财务报表分析（英文版·第11版）测试题TestBank Chap006 Analyzing Operating Activities

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Chapter06

AnalyzingOperatingActivities

MultipleChoiceQuestions

1.

Whichofthefollowingisnotareasonforeconomicincomeandaccountingincometodiffer?

A.

Transactionbasis

B.

Themonetaryassumption

C.

Conservatism

D.

Earningsmanagement

2.

Asageneralrule,revenueisnormallyrecognizedwhenitis:

A.

measurableandearned.

B.

measurableandreceived.

C.

realizableandearned.

D.

realizableandmeasurable.

3.

Whichofthefollowingmeasuresofaccountingincomeistypicallyreportedinanincomestatement?

A.

Netincome

B.

Comprehensiveincome

C.

Continuingincome

D.

Alloftheabove

4.

AccordingtoFASB,initialfranchisefeesshouldberecognizedasincomewhen:

A.

thefranchiserhassubstantiallyperformedorsatisfiedallmaterialservicesandconditions.

B.

thefranchiserhascollectedthemajorityoffeeincash.

C.

thefranchiseeshowstheabilitytopaythefee.

D.

thefranchiserbillsthefranchisee.

BriertonCompanyentersacontractatthebeginningofyear1tobuildanewfederalcourthouseforapriceof$16million.Briertonestimatesthattotalcostoftheprojectwillbe$12millionandwilltakefouryearstocomplete.

5.

IfBriertonusedpercentage-of-completionmethodtoaccountforthisproject,whatwouldtheyhavereportedasprofitinyear2?

A.

$0

B.

$1.33million

C.

$1.50million

D.

$0.67million

6.

IfBriertonusedcashaccountingtoaccountforthisproject,whatwouldtheyhavereportedasprofit(loss)inyear2?

A.

$0

B.

$1.33million

C.

$(2million)

D.

$(4million)

7.

Whichofthefollowingcombinationsofaccountingpracticeswillleadtothehighestreportedearningsinaninflationaryenvironment?

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

8.

Whichofthefollowingiscorrect?

I.Ifacompanyusesstraight-linedepreciationforfinancialreportingpurposes,itisverylikelytheyhaveadeferredtaxliabilitywithrespecttoitsdepreciableassets.

II.Straight-linedepreciationyieldsanincreasingrateofreturnonbookvalueoverthelifeofanasset.

III.Straight-linedepreciationresultsinlowertaxpaymentsthanaccelerateddepreciationmethodsoverthelifeofanasset.

IV.Ifacompanyrevisesitsestimateoftheusefullifeofanassetupwardsthiswilldecreaseannualdepreciationexpense.

A.

I,II,III,andIV

B.

I,II,andIV

C.

I,II,andIII

D.

IandIV

9.

Whichofthefollowingstatementsconcerningdeferredtaxesiscorrect?

A.

Deferredtaxeswillnotbefoundintheassetsectionofabalancesheet.

B.

DeferredtaxesarisefrompermanentdifferencesinGAAPandtaxaccounting.

C.

Deferredtaxeswillonlydecreasewhenacashpaymentismade.

D.

Deferredtaxesarisingfromthedepreciationofaspecificassetwillultimatelyreducetozeroastheitemisdepreciated.

10.

Differencesintaxableincomeandpretaxaccountingincomethatwillnotbeoffsetbycorrespondingdifferencesor"turnaround"infutureperiodsarecalled:

A.

timingdifferences.

B.

circulardifferences.

C.

permanentdifferences.

D.

reversedifferences.

ThefollowinginformationwasextractedfromSmurmCorporation's2006annualreport:

11.

Basicearningspersharefor2006was:

A.

$3.50.

B.

$3.16.

C.

$3.08.

D.

$3.00.

12.

Usingthetreasurystockmethod,calculatethenumberofextrasharesbeingrecognizedinthedilutedEPScalculationresultingfromoptions.

A.

500,000

B.

358,975

C.

333,333

D.

285,714

13.

Dilutedearningspersharefor2006was:

A.

$3.52.

B.

$3.07.

