MC #4

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Intraperiod income tax presentation is primarily a matter of:

D. Allocation.

The difference between single-step and multiple-step income statements is primarily an issue of:

B. Presentation.

Popson Inc. incurred a material loss which was not unusual in character, but was clearly an infrequent occurrence. This loss should be reported as:

C. A separate line item within income from continuing operations.

Provincial Inc. reported the following before-tax income statement items:
Operating Income: 600,000
Extaordinary Loss: 100,000
Extaoridinary Gain: 60,000

B. $180,000.

Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2011:
Operating Income: 250,000
Extaordinary Gain: 70,000
All income statement items are subject to a 40% income tax rate. In its 2011 income statement, Freda's separately stated income tax expense and total income tax expense would be:

C. $100,000 and $128,000, respectively.

Pro forma earnings:

A. Are management's view of permanent earnings.

The distinction between operating and nonoperating income relates to:

B. Principal activities of the reporting entity.

The principal benefit of separately reporting discontinued operations and extraordinary items is to enhance:

A. Predictive ability.

The Claxton Company manufactures children's toys and also has a division that makes automobile parts. Due to a change in its strategic focus, the company sold the automobile parts division. The division qualifies as a component of the entity according to GAAP regarding disposal of long-lived assets. How should Claxton report the sale in its 2011 income statement?

B. As a discontinued operation, reported below income from continuing operations.

On August 1, 2011, Rocket Retailers adopted a plan to discontinue its catalog sales division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by June 30, 2012. On January 31, 2012, Rocket's fiscal year-end, the following information relative to the discontinued division was accumulated:
Operating Loss 2/1/11-1/31/12 $115,000
Est Op Loss 2/1- 6/30/12 $80,000
Impairment of division assets at 1/31/2012 : $10,000
In its income statement for the year ended January 31, 2012, Rocket would report a before-tax loss on discontinued operations of:

D. $125,000.

On November 1, 2011, Jamison Inc. adopted a plan to discontinue its barge division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by April 30, 2012. On December 31, 2011, the company's year-end, the following information relative to the discontinued division was accumulated:
Op Loss 1/1-12/31/11 65 million
Est op los 1/1-8/30/12 80 million
Excess of ........ 15 million
In its income statement for the year ended December 31, 2011, Jamison would report a before-tax loss on discontinued operations of:

A. $65 million.

On October 28, 2011, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2011, the end of the company's fiscal year. The division's loss from operations for 2011 was $2,000,000.

The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $2,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2011 income statement?

B. $2,500,000 loss.

On October 28, 2011, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2011, the end of the company's fiscal year. The division's loss from operations for 2011 was $2,000,000.

The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2011 income statement?

A. $2,000,000 loss.

On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011.
The following additional facts pertain to the transaction:
• The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2011.
• Foxtrot's income tax rate is 40%.

In the 2011 income statement for Foxtrot Co., it would report:

C. Income (loss) from its continuing and discontinued operations separately.

On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011.
The following additional facts pertain to the transaction:
• The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2011.
• Foxtrot's income tax rate is 40%.

In the 2011 income statement for Foxtrot Co., it would report:

B. Income taxes would be separated for continuing and discontinued operations.

On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011.
The following additional facts pertain to the transaction:
• The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2011.
• Foxtrot's income tax rate is 40%.

In the 2011 income statement for Foxtrot Co., it would report income from discontinued

Suppose that the Footwear Division's assets had not been sold by December 31, 2011, but were considered held for sale. Assume that the fair value of these assets at December 31 was $40 million. In the 2011 income statement for Foxtrot Co., it would report a loss from discontinued

C. $10.8 million loss

Suppose that the Footwear Division's assets had not been sold by December 31, 2011, but were considered held for sale. Assume that the fair value of these assets at December 31 was $80 million. In the 2011 income statement for Foxtrot Co., under discontinued operations it would report a:

A. $6 million loss

An extraordinary event for financial reporting purposes is both:

D. Unusual and infrequent.

Major Co. reported 2011 income of $300,000 from continuing operations before income taxes and a before-tax extraordinary loss of $80,000. All income is subject to a 30% tax rate. In the 2011 income statement, Major Co. would show the following line-item amounts for income tax expense and net income:

B. $90,000 and $154,000.

Howard Co.'s 2011 income from continuing operations before income taxes was $280,000. Howard Co. reported a before-tax extraordinary gain of $50,000. All tax items are subject to a 40% tax rate. In its income statement for 2011, Howard Co. would show the following line-item amounts for net income and income tax expense:

A. $198,000 and $112,000.

Misty Company reported the following before-tax items during the current year:
Sales 600
Operating Exp 250
Restructuring Charges 20
Extraordinary Loss 50
Misty's effective tax rate is 40%.
What would be Misty's income before extraordinary item(s)?

