Intermediate Accounting Volume 1, 11th Canadian Edition By Bruce J. McConomy – Test Bank
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Sample Questions
CHAPTER 4
REPORTING FINANCIAL PERFORMANCE
CHAPTER
STUDY OBJECTIVES
1. Understand
how firms create value and manage performance. A
business is based on a basic model of obtaining financing, investing in assets,
and using those assets to generate profits. Different industries have different
business models. Even within an industry, different businesses may have
different strategies for generating revenues. Some businesses and industries
are riskier than others. Companies must decide how and whether to manage these
risks. Managing risks costs money, which reduces profits. Capital markets
demand greater returns for riskier businesses.
2. Understand
how users use information about performance to make decisions.
Users use information about performance to evaluate past performance and
profitability and to provide a basis for predicting future performance. They
also use the information to help assess risk and uncertainty regarding future
cash flows.
3. Understand
the concept of and be able to assess quality of earnings/information. The
concept of quality of earnings is used by analysts and investors to assess how
well the reported income reflects the underlying business and future potential.
When assessing quality of earnings, users must consider all information about a
company. High-quality earnings have various attributes, as noted in
Illustration 4-4. Where the information is biased, this degrades the quality.
4. Understand
the differing perspectives on how to measure income.
There are various ways to measure income, including operating income, net
income, and comprehensive income. IFRS recognizes the concept of comprehensive
income but this is not recognized under ASPE. Other comprehensive income
consists of a set list of items identified under IFRS essentially dealing with
certain unrealized gains/ losses. Under IFRS, some of these items are recycled
(reclassified) to net income and some are not.
5. Measure
and report results of discontinued operations. The
gain or loss on disposal of a business component involves the sum of: (1) the
income or loss from operations to the financial statement date, and (2) the
gain or loss on the disposal of the business component. These items are
reported net of tax among the irregular items in the income statement. Related
assets are identified on the balance sheet where material. Under IFRS,
non-current assets are reclassified to current assets.
6. Measure
income and prepare the income statement and the statement of comprehensive
income using various formats. There are many ways to
present the income statement and the statement of comprehensive income. GAAP
lays out certain minimum requirements but beyond that, a company has some
leeway to present the information as it wishes. The goal is to ensure that the
statements present information about performance in a transparent manner,
including presenting items such that the users can see which are ordinary
versus peripheral activities. IFRS allows the statement of comprehensive income
to be presented in a combined statement or two separate statements.
By convention, companies use what is known as a single-step
method or a multiple-step method (or a variation of the two).
IFRS requires entities to provide information about either the
nature or function of expenses. When information is presented using function,
additional disclosures should be made regarding the breakdown of the nature of
expenses as the latter has good cash flow predictive value. The entity should
choose the method that best reflects the nature of the business and industry.
7. Prepare
the statement of retained earnings and the statement of changes in equity. The
retained earnings statement should disclose net income (loss), dividends, prior
period adjustments, and transfers to and from retained earnings
(appropriations). This statement is required under ASPE.
The statement of changes in equity is a required statement under
IFRS and takes the place of the statement of changes in retained earnings. It
shows all changes in all equity accounts including accumulated other
comprehensive income.
8. Understand
how disclosures and analysis help users of financial statements assess performance.
Disclosures include notes and supplementary information. They provide
background and explanatory information necessary to understand the business.
Investors and analysts use quality of earnings analysis to help determine a
company’s value.
9. Identify
differences in accounting between IFRS and ASPE and potential changes. The
chart in Illustration 4-22 outlines the major differences. The IASB was in the
research project stages regarding financial performance reporting.
10.
Explain the differences between the cash
basis of accounting and the accrual basis of accounting.
Accrual basis accounting provides information about cash inflows and outflows
associated with earnings activities as soon as these cash flows can be
estimated with an acceptable degree of certainty. The cash basis focuses on
when cash is received or disperses, and therefore it is not the best predictor
of future cash flows if the company has irregular cash flow patterns.