C.

$2.00.

D.

$2.03.

TecktroniksCompanyreportedinitsannualreportsoftwarerefinementexpensesof$12million,$15million,and$18millionforfiscalyears2005,2006,and2007,respectively.Attheendoffiscal2007,ithadtotalassetsof$140million.Netincomewas$20millionforfiscal2007,andithadamarginaltaxrateof35%.

14.

Ifsoftwarerefinementhadbeencapitalizedeachyearandamortizedoverathree-yearperiodbeginningintheyearthecostwasincurred,totalassetsattheendoffiscal2007wouldhavebeen:

A.

$185million.

B.

$172million.

C.

$158million.

D.

$157million.

15.

Ifsoftwarerefinementhadbeencapitalizedeachyearandamortizedoverathree-yearperiodbeginningintheyearthecostwasincurred,netincomeforfiscal2007wouldhavebeen:

A.

$31.7million.

B.

$29.75million.

C.

$21.95million.

D.

$14.95million.

16.

Ifthesoftwarerefinementhadbeencapitalizedandamortizedoverathree-yearperiodbeginningintheyearthecostwasincurred,butwasexpensedfortaxpurposes,thedeferredtaxpositionattheendoffiscal2005wouldhavebeen:

A.

adeferredtaxcreditof$2.8million.

B.

adeferredtaxcreditof$3.5million.

C.

adeferredtaxcreditof$5.2million.

D.

adeferredtaxdebitof$4million.

17.

Assumeacompanythatnormallyexpensesadvertisingcostswastocapitalizeandamortizethesecostsover3yearsinstead.Afterthethirdyearnetincomewould:

A.

behigher,irrespectiveofthechangeinadvertisingcosts.

B.

belower,irrespectiveofthechangeinadvertisingcosts.

C.

behigheronlyifadvertisingcostswereincreasing.

D.

beloweronlyifadvertisingcostswereincreasing.

18.

Comparedwithcompaniesthatexpensecosts,firmsthatcapitalizecostscanbeexpectedtoreport:

A.

higherassetlevelsandlowerequitylevels.

B.

higherassetlevelsandhigherequitylevels.

C.

lowerassetlevelsandhigherequitylevels.

D.

lowerassetlevelsandlowerequitylevels.

19.

Twogrowingfirmsareidenticalexceptthatonefirmcapitalizes,whereastheotherfirmexpensescostsforlong-livedresourcesovertime.Forthesetwofirms,whichofthefollowingstatementsisgenerallytrue?

I.Theexpensingfirmwillshowamorevolatilepatternofreportedincomethancapitalizingfirm.

II.Theexpensingfirmwillshowalessvolatilepatternofreturnonassetsthanthecapitalizingfirm.

III.Theexpensingfirmwillshowlowercashflowsfromoperationsthanthecapitalizingfirm.

A.

Ionly

B.

IIonly

C.

IandIIIonly

D.

IIandIIIonly

20.

Thecapitalizationofinterestcostduringconstruction:

A.

increasesfuturenetincome.

B.

decreasesfuturedepreciationexpense.

C.

increasesnetincomeduringconstructionphase.

D.

decreasesassetsduringconstructionphase.

21.

WindsorCompanyhasnettemporarydifferencesbetweentaxandbookaccountingof$80million,resultinginadeferredtaxliabilityof$28million.Anincreaseinthetaxratewouldhavethefollowingimpactondeferredtaxesandnetincome:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

22.

Exoilrecordedanexpenseandcorrespondingliabilitytorecognizepotentiallossesrelatingtoanoilspillin2006of$10million.Itsnetincomefortheyearwas$200million.Itwasnotabletotakeadeductionfortaxpurposesuntillateryearswhenitactuallypaidcashoutinrelationtothisevent.In2006,withrespecttothis,Exoilwouldhave:

A.

recognizedadeferredtaxliability.

B.

recognizedataxlosscarryforward.

C.

recognizedadeferredtaxasset.

D.

recognizedadeferredequityloss.

23.

Whichofthefollowingstatementsiscorrect?