A. $198.

Misty Company reported the following before-tax items during the current year:
Sales 600
Operating Exp 250
Restructuring Charges 20
Extraordinary Loss 50
Misty's effective tax rate is 40%.
What would be Misty's net income for the current year?

B. $168.

Cal's Cookies reported 2011 before-tax income before extraordinary items of $152,000 and a before-tax extraordinary loss of $32,000. All tax items are subject to a 30% tax rate. In its 2011 income statement, Cal's would report the following amounts as separate line items for net income and income tax expense:

B. $84,000 and $45,600.

A voluntary change in accounting principle is accounted for by:

B. A retrospective reporting of all comparative financial statements shown.

A change in depreciation method is accounted for:

C. Prospectively, like changes in accounting estimates.

On June 1, 2011, Romano Inc. changed the estimated useful life of its office equipment from 20 to 12 years. This change would be accounted for:

A. Prospectively.

The financial statement presentation of a change in depreciation method is most similar to that of reporting:

A. Changes in accounting estimates.

Jack's Fireworks, which was established in 2009, changed its method of accounting for inventories from the average cost method to the first-in, first-out (FIFO) method in 2011. Cost of goods sold for the periods 2009-2011 under FIFO and the average cost method were:

Jack's Fireworks is subject to a 30% income tax rate. In its income statement for the year ended December 31, 2011, Jack's would report the cumulative effect of a change in accounting

B. Option b ($0)

Changes in accounting estimates are reported:

A. Currently and prospectively.

In its December 31, 2011 financial statements, E-Z Prices estimated that losses on its current receivables would be $10.2 million. During 2012, E-Z Prices determined that the losses on the Dec. 31, 2011, receivables were actually $12.4 million. Ignoring taxes, E-Z Prices would report, in its 2012 financial statements, the additional $2.2 million loss on receivables as:

D. A current year's expense.

The financial statement presentation of a change in reporting entity is most similar to the reporting of a:

D. Correction of a material error discovered after the year the error was made.

If Company A acquires Company B, required financial statement disclosures include all of the following except:

B. The effect of the change on market share.

Harley Davis Inc. started its unicycle manufacturing business in 2009 and acquired $600,000 of equipment at the beginning of 2009. It decided to use the double-declining balance (DDB) depreciation on its equipment with no residual value and a 10-year useful life. In 2011 it changed to the straight-line depreciation method. Depreciation computed for 2009-2010 is presented below:
Year: DDB:
2009 120,000
2010 96,000
In 2011, Harley Davis would report depreciation of:

D. $48,000.

Elmore Co. purchased an offset press on January 1, 2008, at a cost of $120,000. The press had an estimated eight-year life with no residual value. Elmore uses straight-line depreciation. At January 1, 2011, Elmore estimated that the press would have only three more years of remaining life with no residual value. For 2011, Elmore would report depreciation of:

A. $25,000.

Pablo purchased a lathe on January 1, 2009, at a cost of $45,000. At the time of purchase, the lathe was expected to have a five-year economic life and a residual value of $3,000. Pablo uses straight-line depreciation. At the beginning of 2011, Pablo estimated the lathe to have a remaining life of four years with no residual value. For the year ended December 31, 2011, Pablo would report depreciation of:

B. $7,050.

Cendant Corporation's results for the year ended December 31, 2011, include the following material items:

C. $820,000.

Which of the following is NOT true about EPS?

