ACG3131 - CH4 Orion
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An income statement prepared by a business enterprise is mostly
likely to be used by:
A: investors interested in assessing components of the company's
profitability.
A: investors interested in assessing components of the company's
B: government agencies to formulate tax and economic policy.
profitability.
C: customers to determine a company's ability to provide needed
goods and services.
D: labor unions to examine earnings closely as a basis for salary
discussions.
Which of the following is the primary reason the income statement
is important to investors and creditors?
A : Because of its ability to help assess the financial position of the
entity at a point in time.
B : Because of its ability to help determine the amount of future C : Because of its ability to help predict the amount, timing, and
income the entity may generate from current operations. uncertainty of future cash flows.
C : Because of its ability to help predict the amount, timing, and
uncertainty of future cash flows.
D : Because of its ability to help determine the honesty of those
involved in managing the enterprise.
Which of the following can be determined by looking at a compa-
ny's income statement?
A : net income or loss of a firm for a period of time.
A : net income or loss of a firm for a period of time.
B : net income or loss of a firm at a point in time.
C : resources and equities of a firm at a point in time.
D : resources and equities of a firm for a period of time.
Which of the following is an example of a gain?
A : Sale of services on credit.
B : Sale of finished products for cash. C : Sale of used equipment for above book value.
C : Sale of used equipment for above book value.
D : Sale of new equipment classified as inventory for market value.
How are expenses and losses similar?
A : They both refer to transactions related to peripheral operations.
B : They both decrease net income. B : They both decrease net income.
C : They both refer to transactions related to major operations.
D : They both increase net income.
During the fiscal year 2017, Estrada Enterprises had the following
values that needed to be recorded in their income statement:
Disbursements for purchases $973,000
Increase in trade accounts payable $55,000
Decrease in merchandise inventory $16,000
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What was Estrada Enterprises' cost of goods sold for 2017?
A
$1,044,000.
A
B $1,044,000.
$973,000.
Disbursements + Increase in liability + Decrease in asset
C
$1,028,000.
D
$989,000.
Which of the following is a benefit of the multiple-step income
statement compared to the single-step income statement?
A:
The multiple-step income statement recognizes no distinction in
types of costs or expenses.
B:
The multiple-step income statement shows gross margin and B: The multiple-step income statement shows gross margin and
recognizes different types of costs and expenses. recognizes different types of costs and expenses.
C:
The multiple-step income statement contains two account group-
ings.
D:
The multiple-step income statement eliminates potential classifi-
cation problems.
Disposal of which of the following would qualify as a disposal of a
component?
A:
A technology company upgrades its software.
B:
A toy company phases out one product line from a geographical
C: A transportation company sells its bus operations but not its
region.
airline operations.
C:
A transportation company sells its bus operations but not its
airline operations.
D:
An auto parts manufacturer sells one of its five parts-manufac-
turing subsidiaries.
The income statement for Byrd Enterprises shows "income from
operations " in the amount of $472,000. Dividend revenue is
$282,000 and interest expense on bonds and notes is $117,000.
Thus, the "income before income tax" is:
A:
B:
$871,000.
$637,000.
B:
$637,000.
C:
$307,000.
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D:
$73,000.
Which item would likely be reported on the income statement as
"other expenses and losses"?
A:
Interest paid on bonds.
B: A:
Insurance expenses. Interest paid on bonds.
C:
Legal expenses.
D:
Sales commissions.
Discontinued operations are reported in the income statement
because of a concept called the
A:
phase-out period concept.
B: D:
current operating performance concept. modified all-inclusive concept.
C:
prior period adjustment concept.
D:
modified all-inclusive concept.
Which of the following is a common line item on the income
statement when reporting earnings per share?
A:
Net income plus gross margin
B: B:
Income from discontinued operations, net of tax Income from discontinued operations, net of tax
C:
Net income before tax
D:
Income before adjustments
How should a correction of an error from a prior period be treated
in the financial statements?
A:
Errors should only be disclosed in a footnote so readers will be
aware of the errors.
D:
B:
Errors should be treated similar to changes in accounting princi-
Errors should only be reflected in the current year's financial
ples as prior period adjustments.
statements if a company presents prior years' financial statement
for comparative purposes even if the error affected prior years.
C:
Errors should only be reflected in the current year's balance sheet
and never the income statement.
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D:
Errors should be treated similar to changes in accounting princi-
ples as prior period adjustments.
If a company changes their inventory pricing method from FIFO
to average cost, it would account for this as a(n)
A:
change in estimate.