I.Taxlosscarrybacksresultindeferredtaxassets.

II.Taxlosscarryforwardsresultindeferredtaxassets.

III.Thetaxvaluationaccountisusedtoadjustdeferredtaxliabilitiesifitis"morelikelythannot"thattheywillnotresultinincreasedfuturetaxes.

A.

Ionly

B.

IIonly

C.

IIIonly

D.

IandII

24.

Whichofthefollowingwillcausethereportedeffectivetaxratetodifferfromthefederalstatutorytaxrate?

I.Foreigntaxratesthatarelowerthanfederalstatutorytaxrate

II.Tax-exemptincome

III.Differentdepreciationmethodsfortaxandfinancialreportingpurposes

IV.Foreigntaxratesthatarehigherthanfederalstatutorytaxrate

A.

I,II,andIV

B.

I,II,andIII

C.

IandII

D.

IIIonly

25.

Ifacompanychangestheusefullifeofitsassetsfrom10yearsto12years,thiswillberecordedas:

A.

anonrecurringgain.

B.

anextraordinaryitem.

C.

achangeinaccountingprinciple.

D.

Noneoftheabove

26.

Ifacompanyestimatesthatitsexpectedreturnonpensionplanassetswillincreaseto9.5%from9.0%,thiswouldbeconsidered:

A.

anextraordinarygain.

B.

achangeinaccountingprinciple.

C.

apriorperiodadjustment.

D.

achangeinaccountingestimate.

27.

Acompanychangesitsdepreciationmethodfromanacceleratedsystemtostraight-line.Whichofthefollowingwouldnormallybetrue?

I.Thechangewouldbediscussedintheauditor'sreport.

II.Thecumulativeeffectofthechangewouldappear,netoftax,ontheincomestatement.

III.Thechangewouldappearincashflowfromoperationsasacashinflow.

IV.Thechangewouldbementionedinthefootnotes.

A.

I,II,III,andIV

B.

I,II,andIII

C.

IIandIV

D.

I,II,andIV

28.

Whichofthefollowingistruewithrespecttoextraordinaryitems?

I.Extraordinaryitemsarerecordednetoftaxinincomestatement.

II.Extraordinaryitems,bydefinition,areprobableandunusualinnature.

III.Bydefinition,gainsandlossesfromstrikesarealwaysextraordinary.

IV.Bydefinition,gainsandlossesfromsaleofproperty,plantandequipmentareneverextraordinary.

A.

IandIV

B.

I,III,andIV

C.

IIandIV

D.

I,II,andIII

29.

Whichofthefollowingwouldbeconsideredanextraordinaryitem?

I.Write-downofreceivables

II.Gainsondisposalofabusinesssegment

III.Lossofinventoryresultingfromafire

IV.Lossresultingfromastrike

A.

IandIV

B.

I,III,andIV

C.

IIIonly

D.

I,II,andIII

30.

Whichofthefollowingitemsisnotincludedinthecalculationofnetincomebutisincludedinthecalculationofcomprehensiveincome?

A.

Unrealizedholdinggainonavailable-for-salemarketablesecurities

B.

Unrealizedholdinggainontradingmarketablesecurities

C.

Gainfromearlyextinguishmentsofbonds

D.

Gainarisingfromsaleofavailable-for-salemarketablesecurities

31.

BasedonGAAP,whichofthefollowingistrueofcomprehensiveincome?

A.

Itshouldbereportedaspartofsalesintheincomestatement.

B.

Itcanbereportedaspartofstatementofshareholders'equity.

C.

Itshouldbereportedasalineitembeforeearningsaftertaxinthebalancesheet.

D.

Itshouldbereportedaspartofoperatingactivitiesinthestatementofcashflows.

32.

Whichofthefollowingstatementsisincorrect?

A.

Employeestockoptionsarenotrecordedasanexpensewhengrantediftheyareout-of-themoneyundertheintrinsicvaluemethod.

B.

Employeestockoptionswillnotaffectthesharepriceofacompanywhenexercised.

C.