D. It must be reported on operating income.

The Maytag Corporation's income statement includes income from continuing operations, a loss from discontinued operations, and extraordinary items. Earnings per share information would be provided for:

D. Income from continuing operations, loss from discontinued operations, extraordinary items and net income.

Each of the following would be reported as items of other comprehensive income except:

D. Gains from the sale of equipment.

Reporting comprehensive income in the United States can be accomplished by which of the following methods:

D. All of the above are acceptable methods.

Reporting comprehensive income according to International Financial Reporting Standards can be accomplished by each of the following methods except:

A. In the statement of shareholders' equity.

Comprehensive income is the change in equity from:

B. Nonowner transactions.

Reconciliation between net income and comprehensive income would include:

C. Unrealized losses and unrealized gains on available for sale securities.

Change statements include a:

C. Cash flow statement, an income statement, and a retained earnings statement.

In comparing the direct method with the indirect method of preparing the statement of cash flows:

A. Only operating activities are presented differently.

The statement of cash flows reports cash flows from the activities of:

C. Financing, investing, and operating.

Operating cash flows would exclude:

C. Dividends paid.

Operating cash outflows would include:

D. Purchases of inventory.

Cash flows from investing do not include cash flows from:

C. Borrowing.

Cash flows from financing activities include:

D. Dividends paid.

Cash flows from investing activities do not include:

A. Proceeds from issuing bonds.

The FASB's stated preference for reporting operating cash flows is the:

B. Direct method.

In the operating activities section of the statement of cash flows, we start with net income:

B. In the indirect method.

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

C. Loss on the sale of equipment.

Schneider Inc. had salaries payable of $60,000 and $90,000 at the end of 2010 and 2011, respectively. During 2011, Schneider recorded $620,000 in salaries expense in its income statement. Cash outflows for salaries in 2011 were:

A. $590,000.

Tropical Tours reported revenue of $400,000 for its year ended December 31, 2011. Accounts receivable at December 31, 2010 and 2011, were $35,000 and $32,000, respectively. Using the direct method for reporting cash flows from operating activities, Tropical Tours would report cash collected from customers of:

C. $403,000.

Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:
A. Operating cash inflows of $18,

D. Investing cash inflows of $18,000.

Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:

C. Operating, $12,000; financing $6,000.

Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2011. Accounts receivable at December 31, 2010 and 2011, were $320,000 and $355,000, respectively. Using the direct method for reporting cash flows from operating activities, Hong Kong Clothiers would report cash collected from customers of:

A. $4,965,000.

Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2011. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000 respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:

A. $132,000.

Shady Lane's income tax payable account decreased from $14 million to $12 million during 2011. If its income tax expense was $80 million, what would be shown as an operating cash flow under the direct method?

D. A cash outflow of $82 million.

Bird Brain Co. reported net income of $45,000 for the year ended December 31, 2011. January 1 balances in accounts receivable and accounts payable were $23,000 and $26,000 respectively. Year-end balances in these accounts were $22,000 and $28,000, respectively. Assuming that all relevant information has been presented, Bird Brain's cash flows from operating activities would be:

A. $48,000.

Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2011. Purchases totaled $152,000. Accounts payable balances at the beginning and end of the year were $36,000 and $33,000, respectively. Beginning and ending inventory balances were $44,000 and $46,000, respectively. Assuming that all relevant information has been presented, Nevada Boot would report operating cash flows of:

C. $211,000.

Rowdy's would report net cash inflows (outflows) from operating activities in the amount of:

B. $120.

Rowdy's would report net cash inflows (outflows) from investing activities in the amount of:

C. $(3,900).

Rowdy's would report net cash inflows (outflows) from financing activities in the amount of:

D. $900.

Expenses in an income statement prepared under International Financial Reporting Standards:

C. Can be classified either by function or by natural description.

In a statement of cash flows prepared under International Financial Reporting Standards, each of the following items is typically classified as a financing cash flow except:

D. Dividends received.

Jacobsen Corporation prepares its financial statement applying U.S. GAAP. During its 2011 fiscal year, the company reported before-tax income of $620,000. This amount does not include the following two items, both of which are considered to be material in amount:
-Unusual/ infrequent gain: 200,000
-Loss from discontinued ops: (300,000)
The company's income tax rate is 40%. In its 2011 income statement, Jacobsen would report income from continuing operations of:

B. $372,000.

Jacobsen Corporation prepares its financial statement applying International Financial Reporting Standards(IFRS). During its 2011 fiscal year, the company reported before-tax income of $620,000. This amount does not include the following two items, both of which are considered to be material in amount:
-Unusual/ infrequent gain: 200,000
-Loss from discontinued ops: (300,000)
The company's income tax rate is 40%. In its 2011 income statement, Jacobsen would report income from continuing operations of:

C. $492,000.

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