Multiple Choice—Conceptual
Answer
No. Description
b
1. Business model activities
c
2. Business model activities and the income
statement
b
3. Risk/return trade-off
a
4. Representational faithfulness
b
5. Financial risk management
c
6. Value creation
d
7. Usefulness of the income statement
d
8. Usefulness of the income statement
c
9. Segregating income
b
10. Concept of soft numbers
d
11. Earnings management
b
12. Limitations of the income statement
d
13. Quality of earnings
b
14. High-quality earnings
b
15. Net income definition
a
16. IFRS view of income
c
17. Other comprehensive income
a
18. All-inclusive income
c
19. Comprehensive income inclusions
a
20. Accumulated other comprehensive income
c
21. Calculation of earnings per share
c
22. Reporting discontinued operations
d
23. Determination of a discontinued
operation
b
24. Classification of assets held for sale
c
25. Assets held for sale
a
26. Recognizing assets that have been
written down
b
27. Calculation of income from discontinued operations
c
28. EPS disclosures on income statement
b
29. Unusual gains and losses
d
30. Separate presentation under IFRS
b
31. Single-step income statement
a
32. Income statement presentation
c
33. IFRS requirement for expense
presentation
d
34. Expenses presented by function
b
35. Intraperiod tax allocation
d
36. Intraperiod tax allocation
b
37. Earnings per share data
c
38. Presentation of expenses by function
d
39. Calculation of selling expenses
a
40. Calculation of general and administrative
expenses
a
41. Calculation of selling expenses
b
42. Calculation of general and administrative
expenses
d
43. Calculation of income from continuing
operations
a
44. Calculation of net income
a
45. Determination of infrequent losses
d
46. Calculation of cost of goods sold
c
47. Retained earnings statement
Answer
No. Description
a
48. Losses excluded from income statement
b
49. Change in accounting principle
d
50. Change in accounting principle
a
51. Correction of an error
b
52. Statement of shareholders’ equity
d
53. Change in accounting principle
b
54. Adjustments to retained earnings
a
55. Calculate adjusted retained earnings
c
56. Notes to financial statements
d
57. Assessing quality of earnings
b
58. Assessing quality of earnings
d
59 Differences between ASPE and IFRS
c
60. Presentation of expenses under APSE
a
61. Presentation of held-for-sale assets
b
*62. Accrual basis of accounting
c
*63. Modified cash basis
b
*64. Strict cash basis
b
*65. Accrual vs. cash basis
a
*66. Calculation of cash basis revenue
c
*67. Conversion of cash to accrual basis
Multiple Choice—Computational
Answer
No. Description
d
68. Calculation of net income using retained
earnings
a
69. Calculation of total purchases
d
70. Calculation of cost of goods sold
c
71. Calculation of accounts payable
c
72. Disposal of a major business segment
d
73. Calculation of loss on discontinued operation
a
74. Presentation of discontinued operations
on income statement
b
75. Calculation of other income on multiple-step
income statement
c
76. Calculate earnings per share
c
77. Effect of accounting errors
a
78. Effect of accounting errors
d
79. Effect of accounting errors
a
80. Effect of accounting errors
d
81. Effect of accounting errors on current assets
d
82. Events affecting income from continuing
operations
b
83. Events affecting retained earnings
c
84. Calculation of retained earnings balance
b
*85. Calculate service revenue
*This topic is dealt with in an Appendix to the chapter.
Exercises
Item
Description
E4-86
Value creation
E4-87
Representational faithfulness
E4-88
Income statement performance assessment
E4-89
Income statement information about future cash flows
E4-90
Income statement limitations
E4-91
Characteristics of high-quality earnings
E4-92
Earnings management
E4-93
Earnings management
E4-94
Calculation of net income from change in shareholders’ equity
E4-95
Calculation of net income from change in shareholders’ equity
E4-96
Comprehensive income
E4-97
An all-inclusive approach
E4-98
Comprehensive income
E4-99
Definitions
E4-100
Discontinued operations
E4-101
Discontinued operations
E4-102
Income statement classifications
E4-103
Classification of income statement and retained earnings statement items
E4-104
Nature versus function of expense presentation
E4-105
Understandability/disclosure trade-off
E4-106
Calculation of net income
E4-107
Terminology
E4-108
Statement of changes in equity
E4-109
Statement of retained earnings
E4-110
Comprehensive income
E4-111
Non-GAAP measures
E4-112
The OSC and non-GAAP measures
E4-113
Analyzing financial health and quality of earnings
*E4-114
Cash basis
*E4-115
Accrual basis
*E4-116
Cash basis
PROBLEMS
Item
Description
P4-117
Discontinued operations
P4-118
Multiple-step income statement
P4-119
Income statement, including corrections
P4-120
Multiple-step income statement
P4-121
Multiple-step income statement
P4-122
Income statement adjustments
P4-123
Income statement and retained earnings statement
*P4-124
Cash to accrual accounting
*This topic is dealt with in an Appendix to the chapter.
MULTIPLE CHOICE—Conceptual
1. The business
model may be broken down into three activities:
2. a)
investing, operating, allocating.
3. b)
investing, operating, financing.
4. c)
financing, operating, and comprehensive income.
5. d)
balance sheet, income statement, cash flow statement.
Answer: b
Difficulty: Easy
Learning Objective: Understand how firms create value and manage
performance.
Section Reference: Business Models and Industries
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
2. The
income statement captures an entity’s
3. a)
financing activities.
4. b)
investing activities.
5. c)
operating activities.
6. d)
interrelationship between activities.
Answer: c
Difficulty: Easy
Learning Objective: Understand how firms create value and manage
performance.
Section Reference: Business Models and Industries
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
3. The
“risk/return” trade-off means
4. a)
using various techniques to manage risks.
5. b)
the market demands a greater return when there is greater risk.
6. c)
not investing in a risky business.
7. d)
monitoring risks.
Answer: b
Difficulty: Easy
Learning Objective: Understand how firms create value and manage
performance.
Section Reference: Business Models and Industries
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
4. The
concept of representational faithfulness requires that the financial statements
5. a)
reflect the economic reality of running a business.
6. b)
reflect everything no matter how small.
7. c)
reflect the biases of management.
8. d)
identify all risks that the entity faces.
Answer: a
Difficulty: Easy
Learning Objective: Understand how firms create value and manage
performance.
Section Reference: Business Models and Industries
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
5. The
first step in the financial risk management process is
6. a)
buying insurance.
7. b)
identifying risks.
8. c)
managing risks.
9. d)
monitoring risks.
Answer: b
Difficulty: Easy
Learning Objective: Understand how firms create value and manage
performance.
Section Reference: Business Models and Industries
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
6. Value
creation refers to
7. a)
generating the highest profits possible given available resources.
