investing and financing activities.

Essay
Questions

Listed
below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term placing the letter
designating the best term in the space provided by the phrase.
Terms:
A. Change in accounting estimate
B. Income from discontinued operations
C. Income from continuing operations
D. Intraperiod tax allocation
E. Matching principle
F. Operating activities (income statement)
G. Prior period adjustment
H. Provision for income tax
I. Taxable income
J. Transitory earnings
16. _____
Also known as income tax expense.
17. _____ From
transactions or events that are not likely to occur in the foreseeable
future.
18. _____
Associates tax with income statement items.
19. _____
Used as the base for computing taxes currently payable.
20. _____
Made to correct a material error.
Listed
below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term placing the letter
designating the best term in the space provided by the phrase.

Terms:
A. Change in accounting estimate
B. Income from discontinued operations
C. Income from continuing operations
D. Intraperiod tax allocation
E. Matching principle
F. Operating activities (income statement)
G. Prior period adjustment
H. Provision for income taxes
I. Taxable income
J. Transitory earnings
21. _____
Is directly related to the principal revenue-generating activities
22. _____
Requires note disclosure, if material.

23. _____ Expenses are recognized in
the same period as the related revenues.
24. _____
Income (loss) from an identifiable component will cease.
25. _____
More useful to analysts in predicting future income than current net
income.
Listed
below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term placing the letter
designating the best term in the space provided by the phrase.

Terms:
A. Cumulative effect of a change in accounting principle
B. Direct method
C. Discontinued operations
D. Financing activities
E. Gain/loss from early extinguishment of debt
F. Investing activities
G. Held for sale component
H. Multiple-step income statement
I. Non-operating activities (income statement)
J. Single-step income statement
26. _____ Not directly related to a firm’s principal
revenue-generating activities.
27. _____
Likely to be discontinued within a year.
28. _____
Groups all revenues and gains.
29. _____
Related to the acquisition and disposition of long-term assets.
30. _____
Related to the external financing of the company.
Listed
below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term placing the letter
designating the best term in the space provided by the phrase.

Terms:
A. Cumulative effect of a change in accounting principle
B. Direct method
C. Discontinued operations
D. Financing activities
E. Gain/loss from early extinguishment of debt
F. Investing activities
G. Held for sale component
H. Multiple-step income statement
I. Non-operating activities (income statement)
J. Single-step income statement
31. _____ Difference between book value of debt and
payment to retire debt.
32. _____ Reported net
of tax immediately after income from continuing operations.
33. _____ No longer
included in current income for voluntary changes in accounting principle.
34. _____ Reports
intermediate subtotals in arriving at net income.
35. _____ Reports the
cash effects of each operating activity directly on the statement.
Listed
below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term placing the letter
designating the best term in the space provided by the phrase.

Terms:
A. Change in reporting entity
B. Component of an entity
C. Comprehensive income
D. Earnings quality
E. Earnings per share
F. Extraordinary items
G. Indirect method
H. Non-cash financing and investing activities
I. Operating activities (SCF)
J. Restructuring costs
36. _____ Required disclosure for publicly traded
corporations.
37. _____
Operations and cash flows can be clearly distinguished.
38. _____
Separately stated component of continuing operations.
39. _____
Calculations work backward from net income to cash flow from operating
activities.
40. _____
Ability of reported income to predict future earnings.
Listed
below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term placing the letter
designating the best term in the space provided by the phrase.

Terms:
A. Change in reporting entity
B. Component of an entity
C. Comprehensive income
D. Earnings quality
E. Earnings per share
F. Extraordinary items
G. Indirect method
H. Non-cash financing and investing activities
I. Operating activities (SCF)
J. Restructuring costs
41. _____
The acquisition of assets by issuing debt or equity securities.
42. _____
Costs incurred often relate to downsizing.
43. _____
Total non-owner change in equity for a reporting period.
44. _____
Unusual, infrequent, and material gains and losses.
45. _____
When grouped together, essentially net income on a cash basis.
Listed
below are ten terms followed by a list of phrases that describe or characterize
the terms. Match each phrase with the correct term placing the letter
designating the best term in the space provided by the phrase.

Terms:
A. Change in estimate
B. Non-operating income
C. Comprehensive income
D. Earnings quality
E. Earnings per share
F. Extraordinary items
G. Change in accounting principle
H. Multiple-step income statement
I. Discontinued operations
J. Restructuring costs
46. _____
Required disclosure for publicly traded corporations.
47. _____
Component of the entity has been sold or will be sold.
48. _____
Costs generally associated with downsizing.
49. _____
Reports a series of intermediate subtotals.
50. _____
Accounted for prospectively.
51. _____
Tangentially related to normal operations.
52. _____
Accounted for retrospectively by restating prior years’ statements.
53. _____
Unusual, infrequent, and material gains and losses.
54. _____
Total non-owner change in equity.
55. _____
Ability of reported income to predict future earnings.

Multiple Choice Questions

56. Intraperiod income tax
presentation is primarily a matter of:
A. Valuation.
B. Going concern.
C. Periodicity.
D. Allocation.

57. The difference between single-step and multiple-step income
statements is primarily an issue of:
A. Consistency.
B. Presentation.
C. Measurement.
D. Valuation.

58. Popson Inc. incurred a material loss which was not unusual in
character, but was clearly an infrequent occurrence. This loss should be
reported as:
A. An extraordinary loss.
B. A separate line item between income from continuing operations and
income from discontinued operations.
C. A separate line item
within income from continuing operations.
D. A separate line item in the retained earnings statement.