Name ______________________________________
ACG 301
Quiz Chapter 4
Fall 2011
Instructions: Select the most correct answer. Show your work where appropriate.
1. Information in the income statement helps users to
A)
evaluate the past performance of the enterprise.
B)
provide a basis for predicting future performance.
C)
help assess the risk or uncertainty of achieving future cash flows.
D)
all of these.
2. The single-step income statement emphasizes
A)
the gross profit figure.
B)
total revenues and total expenses.
C)
extraordinary items and accounting changes more than these are emphasized in the multiple-step income
statement.
D)
the various components of income from continuing operations.
3. Under which of the following conditions would material flood damage be considered an extraordinary item for financial
reporting purposes?
A)
Only if floods in the geographical area are unusual in nature and occur infrequently.
B)
Only if the flood damage is material in amount and could have been reduced by prudent management.
C)
Under any circumstances as an extraordinary item.
D)
Flood damage should never be classified as an extraordinary item.
4. When a company discontinues an operation and disposes of the discontinued operation (component), the transaction
should be included in the income statement as a gain or loss on disposal reported as
A)
a prior period adjustment.
B)
an extraordinary item.
C)
an amount after continuing operations and before extraordinary items.
D)
a bulk sale of plant assets included in income from continuing operations.
5. Prophet Corporation has an extraordinary loss of $600,000, an unusual gain of $420,000, and a tax rate of 40%. At what
amount should Prophet report each item?
Extraordinary loss
Unusual gain
A)
$(600,000)
$420,000
B)
(600,000)
252,000
C)
(360,000)
420,000
D)
(360,000)
252,000
Extraordinary Losses and Gains reported net of tax:
($600,000) * (1 – Tax Rate) = ($600,000) * (1-40%) = ($360,000)
Unusual gains and losses reported as part of continued operations at gross. Taxes deducted later.
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6. Leonard Corporation reports the following information:
Correction of overstatement of depreciation
expense in prior years, net of tax
Dividends declared
Net income
Retained earnings, 1/1/12, as reported
$
Leonard should report retained earnings, 12/31/12, at
A)
$1,785,000.
B)
$2,125,000.
C)
$2,340,000.
D)
$2,555,000.
Beg RE, 1/1/12
Prior period adjustment:
Overstatement of depreciation expense (net of tax)
+ Net Income
-Dividends declared
Ending RE, 12/31/12
$2,000,0000
215,000
500,000
(160,000)
$2,555,000
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215,000
160,000
500,000
2,000,000
7. Logan Corp.'s trial balance of income statement accounts for the year ended December 31, 2012 included the following:
Other information:
Logan's income tax rate is 30%. Finished goods inventory:
January 1, 2012
$160,000
December 31, 2012
140,000
On Logan's multiple-step income statement for 2012,
Income before extraordinary item is
A)
$128,000.
B)
$94,000.
C)
$65,800.
D)
$49,000.
Sales Revenue
COGS
Gross Profit
$280,000
100,000
180,000
Selling Expenses:
Sales Commission Expense $ 16,000
Freight-out
6,000
Bad Debt Expense
6,000
Total Selling Expenses
28,000
Administrative Expenses:
Administrative Expenses
Total Expenses
50,000
78,000
Other Revenues/Gains:
Interest Revenue
10,000
Other Expenses/Losses:
Loss on disposal of equipment
Income before income taxes
Income Tax Expense (30%)
Income Before Extraordinary Income
18,000
94,000
28,200
65,800
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8. Which of the following is true about intraperiod tax allocation?
A)
It arises because certain revenue and expense items appear in the income statement either before or after they are
included in the tax return.
B)
It is required for extraordinary items and cumulative effect of accounting changes but not for prior period
adjustments.
C)
Its purpose is to allocate income tax expense evenly over a number of accounting periods.
D)
Its purpose is to relate the income tax expense to the items which affect the amount of tax.
9. Which of the following is included in comprehensive income?
A)
Investments by owners.
B)
Unrealized gains on available-for-sale securities.
C)
Distributions to owners.
D)
Changes in accounting principles.
10. Benedict Corporation reports the following information:
Net income
Dividends on common stock
Dividends on preferred stock
Weighted average common shares outstanding
Benedict should report earnings per share of
A)
$4.50.
B)
$5.40
C)
$6.60.
D)
$7.50.
EPS = (Net Income –Preferred Dividends) / Wtd avg common shares outstanding
EPS= (750,000 – 90,000) / 100,000 shares
EPS = $6.60
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$750,000
210,000
90,000
100,000