8. b)
choosing the optimal business model for a given industry.
9. c)
finding an optimal balance between managing risks and taking the right
opportunities.
10.
d) how a company creates value for its employees.
Answer: c
Difficulty: Medium
Learning Objective: Understand how firms create value and manage
performance.
Section Reference: Business Models and Industries
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
7. Information
in the income statement does NOT help users to
8. a)
evaluate the past performance of the enterprise.
9. b)
provide a basis for predicting future performance.
10.
c) help assess the risk of not achieving future cash flows.
11.
d) calculate the exact amount of future dividends.
Answer: d
Difficulty: Easy
Learning Objective: Understand how users use information about
performance to make decisions.
Section Reference: Communicating Information about Performance
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
8. A
useful statement of income
9. a)
has feedback value.
10.
b) has predictive value.
11.
c) helps stakeholders understand the business.
12.
d) all of the above
Answer: d
Difficulty: Easy
Learning Objective: Understand how users use information about
performance to make decisions.
Section Reference: Communicating Information about Performance
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
9. Segregating
a company’s recurring operating income from nonrecurring income sources is useful
because
10.
a) recurring income is constantly changing.
11.
b) nonrecurring income is subject to greater management bias and
uncertainty.
12.
c) results from continuing operations have greater significance
for predicting future performance.
13.
d) nonrecurring income is irrelevant to stakeholders.
Answer: c
Difficulty: Medium
Learning Objective: Understand how users use information about
performance to make decisions.
Section Reference: Communicating Information about Performance
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
10.
The concept of ‘soft numbers’ reflects the fact that
11.
a) financial statement numbers may be manipulated.
12.
b) sometimes significant measurement uncertainty exists.
13.
c) sometimes significant errors exist.
14.
d) earnings numbers may not be sustainable.
Answer: b
Difficulty: Easy
Learning Objective: Understand the concept of and be able to
assess the quality of earnings/information.
Section Reference: Quality of Earnings/Information
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
11.
Earnings management is
12.
a) the process of managing a business.
13.
b) the process of profit maximization.
14.
c) always fraudulent.
15.
d) manipulating income to meet a targeted earnings level.
Answer: d
Difficulty: Medium
Learning Objective: Understand the concept of and be able to
assess the quality of earnings/information.
Section Reference: Quality of Earnings/Information
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
12.
Limitations of the income statement include all of the following
EXCEPT
13.
a) items that cannot be measured reliably are not reported.
14.
b) only actual amounts are reported in determining net income.
15.
c) income measurement involves the use of estimates.
16.
d) income numbers are affected by the accounting methods used.
Answer: b
Difficulty: Medium
Learning Objective: Understand the concept of and be able to
assess the quality of earnings/information.
Section Reference: Quality of Earnings/Information
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
13.
Which of the following is INCORRECT regarding “quality of
earnings”?
14.
a) Quality of earnings refers to how solid the earnings numbers
are.
15.
b) Analysts use quality of earnings to assess how well the
reported income reflects the underlying business and future potential.
16.
c) If earnings quality is high, numbers are accepted as is.
17.
d) If earnings quality is low, numbers are accepted as is.
Answer: d
Difficulty: Medium
Learning Objective: Understand the concept of and be able to
assess the quality of earnings/information.
Section Reference: Quality of Earnings/Information
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
14.
Which of the following statements regarding high-quality
earnings is NOT true?
15.
a) The shares of companies with high-quality earnings are valued
higher in capital markets.
16.
b) High-quality earnings make verifiable promises about future
performance.
17.
c) High-quality earnings provide higher quality information.
18.
d) High-quality earnings have a lower likelihood of potential
misstatement.
Answer: c
Difficulty: Medium
Learning Objective: Understand the concept of and be able to
assess the quality of earnings/information.
Section Reference: Quality of Earnings/Information
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
15.
Net income represents
16.
a) revenues and gains less expenses and losses from continuing
operations only.
17.
b) revenues and gains less expenses and losses from both
continuing and discontinued operations.
18.
c) net income plus/minus other comprehensive income.
19.
d) ongoing revenues and expenses before gains, losses and
discontinued operations.
Answer: b
Difficulty: Medium
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
16.
The view of income that IFRS generally supports is referred to
as the
17.
a) all-inclusive approach.
18.
b) current operating performance approach.
19.
c) other comprehensive income approach.
20.
d) operating income approach.
Answer: a
Difficulty: Medium
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
17.
At year end, other comprehensive income is closed out to
18.
a) retained earnings.
19.
b) share capital.
20.
c) accumulated other comprehensive income.
21.
d) net income.
Answer: c
Difficulty: Easy
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
18.
All-inclusive income includes all of the following EXCEPT
19.
a) investments by owners.
20.
b) losses on disposal of assets.
21.
c) dividend revenue.
22.
d) gains on the expropriation of property by the government.
Answer: a
Difficulty: Medium
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
19.
Comprehensive income includes all changes in equity during a
period EXCEPT
20.
a) gains and losses from discontinued operations.
21.
b) unrealized gains and losses on available for sale securities.
22.
c) those resulting from investments by owners and distributions
to owners.
23.
d) gains and losses from irregular items.
Answer: c
Difficulty: Medium
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
20.
Accumulated other comprehensive income would be reported in
21.
a) shareholders’ equity.
