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Exam 4: The Income Statement

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Question 1

Multiple Choice

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Which of the following items is reported only in current and future periods?

A) Prior period adjustment
B) Change in accounting principle
C) Change in estimate
D) Effects of changing prices

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Question 2

Multiple Choice

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The term "comprehensive income" as defined by the FASB

A) must be reported on the face of the income statement.
B) includes all changes in equity during a period except those resulting from investments by and distributions to owners.
C) is the net change in owners' equity for the period.
D) is synonymous with the term "net income."

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Question 3

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The financial statements of Bollinger Corporation for 2014 and 2015 contained the following errors: Assuming that none of the errors were detected or corrected,by what amount will 2015 operating income be overstated or understated?

Which of the following approaches to income measurement underlies financial accounting and reporting?

Saginaw Inc.decided on August 1,2014,to dispose of a component of its business.The component was sold on November 30,2014.Saginaw's income for 2014 included income of $250,000 from operating the discontinued segment from January 1 to the sale date.Saginaw incurred a loss on the November 30 sale of $220,000.Ignoring income taxes,what amount should be reported in the 2014 income statement as the net income or loss under "Discontinued Operations"?

Which of the following is an application of the principle of systematic and rational allocation?

Which of the following principles best describes the rationale for matching administrative and selling expenses with revenues of the current period?

An earthquake destroyed the home office building of a company located in an inland city.This should be reported as a(n)

Which of the following is NOT true regarding restructuring charges?

According to the FASB's conceptual framework,comprehensive income includes which of the following?

The forecast of income for future periods begins with a forecast of sales.An accurate projection of sales is essential to the determination of the amount of assets needed to do business and the level of financing required. What factors should be considered in preparing the forecast of sales?

The normal ordering of items in the income statement would be best illustrated by which of the following?

Which of the following is true regarding Statement of Financial Accounting Standards No.144,"Accounting for the Impairment or Disposal of Long-Lived Assets," accounting and reporting standards for discontinued operations?

A change from the straight-line method of depreciation to an accelerated method should be accounted for as a(n)

According to the FASB conceptual framework,the concept of "earnings"

The following information is available for Ohio & West Virginia,Inc,from the company's annual Form 10-K: "Ohio & West Virginia,Inc.(OWV)is a world-class provider of rail-freight transportation and its supporting services.OWV functions as a holding company with subsidiaries that own and operate regional freight railroads.We own or have interests in 47 railroads in five countries (United States,Canada,Mexico,Bolivia and Australia),and operate over 9,300 miles of owned and leased track and more than 3,000 additional miles under track-access arrangements. Our revenues are generated primarily from the movement of freight over track owned or operated by our railroads.At the heart of OWV's success is the integration of our railroads into strong regional rail systems.Our subsidiary,LinkRail,Inc.,provides freight car switching and rail-related services to industrial companies operating extensive railroad facilities within their own complexes". Information from the company's income statement contained in the Form 10-K annual report to the Securities and Exchange Commission is as follows: CLOSING STOCK PRICES AT DECEMBER 31: Required: Answer the following questions: 1.What was the percentage increase in sales from 2012 to 2013,and from 2013 to 2014? 2.What was the price/earnings ratio for each year? 3.A frequently used measure of performance in the railroad industry is the operating ratio,i.e.,total operating expenses divided by total operating revenues.What were the operating ratios for 2012,2013,2014? 4.What additional information would be useful in analyzing this income statement?

Under the general rule of revenue recognition,revenue is recognized when

A classic definition of income states that income is the amount one could consume at the end of a period and still be as well off as at the beginning of the period.Embedded in this definition of income is the concept of capital maintenance.Conceptually,income can occur only after the beginning capital has been recovered.When accountants adopt different measuring units,they are attempting to maintain different concepts of capital. Identify the type of capital maintained when the measuring unit is (a)nominal dollars,(b)constant dollars,and (c)current costs.When would nominal cost and constant dollar measurements provide equivalent results?

Which of the following accounting changes requires the restatement of financial statements presented for prior years?

The financial statements of Mannassass Corporation for 2014 and 2015 contained the following errors: Assuming that none of the errors were detected or corrected,by what amount will 2014 operating income be overstated or understated?