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Exam 4: Income Statement

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Question 1

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It is the date of the declaration of dividends,not the date of dividend payment,that affects retained earnings and creates the liability.

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Question 2

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Which of the following is not true about a stock dividend?

A) With a stock dividend,the firm issues a percentage of outstanding stock as new shares to existing shareholders.
B) The overall effect of a stock dividend is to leave total stockholders' equity and each owner's share of stockholders' equity unchanged.
C) In theory,with a stock dividend,total market value considering all outstanding shares should not change.
D) Since the number of shares changes under a stock dividend,any ratio based on the number of shares must be restated.
E) The accounting for a stock dividend,assuming the distribution is relatively small,requires that the par value of the stock be removed from retained earnings.

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E

Question 3

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The income statement for Lifeline Products in single-step format follows. $\begin{array}{c}\text {Lifeline Products}\\ \text { Income Statement}\\ \text { For the Year Ended December 31, 2012}\\\begin{array}{lll} \text {Revenues:}\\ \text {Sales}\\ \text {Rent Income}\\\\ \text {Costs and Expenses:}\\ \text {Cost of Sales}\\ \text {Selling and Administrative Expenses}\\ \text {Interest Expense}\\ \text {Loss on the Sale of Plant Assets}\\\\ \text {Income Before Taxes}\\ \text {Income Taxes}\\ \text {Net Income}\\ \text {Earnings per Share}\end{array}\begin{array}{r}\\\$ 3,000,000 \\\underline{14,000} \\\$ 3,014,000 \\2,370,000 \\322,000 \\48,000 \\\underline{16,000} \\\underline{ \$ 2,756,000} \\\underline{\$ \quad 258,000} \\\underline{112,000} \\\underline{ \$ \quad 146,000} \\\underline{ \$ \quad 7,30}\end{array}\end{array}$ Required: a.Convert the statement to multiple-step format. b.Recompute net income with the unusual loss removed. c.Why may net income with the unusual loss removed be preferable to use for trend analysis? d.Speculate on why this loss is not considered extraordinary or as a disposal of a segment.

Gross profit will be a prominent figure on a single-step income statement.

Oregm Imports engages in the retail sale of household products and clothing.During 2012,the company disposed of the clothing segment.Oregm Imports had 150,000 shares of stock outstanding all year.The results of operations for 2012 follow. $\begin{array}{c}\begin{array}{lll}\\\\\text {Net sales}\\\text {Cost of goods sold}\\\text {Operating expenses}\\\text {Loss on disposal of clothing business}\\\text {(before income tax effect)}\\\text {Interest expense}\\\text {Extraordinary loss from expropriation of operations}\\\text { in foreign country (before income tax effect)} \end{array}\begin{array}{r}\text { Household } \\\underline{\text { Products }} \\\$ 15,000,000 \\11,400,000 \\1,400,000 \\\\\\40,000 \\\\80,000\end{array}\begin{array}{r}\\\underline{\text { Clothing }} \\\$ 3,900,000 \\3,500,000 \\300,000 \\\\680,000\\\\\\\\\end{array}\end{array}$ Income taxes of 40% apply to all items.Required: Prepare a multiple-step income statement for the year ended December 31,2012,in good format.

Noncontrolling interest relects income from ownership of noncontrolling shareholders in the equity of consolidated subsidaries less than wholly owned.

If a firm consolidates subsidiaries that are not wholly owned,an income statement item is created that is termed:

In practice,the income statement is frequently considered to be the least important financial statement.

Gross profit is the difference between:

Which of the following would be classified as an extraordinary item on the income statement?

Other income and other expense are categories under which secondary activities of the firm not directly related to the operations are classified.

If the disposal of a segment meets the criteria of a disposal of a segment,then:

In analysis of income,for purposes of determining a trend,extraordinary items should be included.

Presenting an item after tax,with the related tax deducted,is called net-of-tax presentation.

Changes in account balances of Multi-Plus Inc.during 2012 were: $\begin{array}{lc}&\underline{\text { Increase }}\\\text { Assets } & \$ 420,000 \\\text { Liabilities } & 125,000 \\\text { Capital Stock } & 100,000 \\\text { Additional Paid-In Capital } & 140,000 \\\text { Retained Earnings } & ?\end{array}$ Assuming that there were no charges to retained earnings other than dividends of $62,000,the net income for 2010 was:

If Investor Company owns 20% of the stock of Investee Company and Investee Company reports profits of $100,000,then Investor Company reports equity income of:

The accounting standard provides considerable flexibility in reporting comprehensive income.

With a stock dividend,total market value considering all outstanding shares should decline.

Which of the following items on the income statement is not disclosed net of tax?

Which of the following would be included in operating income?