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Exam 4: Income Statement and Related Information

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Question 41

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The occurrence that most likely would have no effect on 2007 net income is the

A) sale in 2007 of an office building contributed by a stockholder in 1961.
B) collection in 2007 of a dividend from an investment.
C) correction of an error in the financial statements of a prior period discovered subsequent to their issuance.
D) stock purchased in 1993 deemed worthless in 2007.

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Question 42

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The primary advantage of the multiple-step format lies in the simplicity of presentation and the absence of any implication that one type of revenue or expense item has priority over another.

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Question 43

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The components of other comprehensive income can be reported in a statement of stockholders' equity.

Which of the following is never classified as an extraordinary item?

A strength of the income statement as compared to the balance sheet is that items that cannot be measured reliably can be reported in the income statement.

Shank Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation.The error caused the net income to be reported at almost double the proper amount.Correction of the error when discovered in the next year should be treated as

Snead, Inc.incurred the following infrequent losses during 2007: A $70,000 write-down of equipment leased to others. A $40,000 adjustment of accruals on long-term contracts. A $60,000 write-off of obsolete inventory. In its 2007 income statement, what amount should Snead report as total infrequent losses that are not considered extraordinary?

Earnings per share should always be shown separately for

Use of a multiple-step income statement will result in the company reporting a higher net income than if they used a single-step income statement.

Intraperiod tax allocation relates the income tax expense of the period to the specific items that give rise to the amount of the tax provision.

Sam Hurd Company has the following items: write-down of inventories, $120,000; loss on disposal of Sports Division, $185,000; and loss due to strike, $113,000.Ignoring income taxes, what total amount should Sam Hurd Company report as extraordinary losses?

How should an unusual event not meeting the criteria for an extraordinary item be disclosed in the financial statements?

Discontinued operations, extraordinary items, and unusual gains and losses are all reported net of tax in the income statement.

A correction of an error in prior periods' income will be reported $\begin{array} { l l c } & \text { In the income statement } & \text { Net of tax } \\\text { a. } & \text { Yes } & \text { Yes } \\\text { b. } & \text { No } & \text { No } \\\text { c. } & \text { Yes } & \text { No } \\\text { d. } & \text { No } & \text { Yes }\end{array}$

An income statement shows "income before income taxes and extraordinary items" in the amount of $2,055,000.The income taxes payable for the year are $1,080,000, including $360,000 that is applicable to an extraordinary gain.Thus, the "income before extraordinary items" is

Both revenues and gains increase both net income and owners' equity.

The single-step income statement emphasizes

Gross profit and income from operations are reported on a multiple-step but not a single-step income statement.

The approach most companies use to provide information related to the components of other comprehensive income is a

Penn Company reported the following information for 2007: $\begin{array} { l r } \text { Sales revenue } & \$ 510,000 \\\text { Cost of goods sold } & 350,000 \\\text { Operating expenses } & 55,000 \\\text { Unrealized holding gain on available-for-sale securities } & 40,000 \\\text { Cash dividends received on the securities } & 2,000\end{array}$ For 2007, Penn would report other comprehensive income of