22.
b) retained earnings.
23.
c) net income.
24.
d) net income from continuing operations.
Answer: a
Difficulty: Medium
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
21.
The calculation of Earnings Per Share is generally based on
which income figure?
22.
a) Other Comprehensive Income
23.
b) Income from Discontinued Operations
24.
c) Net Income
25.
d) All-Inclusive Income
Answer: c
Difficulty: Medium
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
22.
When a company disposes of a discontinued operation (segment),
the transaction should be included in the income statement as a gain or loss on
disposal, and reported as
23.
a) a prior period adjustment.
24.
b) other comprehensive income.
25.
c) an amount after continuing operations.
26.
d) a bulk sale of plant assets included in income from
continuing operations.
Answer: c
Difficulty: Medium
Learning Objective: Measure and report results of discontinued
operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
23.
For purposes of discontinued operations, the key elements in
determining that a separate segment exists are that the component is
24.
a) a separate business and a separate legal entity.
25.
b) a separate legal entity and generates its own net cash flows.
26.
c) in a separate geographic region and can be sold.
27.
d) a separate business and generates its own cash flow.
Answer: d
Difficulty: Hard
Learning Objective: Measure and report results of discontinued
operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
24.
If an asset is to be classified as held for sale, which of the
following conditions does NOT apply?
25.
a) The sale has been authorized by the company’s management.
26.
b) Changes to the sale plan are likely.
27.
c) It is probable that the asset will be sold within one year.
28.
d) There is an active program to find a buyer.
Answer: b
Difficulty: Hard
Learning Objective: Measure and report results of discontinued
operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
25.
When an asset is held for sale
26.
a) it must relate to a discontinued operation.
27.
b) the entity must continue to record depreciation for the
asset.
28.
c) the asset is remeasured to the lower of carrying (book) value
and fair value less costs to sell.
29.
d) the asset is remeasured to the lower of fair value and
carrying (book) value.
Answer: c
Difficulty: Hard
Learning Objective: Measure and report results of discontinued
operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
26.
If the value of an asset that has been written down later
increases, to what extent may the related gain be recognized?
27.
a) up to the amount of the original loss
28.
b) the entire amount of the gain may be recognized
29.
c) none of the gain may be recognized
30.
d) up to the fair market value of the related asset
Answer: a
Difficulty: Hard
Learning Objective: Measure and report results of discontinued
operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
27.
Sesame Corp.’s adjusted trial balance at December 31, 2017
included the following:
Debit Credit
Sales…………………………………………………………………………………….
$170,000
Cost of goods sold………………………………………………………………….
$ 70,000
Administrative expenses…………………………………………………………
28,000
Loss on sale of equipment………………………………………………………
11,000
Sales commissions………………………………………………………………..
9,000
Interest revenue…………………………………………………………………….
6,000
Loss of warehouse due to flood……………………………………………….
15,000
Loss from operation of discontinued division……………………………..
24,000
Bad debt expense………………………………………………………………….
5,000 _______
Totals…………………………………………………………………………….. $162,000 $176,000
Sesame uses the perpetual system, and their income tax rate is
30%. On Sesame’s multiple-step income statement for 2017, income from
discontinued operations is
500.
a) $10,500.
501.
b) $16,800.
502.
c) $24,000.
503.
d) $24,500.
Answer: b
Difficulty: Medium
Learning Objective: Measure and report results of discontinued
operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $24,000 x (1 – 0.3) = $16,800
28.
Which of the following is a required disclosure in the income
statement when reporting the disposal of a segment of the business?
29.
a) The gain or loss on disposal should be reported as an unusual
item.
30.
b) Results of operations of a discontinued segment should be
disclosed immediately below other irregular items.
31.
c) Earnings per share from both continuing operations and net
income should be disclosed on the face of the statement or in the notes.
32.
d) The gain or loss on disposal should not be segregated, but
should be reported together with the results of continuing operations.
Answer: c
Difficulty: Hard
Learning Objective: Measure and report results of discontinued
operations.
Section Reference: Discontinued Operations
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
29.
Unusual gains and losses are items on the income statement that
30.
a) are typical of everyday activities but do not occur
frequently.
31.
b) are not typical of everyday activities or do not occur
frequently.
32.
c) include write down of inventories and write off of bad debts.
33.
d) are not usually disclosed separately.
Answer: b
Difficulty: Medium
Learning Objective: Measure income and prepare the income statement
and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
30.
Under IFRS, which of the following is NOT required to be
presented separately in the statements of income/comprehensive income?
31.
a) revenues
32.
b) discontinued operations
33.
c) cost of goods sold
34.
d) depreciation/depreciation
Answer: d
Difficulty: Hard
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
31.
The single-step income statement emphasizes
32.
a) the gross profit figure.
33.
b) total revenues and total expenses.
34.
c) discontinued operations and accounting changes.
35.
d) the various components of income from continuing operations.
Answer: b
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
32.
Which of the following is NOT a generally practiced method of
presenting the income statement?
33.
a) including corrections of errors made in a prior period
34.
b) the single-step income statement
35.
c) the multiple-step income statement
36.
d) including gains and losses from discontinued operations
Answer: a
Difficulty: Hard
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
33.
IFRS requires that expenses be presented in the income statement
34.
a) by amount or in alphabetical order.
35.
b) by geographical area or by the single-step method.
