Multiple Choice Questions
1. Moore Furniture Inc., a public company, has experienced a consistent 5% increase in net income over the past three years. Moore’s management team is under a lot of pressure from investors to maintain its earnings ratios. In order to do so, the CEO could manipulate net income in order to manage the earnings of the company. Which one of the following is NOT a method typically used to manage earnings?
a. Acquire a related business to allow management the opportunity to restructure transactions.
b. Move up the timing related to the launch of a new product that has a huge demand.
c. Engage in research and development projects to entice investors.
d. Recognize revenues prematurely from sales promotions with retailers.
2. Beach and Poole, CPA is reviewing income statement presentation with some interns that are working with the firm during the summer break. The interns were asked to list three things that were true about the multiple-step income statement. Choose the item below that is a true statement.
a. The multiple-step income statement lists gains and losses as part of income from normal operations.
b. The multiple- step income statement shows income or loss from operations after the gross margin and operating expenses lines but before other revenues and gains.
c. Freight out is classified as part of the inventory cost and moved to cost of goods sold when the item is purchased by a third party.
d. Gain / loss on the sale of equipment held for disposal from discontinued operations is included in the continuing operations section of the income statement.