Question

As an analyst assessing a company's future profit potential, which of the following would you most likely disregard?

Group of answer choices

Cost of goods sold.

Restructuring charges.

Selling expenses.

Research and development expense.

Under the equity method of accounting for investments

Group of answer choices

dividends received are reported on the income statement as dividend income.

the investment account is reported at cost on the balance sheet.

the investor's share of the investee's net income is reported as equity earnings on the income statement.

All of the above are correct.

Which item would not be classified as an operating expense?

Group of answer choices

Advertising.

Gain on sale of land.

Depreciation.

Salaries.

Which of the following is a reason why it is important for an analyst to read the Commitments and Contingencies note?

Group of answer choices

The note details information on commitments and contingencies that may not appear in the financial statements.

Commitments and contingencies can have a significant impact on a company in the future.

The note describes any pending litigation against the company.

All of the above.

Upon receipt of cash in advance from a customer, a company records revenue on the income statement.

Group of answer choices

True

False

Deferred income taxes arise due to temporary differences between tax reporting rules and financial reporting rules.

Group of answer choices

True

False

Answer 1

1. As an analyst assessing a company's future profit potential, which of the following would you most likely disregard? - (b) Restructuring charges.

(As Restructuring charges are one time charges in case of reorganization of a company. COGS, Selling and R&D Expense are normal recurring expenses which affects profit of every year.)

2. Under the equity method of accounting for investments - (c) the investor's share of the investee's net income is reported as equity earnings on the income statement.

(Under the equity method of accounting for investments, all transactions affect only 2 accounts i.e. Investment and Income. Dividends are not reported as Income but deducted from Investment carrying value. Investment account is reported at Carrying value and not cost in Balance sheet.)

3. Which item would not be classified as an operating expense? - (b) Gain on sale of land

(As sale of land is not a part of business and everyday activity. Advertising, Depreciation and salaries are paid as a part of business and is recurring in nature.)

4. Which of the following is a reason why it is important for an analyst to read the Commitments and Contingencies note?- (d) All of the above

(The note details information on commitments and contingencies that may not appear in the financial statements.Commitments and contingencies can have a significant impact on a company in the future.The note describes any pending litigation against the company.)

5. Upon receipt of cash in advance from a customer, a company records revenue on the income statement. - (b) FALSE

(Because revenue is recorded at time of sales and not on receipt of cash. On receipt of advance from customer, Liability is created.)

6. Deferred income taxes arise due to temporary differences between tax reporting rules and financial reporting rules. - (a) TRUE

(Accounting Income and Taxable Income differs due to differences between tax reporting rules and financial reporting rules, which creates temporary differences leading to Deferred income taxes)