Employeestockoptionsmayreduceagencycostsbymorecloselyaligninginterestsofstockholdersandmanagers.

D.

Employeestockoptionsmayincreasetheriskpropensityofmanagers.

Acompany'snetincomeis$100,000,anditsweighted-averagesharesoutstandingare20,000.Duringtheyear,thecompanyissues5,000ESOsatanexercisepriceof$20.

33.

WhatwillbethebasicEPSifaveragestockpriceduringtheyearis$35andtreasurysharesthatcanbepurchasedare1,000?

A.

$3

B.

$6

C.

$5

D.

$4.17

34.

WhatwillbethebasicEPSifaveragestockpriceduringtheyearis$15andtreasurysharesthatcanbepurchasedare6,000?

A.

$3

B.

$6

C.

$5

D.

$4.17

35.

WhatwillbethedilutedEPSifaveragestockpriceduringtheyearis$15andtreasurysharesthatcanbepurchasedare6,000?

A.

$3

B.

$5

C.

$6

D.

$4.17

36.

WhatwillbethedilutedEPSifaveragestockpriceduringtheyearis$35andtreasurysharesthatcanbepurchasedare1,000?

A.

$3

B.

$5

C.

$6

D.

$4.17

37.

Whichofthefollowingisnotanextraordinaryitem?

I.Lossonabandonmentofproperty

II.Gainondisposalofabusinesssegment

III.Effectofastrikeagainstakeysupplier

IV.Write-downofdeferredresearchanddevelopmentcosts

A.

IandIII

B.

IIandIV

C.

I,II,andIII

D.

I,II,III,andIV

38.

WhichofthefollowingoverallaccountingconceptshasanumberofexceptionsunderGAAP?

A.

Historicalcost

B.

Transactionbasis

C.

Conservatism

D.

Accrualaccounting

39.

Allotherthingsbeingequal,whencomparingexpensingorcapitalizingtheR&Dexpenditures(withstraight-linedepreciation),returnonassets:

A.

willdecreaseovertimeusingcapitalization.

B.

willincreaseovertimeusingcapitalization.

C.

willbeconstantusingexpensing.

D.

willinitiallybehigherunderexpensing.

40.

Theintrinsicvalueapproachignorestwotypesofcosts:

A.

interestcostandopportunitycost.

B.

opportunitycostandexercisecost.

C.

interestcostandoptioncost.

D.

carryingcostandinterestcost.

True/FalseQuestions

41.

Economicincomeandaccountingincomearealwaysthesame.

True

False

42.

Thematchingprincipleinaccountingprescribesthatcostsmustberecognizedinthesameperiodwhentherelatedrevenuesarerecognized.

True

False

43.

Revenuefromsaleswherethebuyerhastherightofreturncanonlyberecognizedafterthereturnperiodhasexpired.

True

False

44.

Iftwofirmsareidenticalexceptthatonefirmusespercentage-of-completionaccountingandtheotherusescompletedcontractaccountingforrevenuerecognition,thecashflowsofthefirmswillbeidentical.

True

False

45.

Generallyrevenueshouldberecordedwhenitisprobableandreasonablyestimable.

True

False

46.

Revenuesareearnedinflowsthatarisefromacompany'songoingbusinessactivities.

True

False

47.

Gainsareearnedinflowsthatarisefromacompany'songoingbusinessactivities.

True

False

48.

Comprehensiveincomeiscomputedbyadjustingnetincome,onanafter-taxbasis,forcertainunrealizedgainsandlosses.

True

False

49.

Foritemtobeconsideredextraordinary,itshouldbeeitherunusualinnatureorinfrequentinoccurrence.

True

False

50.

Foritemtobeconsideredaspecialitem,itshouldbeeitherunusualinnatureorinfrequentinoccurrencebutnotboth.

True

False

51.

Accountingchangesareusuallycosmeticanddonotyieldcashflowconsequences.

True

False

52.

Along-termassetissaidtobeimpairedwhenitsfairvalueisbelowitsbookvalue.

True

False

53.

