Question

1. Which item is not correct with respect to the treatment of sustainable and transitory items and a company's income statement?

• Financial reporting assists statement users in forecasting future cash flows by providing an income statement format that segregates components of net income.

• Income statements prepared in accordance with GAAP differentiate between income components that are believed to be sustainable and those that are transitory.

• The income statement isolates a key figure called “income from sustainable operations.”

• Transitory items are disclosed separately on the income statement so that statement users can place less weight on these earnings components when forecasting future profitability.

• 2. Which of the following statements is correct regarding revenue and expense accounts?

• Multiple Choice

• These are really owners’ equity accounts.

• These are really contributed capital accounts.

• They have no impact on the balance sheet.

• These are balance sheet accounts.

• 3. T-account analysis can be used to gain insights into why accrual basis earnings and cash basis earnings differ and to:

  Multiple Choice

• journalize future transactions.

• reconstruct transactions that have occurred during a given reporting period.

• post transactions that have occurred during a given reporting period.

• determine the current market price of common stock.

• 4. Income statements are classified into sections to:

  Multiple Choice

• separate revenue recognized from deferred revenue.

• distinguish between sustainable and transitory income.

• separate real income from book income.

• distinguish between book income and taxable income.

• 5.Revenue is recognized when:

  Multiple Choice

• a contract is signed by both parties.

• the seller completes performance required by an agreement.

• the buyer completes payment required under an agreement.

• the buyer accepts delivery and completes required payments.

• 7.

  Earnings management can occur through a variety of manipulations including:

  Multiple Choice

• Manipulating accrual estimates to impact expenses.

• Misapplications of GAAP deemed immaterial on an account by account basis.

• Big bath restructuring charges.

• All of these answer choices are correct.

• 8.

  Adjusting entries are used in all but which of the following situations?

  Multiple Choice

• Prepayments.

• Deferred Revenue and Expenses.

• Accrued Revenue and Expenses.

• Prepayments, Deferred Revenue, Accrued Expenses, Accrued Revenue.

• 9.

  Which one of the following is part of other comprehensive income (OCI)?

  Multiple Choice

• Unrealized gains resulting from remeasuring foreign currency financial statements of majority-owned subsidiaries to U.S. dollar amounts.

• Gains on sales of treasury stock.

• Receipt of land donated by a governmental unit.

• Sale of common stock above par.

Answer 1

1. The income statement isolates a key figure called “income from sustainable operations.”

2. These are really owners’ equity accounts.

3. Reconstruct transactions that have occurred during a given reporting period.

4. Distinguish between sustainable and transitory income.

5. The seller completes performance required by an agreement

7. All of these answer choices are correct.

8. Deferred Revenues and Expenses

9. Unrealized gains resulting from remeasuring foreign currency financial statements of majority-owned subsidiaries to U.S. dollar amounts.