B: B:
change in principle. change in principle.
C:
discontinued operation.
D:
noncontrolling interest.
What is the difference between appropriated retained earnings
and free retained earnings?
A:
Appropriated retained earnings can only be used at an execu-
tive's discretion, whereas free retained earnings can be used by
anyone in the company.
B:
Appropriated retained earnings can only be used for purchasing D :
major assets, whereas free retained earnings can only be used Appropriated retained earnings can only be used for specific
for dividends. purposes, whereas free retained earnings can be used as needed
by the company.
C:
Appropriated retained earnings can only be used for dividends,
whereas free retained earnings are used to reinvest back into the
company.
D:
Appropriated retained earnings can only be used for specific
purposes, whereas free retained earnings can be used as needed
by the company.
For the first quarter of 2018, Kabak Industries paid a dividend
of $500,000 to stockholders. The accountants at Kabak should
record this distribution on the
A:
balance sheet.
B:
B:
retained earnings statement.
retained earnings statement.
C:
income statement.
D:
comprehensive expense statement.
With regard to comprehensive income, how does net income
differ in a one statement approach compared to a two statement
approach?
A:
Net income includes income, expenses, gains, and losses all
together in a one statement approach, but income and expenses
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are separated from gains and losses when calculating net income
in a two statement approach.
B:
Net income in a one statement approach is used to calculate
earnings per share, but earnings per share are not reported in a
two statement approach. D:
Net income is reported as a subtotal in a one statement approach
C: but as a total on a two statement approach.
Net income includes comprehensive income in a one statement
approach but not in a two statement approach.
D:
Net income is reported as a subtotal in a one statement approach
but as a total on a two statement approach.
Which of the following would an accountant report on both the
Statement of Stockholders' Equity and the Balance Sheet?
A:
net income
B: B:
accumulated other comprehensive income accumulated other comprehensive income
C:
total revenue
D:
total expenses
Expenses are defined as:
A:
decreases in equity (net assets) from peripheral or incidental
transactions of an entity except those that result from expenses
or distributions to owners.
B:
outflows or other using-up of assets or incurrences of liabilities
during a period from delivering or producing goods, rendering B:
services, or carrying out other activities that constitute the entity's outflows or other using-up of assets or incurrences of liabilities
ongoing major or central operations. during a period from delivering or producing goods, rendering
services, or carrying out other activities that constitute the entity's
C: ongoing major or central operations.
increases in equity (net assets) from peripheral or incidental
transactions of an entity except those that result from revenues
or investments by owners.
D:
inflows or other enhancements of assets of an entity or settle-
ments of its liabilities during a period from delivering or producing
goods, rendering services, or other activities that constitute the
entity's ongoing major or central operations.
Which of the following is not included in comprehensive income?
A:
unrealized holding gains
D:
B: investments by owners
losses on disposal of assets
C:
dividend revenue
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D:
investments by owners
What is the title of the account used when a company transfers an
amount of restricted retained earnings into a different account?
A:
Appropriated Retained Earnings
B: A:
Noncontrolling Retained Earnings Appropriated Retained Earnings
C:
Comprehensive Retained Earnings
D:
Unappropriated Retained Earnings
Selling expenses make up a
A:
section discussing the type of expenses incurred from the selling
process.
B:
D:
subsection discussing the composition of the cost of goods sold
subsection of expenses resulting from the company's efforts to
to make sales.
generate sales.
C:
section of sales relating to net income and net loss.
D:
subsection of expenses resulting from the company's efforts to
generate sales.
A company may make a change in accounting principle for which
of the following reasons?
A:
The company switched from one method of expense tracking to
another.
A:
B: The company switched from one method of expense tracking to
Accountants found an error in the inventory calculation. another.
C:
Estimates for depreciation of new equipment were incorrect.
D:
The company entered a higher tax bracket.
Why do some believe that recognizing fair values in net income is
misleading?
A:
because fair value always raises net income
B:
B: because fair value is always changing
because fair value is always changing
C:
because fair value is always increasing
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D:
because fair value is always decreasing
Which of the following can be assessed by looking at a company's
income statement?
A:
Reliability of unrealized gains or losses.
B: B:
Creditworthiness Creditworthiness
C:
Solvency
D:
Liquidity
Holland Windmills recently received $90,000 for the sale of a
windmill. On their income statement, this would be classified as
A:
revenue.
B: A:
an expense. revenue.
C:
a gain.
D:
a loss.
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