Incomefromcontinuingoperationsisameasurethatexcludescertainnonrecurringitems,suchasextraordinaryitems,andtheeffectsofdiscontinuedoperations,fromnetincome.

True

False

54.

SmytheCorporationisintherealestatedevelopmentbusiness.Iftheysellapieceoflandfor$50,000thattheyhadpreviouslypurchasedfor$45,000,theyshouldrecordalossof$5,000.

True

False

55.

Forcompaniesinanexpansionphase,capitalizinginterestmayresultinhigherearningsoveranextendedperiodoftime,comparedtoexpensinginterest.

True

False

56.

Thecapitalizationofinterestcostsduringconstructionincreasesfuturenetincome.

True

False

57.

Softwarecostsmaybecapitalizedonceacompanycanshowthattheproductistechnologicallyfeasible.

True

False

58.

Acompanythatcapitalizescosts,ratherthanexpensingthemwillhaveahigherassetturnover.

True

False

59.

Ifrevenueisrecognizedforfinancialreportingpurposesbutdeferredfortaxpurposesthisresultsinadeferredtaxliability.

True

False

60.

Ifanexpenseisrecognizedforfinancialreportingpurposesbutnotallowedasabona-fidedeductionfortaxpurposes,thisresultsinadeferredtaxasset.

True

False

61.

Extraordinaryitemsaredefinedasthosethatarebothunusualinnatureandinfrequentinoccurrence.Theseitemsaredisclosed,netoftaxintheincomestatement.

True

False

62.

Accountingerrorsareconsideredaccountingchangesandtreatedaccordingly.

True

False

63.

Whenacompanydisposesofasegmentofitsbusiness,itmustrestateallprioryearfinancialstatementsasifithadneverownedthatsegmentofthebusiness.

True

False

64.

Allotherthingsequal,acompanythatcapitalizesratherthanexpensessoftwaredevelopmentcosts,willhavealessvolatilenetincome.

True

False

65.

Comprehensiveincomereflectsnearlyallchangestoequity,otherthanthosefromowneractivities(suchasdividendsandshareissuances)

True

False

66.

Ifacompany,operatinginaninflationaryenvironment,usesFIFOfortaxpurposesandweighted-averageforfinancialreportingpurposes,thiswillresultinadeferredtaxasset.

True

False

67.

Deferredtaxesariseduetotemporarytimingdifferencesinrecognizingitemsfortaxandfinancialreportingpurposes.

True

False

68.

Ifacompanydepreciatesanassetatafasterratefortaxpurposesthanforfinancialreportingpurposesthiswillgiverisetoadeferredtaxliability.

True

False

69.

Adeferredtaxliabilityimposesanobligationonthebusinesstopaytaxes.

True

False

70.

Someitemsappearonacompany'sincomestatementbutneverappearonitstaxreturn.

True

False

71.

Inordertodeterminepermanentincomefortheyearbeinganalyzed,itisnecessarytoconsiderspecialchargesfromotheryears.

True

False

72.

Timingisoneofthefewrevenuerecognitionissuesthatareseldomaconcerninfinancialanalysis.

True

False

73.

Onlycostsofmaterials,equipment,andfacilitieshavingalternativefutureuses(inR&Dprojectsorotherwise)arecapitalizedastangibleassets.

True

False

74.

Employeestockoptions(ESOs)usuallyconstituteawealthtransferfromcurrentshareholderstoprospectiveshareholders(employees)andhavenoeffectontotalliabilitiesandshareholders'equity.

True

False

75.

Underlong-termperformancecontracts—suchasproductwarrantycontractsandsoftwaremaintenancecontracts—revenuesareoftencollectedinadvanceandarerecognizedproportionallyovertheentireperiodofthecontract.

True

False

76.

ESOsoftenaregrantedtomanagersingrowthandinnovativeindustriestoinducemorerisk-taking.

True

False

EssayQuestions

77.