36.
c) by nature or by function.
37.
d) by current or non-current.
Answer: c
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
34.
When expenses are presented by function in the income statement,
35.
a) they should be presented by type of expense (e.g.,
depreciation, purchases, salaries).
36.
b) they should be reported as part of other comprehensive
income.
37.
c) their cash flow predictive value is increased.
38.
d) more professional judgment is required to allocate expenses
between functions.
Answer: d
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
35.
Intraperiod tax allocation
36.
a) allocates tax balances between fiscal years.
37.
b) allocates tax balances within a fiscal period.
38.
c) is used for income from continuing operations but not for
income from discontinued operations.
39.
d) is used for other comprehensive income but not for income
from discontinued operations.
Answer: b
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
36.
Intraperiod tax allocation
37.
a) arises because certain revenue and expense items appear in
the income statement either before or after they are included in the tax
return.
38.
b) is required for the cumulative effect of changes in
accounting principles but not for discontinued operations.
39.
c) allocates income tax expense evenly over a number of
accounting periods.
40.
d) relates income tax expense to the items which affect the
amount of tax.
Answer: d
Difficulty: Hard
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
37.
Regarding earnings per share (EPS) data
38.
a) both public and private corporations are required to report
EPS on the face of the income statement.
39.
b) although public corporations are required to report EPS,
private corporations are not.
40.
c) EPS related to comprehensive income is required.
41.
d) financial analysts do not attach much importance to EPS data.
Answer: b
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
38.
Regarding presentation of expenses by nature versus function,
function refers to
39.
a) the type of expense, such as depreciation, purchases, or
employee benefits.
40.
b) whether the expense actively contributed to generation of
income.
41.
c) the business activity to which the expense relates.
42.
d) the name of the cost centre responsible for the expense.
Answer: c
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
Bloomcode: Knowledge
Use the following information for questions 39–40.
Oskar Corp. reports operating expenses in two categories: (1)
selling and (2) general and administrative. The adjusted trial balance at
December 31, 2017, included the following expense accounts:
Accounting and legal fees……………………………………………………….
$120,000
Advertising…………………………………………………………………………….
150,000
Freight-out…………………………………………………………………………….
75,000
Interest………………………………………………………………………………….
60,000
Loss on sale of long-term investments……………………………………..
30,000
Officers’ salaries……………………………………………………………………
180,000
Rent for office space……………………………………………………………..
160,000
Sales salaries and commissions………………………………………………
110,000
One-half of the rented premises is occupied by the sales
department.
39.
How much of the expenses listed above should be included in
Oskar’s selling expenses for 2017?
40.
a) $260,000
41.
b) $335,000
42.
c) $340,000
43.
d) $415,000
Answer: d
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $150,000 + $75,000 + $110,000 + ($160,000/2) =
$415,000
40.
How much of the expenses listed above should be included in
Oskar’s general and administrative expenses for 2017?
41.
a) $380,000
42.
b) $410,000
43.
c) $440,000
44.
d) $470,000
Answer: a
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $120,000 + $180,000 + $80,000 = $380,000
41.
Groucho Corp. reports operating expenses in two categories: (1)
selling and (2) general and administrative. The adjusted trial balance at
December 31, 2017 included the following accounts:
Accounting and legal fees……………………………………………………….
$140,000
Advertising…………………………………………………………………………….
160,000
Freight-out…………………………………………………………………………….
80,000
Interest………………………………………………………………………………….
70,000
Loss on sale of long-term investment……………………………………….
30,000
Officers’ salaries……………………………………………………………………
225,000
Rent for office space……………………………………………………………..
220,000
Sales salaries and commissions………………………………………………
170,000
One-half of the rented premises is occupied by the sales
department. Groucho’s total selling expenses for 2017 are
1. a)
$520,000.
2. b)
$440,000.
3. c)
$410,000.
4. d)
$350,000.
Answer: a
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $160,000 + $80,000 + ($220,000/2) + $170,000 =
$520,000
42.
The following items were among those reported on Ernie Ltd.’s
income statement for the year ended December 31, 2017:
Legal and audit fees……………………………………………………………….
$100,000
Rent for office space……………………………………………………………..
235,000
Interest on inventory floor plan…………………………………………………
248,000
Loss on abandoned equipment used in operations……………………..
41,000
The office space is used equally by Ernie’s sales and accounting
departments. What amount should be classified as general and administrative
expenses in Ernie’s multiple-step income statement for 2017?
1. a)
$117,500
2. b)
$217,500
3. c)
$335,000
4. d)
$465,500
Answer: b
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $100,000 + ($235,000/2) = $217,500
Use the following information for questions 43–44.
Sesame Corp.’s adjusted trial balance at December 31, 2017
included the following:
Debit Credit
Sales…………………………………………………………………………………….
$170,000
Cost of goods sold………………………………………………………………….
$ 70,000
Administrative expenses…………………………………………………………
28,000
Loss on sale of equipment………………………………………………………
11,000
Sales commissions………………………………………………………………..
9,000
Interest revenue…………………………………………………………………….
6,000
Loss of warehouse due to flood……………………………………………….
15,000
Loss from operation of discontinued division……………………………..
24,000
Bad debt expense………………………………………………………………….
5,000 _______
Totals ……………………………………………………………………………..
$162,000 $176,000
Sesame uses the perpetual system, and their income tax rate is
30%.
