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Exam 4: The Income Statement and Statement of Cash Flows

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Question 51

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Early in January 2009, the internal auditors for Arkansas Inc. discovered these errors and omissions in their review of the 2008 financial records. Arkansas Inc. has not yet closed its books for 2008. 1. A $1,600 sale made to Ed's Automotive in December, 2008 was incorrectly charged to the account of Ed's Upholstery. 2. A $21,000 premium for a one-year fire and extended coverage insurance policy covering the policy period May 1, 2008 to April 30, 2009, was initially recorded as expense and has not been adjusted. 3. The December 31, 2007, balance of accounts receivable was materially overstated by $18,000. Required: Prepare any necessary entries required for the above items. Ignore income taxes.

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Question 52

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Which of the following is not true about EPS?

A) It must be reported by all corporations whose stock is publicly traded.
B) It must be reported separately for discontinued operations.
C) It must be reported separately for extraordinary items.
D) It must be reported on operating income.

E) B) and D)
F) None of the above

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Question 53

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Suppose that the Footwear Division's assets had not been sold by December 31, 2009, but were considered held for sale. Assume that the fair value of these assets at December 31 was $80 million. In the 2009 income statement for Foxtrot Co., under discontinued operations it would report a:

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

Provincial Inc. reported the following before-tax income statement items: Provincial has a 30% income tax rate. Provincial would report the following amount of income tax expense as a separate item in the income statement:

In the 2009 income statement for Foxtrot Co., it would report income from discontinued operations of:

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

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

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

The income effect of a change in reporting entity is shown separately in the income statement in the year of the change.

Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2009: All income statement items are subject to a 40% income tax rate. In its 2009 income statement, Freda's separately stated income tax expense and total income tax expense would be:

Harley Davis Inc. started its unicycle manufacturing business in 2007 and acquired $600,000 of equipment at the beginning of 2007. It decided to use the double-declining balance (DDB) depreciation on its equipment with no residual value and a 10-year useful life. In 2009 it changed to the straight-line depreciation method. Depreciation computed for 2007-8 is presented below: In 2009, Harley Davis would report depreciation of:

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

Cash flows from investing do not include cash flows from:

Changes in accounting estimates require disclosure of their effects, if material, on current year net income and EPS but do not require restatement of prior years' financial statements.

Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2009. Accounts receivable at December 31, 2008 and 2009, 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:

An extraordinary event for financial reporting purposes is both:

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:

Luke Corporation began operations January 1, 2008, purchasing equipment for $200,000. The equipment is estimated to have a five year useful life with no residual value. In 2010, Luke changed its method of depreciating equipment from double-declining balance to straight-line. If depreciation expense had been computed under each of these two methods for 2008-2009, the results would have been: Required: Compute the depreciation expense that Luke would report for 2010.

Briefly define extraordinary items and explain how they are reported.