RevenueRecognitionfromLong-TermContract

HousingConstructionCompany(HCC)hasagreedtobuildahousingprojectforthecityofNewYork.OnJanuary1,2006thecompanyandthecityagreedonthefollowingterms,theconstructionshouldtakenomorethan3years,HCCwouldbepaidatotalof$150millionfortheproject;$150millionwouldbepaid:3paymentsof$50millioneachattheendofyear2006,2007,and2008.HCCexpectscontractionscoststobe$50millioninyear2006,$50millioninyear2007,and$10millioninyear2008.

a.IfHCCusesthecompletedcontractmethod,whatrevenuesandexpenseswouldHCCrecognizeinyear2006,2007,and2008?

b.IfHCCusesthepercentage-of-completionmethod,whatrevenuesandexpenseswouldHCCrecognizeinyear2006,2007,and2008?

c.Showthebalanceontheconstruction-in-processaccountattheendof2006,2007,and2008(priortothecompletionoftheproject)usingboththecompletedcontractandthepercentage-of-completionmethods?

78.

EarningsperShare

ThefollowinginformationwasobtainedfromCyberCorporation'sannualreport.

a.Computeweighted-averagenumberofcommonsharesoutstandingfortheyear.

b.ComputebasicEPS.

c.ComputedilutedEPS.

79.

Goodwill/Cashflows

Thetablebelowshowsthedifferencesinaccountingtreatmentsforgoodwillinthreeselectedcountries.

*GoodwillistaxdeductibleintheUnitedStatesunderlimitedcircumstances,forthepurposesofthisquestion,assumeitisnot.

Givenacompanythathasrecognizedsignificantacquisitiongoodwill,identifythecountrywhoseaccountingandtaxrulesforgoodwillwouldlikelyresultinthehighestvaluationofthecompany.Justifyandexplainyouranswer.

80.

Taxes

BelowareselectedportionsfromQuakerOats'taxfootnoteinitsX6annualreport.

Provisionsforincometaxesonincomebeforecumulativeeffectofaccountingchangewereasfollows:

Required:

1a.WhatwastheeffectivetaxrateonallincomeforfiscalX6?

1b.WhatwastheeffectivetaxrateonforeignincomeforfiscalX6?

2a.HowmuchdidQuakerOatsrecordindeferredtaxesforfiscalX6?Wasthisanassetorliability?

2b.WhatwasthemajoritemcontributingtothedeferredtaxforX6?Explainfullyhowthisarose.

81.

Deferredtaxes

Manycompanieshavesignificantdeferredtaxes.Deferredtaxesarenotalwayslong-termliabilities.Forthecategoriesbelow,statewhetherdeferredtaxescanariseinthiscategoryandprovideanexample.

i.Currentliabilities

ii.Long-termliabilities

iii.Stockholders'equity

iv.Currentassets

v.Long-termassets

82.

ExpensingversusCapitalizing

Companiescancapitalizesoftwaredevelopmentcostswhentheproductis"technologicallyfeasible".Somecompaniesnevercapitalizetheirsoftwarecosts-forexample,Microsoft.

Viderics,asoftwaredevelopmentcompanycapitalizesthosesoftwarecostsallowedunderGAAP.Thefollowinginformationistakenfromitsfinancialstatements.

a.IfVidericshadnotcapitalizeditssoftwarecostsbutexpensedtheminsteadwhatwouldtheyhavereportedassoftwareexpenseeachyear,assumingunamortizedbalanceofsoftwarecostswas$35inyearX0?

b.Whatisthelikelyeffectuponnetincomevariabilityofexpensingratherthancapitalizingsoftwaredevelopmentcosts?

c.Howmightincomebemanipulatedundereitherofthesetwomethods(expensingandcapitalizing)?

83.

Changesinaccounting

Youarereadingthe2006annualreportofCurpenCorporationandyoufindthefollowingitemsinitsfootnotes.

a.Theusefullifeofmachineryhasbeenincreasedfrom10to15years.

b.Theexpectedrateofreturnonplanassetshasbeenincreasedto10%from8%.

c.Thecompanyhasstartedtocapitalizesmalltoolspurchasedbeginningin2006.

Foreachoftheabove,determinetheeffect(higher,lower,orunchanged)ofthechangeontheratioslistedbelowfortheyear2006:

a.Debt-to-equity

b.Returnonassets

c.CashFlowfromoperations

84.