43.
On Sesame’s multiple-step income statement for 2017, income from
continuing operations is
44.
a) $17,500.
45.
b) $52,800.
46.
c) $24,500.
47.
d) $26,600.
Answer: d
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $170,000 + $6,000 – $70,000 – $28,000 – $11,000 –
$9,000 – $15,000 – $5,000 = $38,000; 38,000 x (1 – 0.3) = $26,600
44.
On Sesame’s multiple-step income statement for 2017, net income
is
45.
a) $9,800.
46.
b) $15,000.
47.
c) $16,800.
48.
d) $24,000.
Answer: a
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: ($176,000 – $162,000) x (1 – 0.3) = $9,800
45.
King Inc. incurred the following infrequent losses during 2017:
A $90,000 write down of equipment leased to others (net of tax)
A $40,000 adjustment of accruals on long-term contracts (net of
tax)
A $60,000 write off of obsolete inventory (net of tax)
Of those losses, what amount should be included in King’s 2014
income from continuing operations?
1. a)
$190,000
2. b)
$150,000
3. c)
$130,000
4. d)
$100,000
Answer: a
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $90,000 + $40,000 + $60,000 = $190,000
46.
The following information is available for Rice Inc. for 2017:
Disbursements for purchases………………………………………………….
$650,000
Increase in trade accounts payable………………………………………….
58,000
Decrease in merchandise inventory…………………………………………
28,000
Cost of goods sold for 2017 was
1. a)
$650,000.
2. b) $708,000.
3. c)
$700,000.
4. d)
$736,000.
Answer: d
Difficulty: Medium
Learning Objective: Measure income and prepare the income
statement and the statement of comprehensive income using various formats.
Section Reference: Presentation
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $650,000 + $58,000 + $28,000 = $736,000
47.
Which of the following items will NOT appear in the retained
earnings statement?
48.
a) net loss
49.
b) correction of an error
50.
c) change in accounting estimates
51.
d) stock dividends
Answer: c
Difficulty: Hard
Learning Objective: Prepare the statement of retained earnings
and the statement of changes in equity.
Section Reference: The Statement of Retained Earnings and the
Statement of Changes in Equity
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
48.
Which one of the following types of losses is excluded from the
determination of net income in the income statement?
49.
a) material losses resulting from correction of errors related
to prior periods
50.
b) material losses resulting from sale of assets not originally
acquired for resale
51.
c) material losses resulting from write off of intangibles
52.
d) material losses resulting from sale of investments
Answer: a
Difficulty: Hard
Learning Objective: Prepare the statement of retained earnings
and the statement of changes in equity.
Section Reference: The Statement of Retained Earnings and the
Statement of Changes in Equity
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
49.
Which of the following is a change in accounting principle?
50.
a) a change in the estimated service life of machinery
51.
b) a change from FIFO to weighted average for inventory costing
52.
c) a change in the estimated allowance for bad debts
53.
d) a change in estimated future warranty expense
Answer: b
Difficulty: Hard
Learning Objective: Prepare the statement of retained earnings
and the statement of changes in equity.
Section Reference: The Statement of Retained Earnings and the
Statement of Changes in Equity
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
50.
When reporting a change in accounting principle, required
disclosure(s) on the income statement include
51.
a) a per share amount for the cumulative effect of the change.
52.
b) the cumulative effect on prior years, net of tax.
53.
c) the cumulative effect be disclosed immediately after
discontinued operations.
54.
d) silly question: a change in accounting principle is not
reported on the income statement.
Answer: d
Difficulty: Medium
Learning Objective: Prepare the statement of retained earnings
and the statement of changes in equity.
Section Reference: The Statement of Retained Earnings and the
Statement of Changes in Equity
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
51.
Unsure Inc. made a very large arithmetical error in the
preparation of its year-end financial statements by incorrect placement of a
decimal point in the calculation of depreciation. The error caused the net
income to be reported at almost double the correct amount. When Unsure
discovered the error in the following year, correction of the error should be
treated as a(n)
52.
a) adjustment to beginning retained earnings, net of tax.
53.
b) increase in depreciation expense for the year in which the
error is discovered.
54.
c) gain for the year in which the error was made.
55.
d) component of income for the year in which the error is
discovered, but separately listed on the income statement and fully explained
in a note to the financial statements.
Answer: a
Difficulty: Hard
Learning Objective: Prepare the statement of retained earnings
and the statement of changes in equity.
Section Reference: The Statement of Retained Earnings and the
Statement of Changes in Equity
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
52.
The statement of changes in shareholders’ equity
53.
a) is a required statement under ASPE.
54.
b) is a required statement under IFRS.
55.
c) is a required statement under both IFRS and ASPE.
56.
d) is an optional statement under both IFRS and ASPE.
Answer: b
Difficulty: Hard
Learning Objective: Prepare the statement of retained earnings
and the statement of changes in equity.
Section Reference: The Statement of Retained Earnings and the
Statement of Changes in Equity
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
53.
Changes in accounting principle are allowed where
54.
a) they are required by a primary source of GAAP.
55.
b) they result in reliable and more relevant information.
56.
c) the company reports less favourable results under the new
policy.
57.
d) both a and b are correct.
Answer: d
Difficulty: Easy
Learning Objective: Prepare the statement of retained earnings
and the statement of changes in equity.
