Chapter 4

Question 1

Increase in inventory by $2700.

Answer 1

• $2700 or ($2700)

Question 2

Decrease in prepaid rent by $320.

Answer 2

+ $320

Question 3

Increase in accounts payable by $2000.

Answer 3

+ $2000

Question 4

Increase in interest payable by $270.

Answer 4

+ $270

Question 5

Increase in unearned service revenue by $370.

Answer 5

+ $370

Question 6

Decrease in income taxes payable by $420.

Answer 6

• $420 or ($420)

Question 7

Purchase of equipment for $7400.

Answer 7

• $7400 or ($7400)

Question 8

Sale of equipment for $2200.

Answer 8

+ $2200

Question 9

Proceeds from issuance of common stock for $140.

Answer 9

+ $140

Question 10

Proceeds from note payable for $240.

Answer 10

+ $240

Question 11

Payment of dividends for $1292.

Answer 11

• $1292 or ($1292)

Question 12

Increase in inventories by $11200.

Answer 12

• $11,200 or ($11,200)

Question 13

Increase in prepaid expenses by $10,500.

Answer 13

• $10,500 or ($10,500)

Question 14

Classify Interest Paid for U.S. GAAP and IFRS.

Answer 14

GAAP: Operating activities
IFRS: Financing activities

Question 15

Classify Interest Received for U.S. GAAP and IFRS.

Answer 15

GAAP: Operating activities
IFRS: Investing activities

Question 16

Classify Dividends Paid for U.S. GAAP and IFRS.

Answer 16

GAAP: Financing activities
IFRS: Financing activities

Question 17

Classify Dividends Received for U.S. GAAP and IFRS.

Answer 17

GAAP: Operating activities
IFRS: Investing activities

Question 18

How do you calculate dividends?

Answer 18

Dividends = Beg. R/E + Net Income - Ending R/E

Question 19

What is the purpose of the income statement?

Answer 19

It displays a company’s operating performance that is, its net profit or loss, during the period

Question 20

What is the purpose of the statement of cash flows?

Answer 20

to provide information about the cash receipts and cash disbursements of an enterprise that occurred during a period.

Question 21

Income from continuing operations includes the:

Answer 21

1. revenues
2. expenses
3. gains and losses that will probably continue in future periods

Question 22

__________ expense is shown as a separate expense in the income statement.

Answer 22

Income tax

Question 23

What is the difference between operating income and non-operating income?

Answer 23

Operating income includes revenues and expenses directly related to primary revenue-gathering activities of the company.

Non-operating income relates to peripheral or incidental activities of the company.

Question 24

What is a single-step income statement?

Answer 24

A single-step income statement format groups all revenues and gains together and al expenses and losses together.

Question 25

What is a multiple-step income statement?

Answer 25

A multiple-step income statement format includes a number of intermediate subtotals before arriving at income from continuing operations.

Question 26

What is earnings quality?

Answer 26

refers to the ability of reporting earnings (income) to predict a company's future earnings.

Question 27

What is "channel stuffing"?

Answer 27

accelerates revenue recognition by persuading distributors to purchase more of your product than necessary near the end of a reporting period

Question 28

What is "big bath" accounting?

Answer 28

a reference to cleaning up company balance sheets

Question 29

How do managers manipulate income?

Answer 29

1. Income shifting | 2. Income statement classification

Question 30

What are restructuring costs?

Answer 30

Restructuring costs include costs associated with shutdown or relocation of facilities or downsizing of operations.

Question 31

GAAP requires that restructuring costs be recognized only in the ___________________.

Answer 31

period incurred

Question 32

What are pro forma earnings?

Answer 32

Many companies voluntarily provide pro forma earnings - management's assessment of permanent earnings.

Question 33

There are two types of events that, if they have a material effect on the income statement, require separate reporting below income from continuing operations as well as separate disclosure:

Answer 33

1. discontinued operations | 2. extraordinary items

Question 34

What is intraperiod tax allocation?

Answer 34

associates income tax expense with each major component of income that causes it.

Question 35

What are extraordinary items?

Answer 35

are materials gains and losses that are both: 1. unusual in nature 2. infrequent in occurence

Question 36

The determination of whether an item is unusual and infrequent should consider:

Answer 36

the environment in which the company operates

Question 37

How do you calculate earnings per share (EPS)?

Answer 37

(Net income - Pref. Dividends)/Weighted average # of shares

Question 38

Increase in accounts receivable by $2000.

Answer 38

- $2000 or ($2000)

Question 39

Companies must disclose per share amounts for:

Answer 39

1. income before any separately reported items 2. each separately reported item 3. net income (loss)

Question 40

All corporations whose common stock is publicly traded must disclose __________.

Answer 40

EPS

Question 41

What is comprehensive income?

Answer 41

is the total change in equity for a reporting period other than from transactions with owners.

Question 42

Reporting comprehensive income can be accomplished with:

Answer 42

1. a single, continuous statement | 2. in two separate, but consecutive statements