EmployeeStockOptions

XYZCompanyissued10,000optionstoitsCEOonJanuary1,2006,attheprevailingmarketpriceof$5pershare.Theoptionswereexpectedtovestovera2-yearperiod.TheBlack-Scholesvalueoftheoptionwasvaluedat$2pershare.OnDecember31,2007,theCEOexercisedalloptions.Marketpriceonthatdaywas$9pershare.Assumea35%taxrate.

1.WhatwillbethecumulativeeffectonthebalancesheetasofDecember31,2007beforetheexerciseofoption?

2.WhatwillbethecumulativeeffectonthebalancesheetasofDecember31,2007aftertheexerciseofoption?

85.

ImpairmentofLong-livedAssets

MetalsCorp.hasfourfactorieswiththefollowingdata:

Allcashflowsareatyear-endandterminateafterDecember31,2010.Thecompany'scostofcapitalis10%anditstaxrateis35%.

a.WhatisthevalueofeachfactoryforbalancesheetpurposesatDecember31,2006?

b.Whatimpairmentloss,ifany,wouldbereportedonMetals'2006incomestatement?Howwoulditbereportedandwherewoulditbereported(i.e.whatcomponentoftheincomestatementandotherdisclosures)?

86.

NonrecurringItems

Foreachofthesenonrecurringitemsgiveanexampleandindicate(matchwith)theappropriateaccountingtreatment.

1.Extraordinaryitem

2.Priorperiodadjustment

3.Changeinaccountingestimate

4.Changeinaccountingprinciple

5.Discontinuedoperation

6.Specialitems

7.Comprehensiveincomeitems

8.Changeinreportingentity

9.SECEnforcementReleases

A.Shownnetasaseparatelineitembetweennetincomeandcomprehensiveincome,norestatement.

B.Incomestatementlineitemsadjustedasappropriate,grossornet,prioryearsrestated.

C.Grossamountispartofitsregularincomeorexpenselineiteminincomefromcontinuingoperations,prioryearsrestated.

D.Grossamountispartofitsregularincomeorexpenselineiteminincomefromcontinuingoperations,norestatement.

E.Showngrossasaseparatelineiteminincomefromcontinuingoperations,norestatement.

F.Shownnetasaseparatelineitembetweenincomefromcontinuingoperationsandnetincome,prioryearsrestated.

G.Showncumulativenetasaseparatelineitembetweenincomefromcontinuingoperationsandnetincome,norestatement.

H.Shownnetasaseparatelineitembetweenincomefromcontinuingoperationsandnetincome,norestatement.

I.Notinincomestatement,openingretainedearningsischangedbynetamount,norestatement.

Chapter06AnalyzingOperatingActivitiesAnswerKey

MultipleChoiceQuestions

1.

Whichofthefollowingisnotareasonforeconomicincomeandaccountingincometodiffer?

A.

Transactionbasis

B.

Themonetaryassumption

C.

Conservatism

D.

Earningsmanagement

2.

Asageneralrule,revenueisnormallyrecognizedwhenitis:

A.

measurableandearned.

B.

measurableandreceived.

C.

realizableandearned.

D.

realizableandmeasurable.

3.

Whichofthefollowingmeasuresofaccountingincomeistypicallyreportedinanincomestatement?

A.

Netincome

B.

Comprehensiveincome

C.

Continuingincome

D.

Alloftheabove

4.

AccordingtoFASB,initialfranchisefeesshouldberecognizedasincomewhen:

A.

thefranchiserhassubstantiallyperformedorsatisfiedallmaterialservicesandconditions.

B.

thefranchiserhascollectedthemajorityoffeeincash.

C.

thefranchiseeshowstheabilitytopaythefee.

D.

thefranchiserbillsthefranchisee.

BriertonCompanyentersacontractatthebeginningofyear1tobuildanewfederalcourthouseforapriceof$16million.Briertonestimatesthattotalcostoftheprojectwillbe$12millionandwilltakefouryearstocompl