Section Reference: The Statement of Retained Earnings and the
Statement of Changes in Equity
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
54.
Which of the following should be reported as an adjustment to
retained earnings?
Change in Estimated Lives
Change from Unaccepted
of Depreciable Assets Principle
to Accepted Principle
1. a)
Yes Yes
2. b) No
Yes
3. c)
Yes No
4. d) No
No
Answer: b
Difficulty: Medium
Learning Objective: Prepare the statement of retained earnings
and the statement of changes in equity.
Section Reference: The Statement of Retained Earnings and the
Statement of Changes in Equity
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
55.
Boardwalk Corporation reports the following information:
Correction of understatement of depreciation expense
in prior years, net of tax…………………………………………………………. $
860,000
Dividends declared…………………………………………………………………
640,000
Net income…………………………………………………………………………… 2,000,000
Retained earnings, January 1, 2017, as reported……………………….
4,000,000
Boardwalk should report retained earnings at December 31, 2017,
as adjusted at
1. a)
$3,140,000.
2. b)
$4,500,000.
3. c)
$5,360,000.
4. d)
$6,220,000.
Answer: a
Difficulty: Hard
Learning Objective: Prepare the statement of retained earnings
and the statement of changes in equity.
Section Reference: The Statement of Retained Earnings and the
Statement of Changes in Equity
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $4,000,000 – $860,000 = $3,140,000
56.
Which of the following is(are) NOT recommended to be included in
notes to the financial statements?
57.
a) accounting policies
58.
b) information about the capital structure of the company
59.
c) individual salaries of top management
60.
d) sources of estimation uncertainty
Answer: c
Difficulty: Hard
Learning Objective: Understand how disclosures and analysis help
users of financial statements assess performance.
Section Reference: Disclosure and Analysis
CPA: Financial Reporting
CPA: Strategy & Governance
Bloomcode: Knowledge
57.
To assess the quality of earnings, financial statement users
should look at
58.
a) the income statement only.
59.
b) the statement of cash flows.
60.
c) the level of business risk.
61.
d) the whole set of financial statements, including the notes,
as well as environmental factors.
Answer: d
Difficulty: Easy
Learning Objective: Understand how disclosures and analysis help
users of financial statements assess performance.
Section Reference: Disclosure and Analysis
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
58.
When looking to the statement of financial position for an
assessment of earnings quality, stakeholders should pay particular attention to
59.
a) a proportionately high cash balance, as this signifies
high-quality earnings.
60.
b) how the company is financed and what the revenue-generating
assets are.
61.
c) a proportionately low liability balance, as this signifies
high-quality earnings.
62.
d) silly question. The statement of financial position is not a
reflection of earnings quality.
Answer: b
Difficulty: Medium
Learning Objective: Understand how disclosures and analysis help
users of financial statements assess performance.
Section Reference: Disclosure and Analysis
CPA: Financial Reporting
CPA: Finance
Bloomcode: Knowledge
59.
Which of the following is INCORRECT regarding differences
between IFRS and ASPE?
60.
a) Both IFRS and ASPE mandate a list of required items that must
be presented.
61.
b) IFRS requires that held-for-sale assets be reclassified as
current assets.
62.
c) Comprehensive income is not recognized under ASPE.
63.
d) Both IFRS and ASPE require presentation of both basic and
diluted EPS.
Answer: d
Difficulty: Hard
Learning Objective: Identify differences in accounting between
IFRS and ASPE and potential changes.
Section Reference: IFRS/ASPE Comparison
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
60.
Regarding classification of expenses by nature versus function,
under ASPE, an entity is required to
61.
a) present an analysis of expenses based either on their nature
or function.
62.
b) present their expenses according to their nature.
63.
c) present expenses in a manner that is most transparent.
64.
d) present their expenses according to their function.
Answer: c
Difficulty: Medium
Learning Objective: Identify differences in accounting between
IFRS and ASPE and potential changes.
Section Reference: IFRS/ASPE Comparison
CPA: Financial Reporting
Bloomcode: Knowledge
61.
Regarding presentation of discontinued operations, under IFRS,
on the balance sheet, an entity must classify held-for-sale assets as
62.
a) current assets/liabilities.
63.
b) current or non-current, depending on their nature.
64.
c) available for sale assets.
65.
d) silly question: Assets held for sale do not appear on the
balance sheet.
Answer: a
Difficulty: Medium
Learning Objective: Identify differences in accounting between
IFRS and ASPE and potential changes.
Section Reference: IFRS/ASPE Comparison
CPA: Financial Reporting
Bloomcode: Knowledge
*62. The accrual basis of accounting
1. a)
must be used by all taxpayers.
2. b)
recognizes revenue when earned and expenses when incurred.
3. c)
does not record depreciation.
4. d)
records depreciation but expenses all inventory purchases.
Answer: b
Difficulty: Hard
Learning Objective: Explain the differences between the cash
basis of accounting and the accrual basis of accounting.
Section Reference: Cash Basis versus Accrual Basis Earnings
(Appendix 4A)
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
*63. The modified cash basis
1. a) is
frequently used by manufacturing firms.
2. b)
does not usually record inventory.
3. c)
capitalizes and depreciates property, plant and equipment.
4. d) is
derived from the accrual basis of accounting.
Answer: c
Difficulty: Hard
Learning Objective: Explain the differences between the cash
basis of accounting and the accrual basis of accounting.
