/ 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.