Section Reference: Cash Basis versus Accrual Basis Earnings
(Appendix 4A)
CPA: Financial Reporting
CPA: Strategy and Governance
Bloomcode: Knowledge
*64. The strict cash basis of accounting
1. a)
records revenue when earned.
2. b)
does not conform with GAAP.
3. c)
records expenses when incurred.
4. d)
none of the above
Answer: b
Difficulty: Easy
Learning Objective: Explain the differences between the cash
basis of accounting and the accrual basis of accounting.
Section Reference: Cash Basis versus Accrual Basis Earnings
(Appendix 4A)
CPA: Financial Reporting
Bloomcode: Knowledge
*65. Compared to the accrual basis of accounting, the cash basis
of accounting overstates income by the net increase during the accounting
period of the
Accounts
Accrued
Receivable Expenses
Payable
1. a) No
No
2. b) No
Yes
3. c)
Yes No
4. d)
Yes Yes
Answer: b
Difficulty: Medium
Learning Objective: Explain the differences between the cash
basis of accounting and the accrual basis of accounting.
Section Reference: Cash Basis versus Accrual Basis Earnings
(Appendix 4A)
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
*66. For the year ended June 30, 2017, Harry Corp. reported
revenue of $900,000 in its accrual basis income statement. Additional
information was as follows:
Accounts receivable June 30, 2016………………………………………….
$200,000
Accounts receivable June 30, 2017………………………………………….
490,000
Uncollectible accounts written off during the fiscal year……………..
20,000
Under the cash basis, Harry should report revenue of
1. a)
$590,000.
2. b)
$610,000.
3. c)
$630,000.
4. d)
$1,190,000.
Answer: a
Difficulty: Medium
Learning Objective: Explain the differences between the cash
basis of accounting and the accrual basis of accounting.
Section Reference: Cash Basis versus Accrual Basis Earnings
(Appendix 4A)
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $900,000 + $200,000 – $490,000 – $20,000 = $590,000
*67. Gerald Bone, M.D., keeps his accounting records on the cash
basis. During 2017, Dr. Bone collected $150,000 from his patients. At December
31, 2016, Dr. Bone had accounts receivable of $45,000. At December 31, 2017,
Dr. Bone had accounts receivable of $35,000 and unearned revenue of $5,000. On
the accrual basis, how much was Dr. Bone’s patient service revenue for 2017?
1. a)
$145,000
2. b)
$140,000
3. c)
$135,000
4. d)
$105,000
Answer: c
Difficulty: Medium
Learning Objective: Explain the differences between the cash
basis of accounting and the accrual basis of accounting.
Section Reference: Cash Basis versus Accrual Basis Earnings
(Appendix 4A)
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $150,000 – $45,000 + $35,000 – $5,000 = $135,000
Multiple Choice—Computational
68.
Papaya Inc. has 100,000 common shares outstanding and has a
policy of paying a $1.30 annual dividend for each of these shares. Papaya has
an income tax rate of 35%, and its retained earnings statement for 2017
reported a closing balance of $1,452,000. Assuming an opening retained earnings
balance of zero, dividend payments according to its usual policy, and no other
adjustments, Papaya’s 2017 net income was
69.
a) $1,536,500.
70.
b) $2,364,846.
71.
c) $1,452,000.
72.
d) $1,582,000.
Answer: d
Difficulty: Medium
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $1,452,000 + ($1.30 x 100,000) = $1,582,000
69.
The following information is available for Pear Limited for
2017:
Accounts payable, beginning…………………………………………………..
$14,000
Cash payments on account during year……………………………………
54,000
Purchase discounts taken during year on 2017 purchases………….
1,200
Accounts payable, ending……………………………………………………….
7,000
Assuming the company records purchases at gross amounts, the
total purchases for 2017 would be
200.
a) $48,200.
201.
b) $61,000.
202.
c) $55,200.
203.
d) $59,800.
Answer: a
Difficulty: Hard
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $54,000 + $1,200 – $14,000 + $7,000 = $48,200
70.
The following information is available for Mandarin Corp for
2017:
Payment for goods during year……………………………………………….
$52,000
Accounts payable, beginning…………………………………………………..
7,000
Inventory, beginning……………………………………………………………….
14,000
Accounts payable, ending……………………………………………………….
6,300
Inventory, ending……………………………………………………………………
8,100
Cost of goods sold for 2017 is
300.
a) $51,300.
301.
b) $66,000.
302.
c) $52,700.
303.
d) $57,200.
Answer: d
Difficulty: Hard
Learning Objective: Understand the differing perspectives on how
to measure income.
Section Reference: The Statement of Income and the Statement of
Comprehensive Income
CPA: Financial Reporting
Bloomcode: Knowledge
Bloomcode: Application
Feedback: $52,000 – $7,000 + $6,300 = $51,300 (purchases)
$14,000 + $51,300 – $8,100 = $57,200
71.
The following information is available for Royal Corp for 2017:
Accounts payable, beginning…………………………………………………..
$14,000
Cash payments on account during year……………………………………
7,000
Purchase discounts taken during year on 2017 purchases………….
1,200
Purchases…………………………………………………………………………….
10,000
Assuming that all purchases are made on account, accounts
payable at the end of the year are
1. a)
$17,000
2. b)
$22,800
3. c)
$15,800
4. d)
$24,000
Answer: c
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