1. The four major elements of the income statement are:

2. The income statement reveals net earnings (net income) of a firm for a period of time.

Explain how net earnings (net income) of a firm for a period of time is different from each of the following descriptions:

resources and equities of a firm at a point in time

resources and equities of a firm for a period of time

net earnings (net income) of a firm at a point in time

3. Explain how revising the estimated life of equipment from 10 years to 8 years could be an example of managing earnings down?

4. Explain how underestimating warranty claims could be an example of managing earnings up?

5. Changes in estimates are not carried back to adjust prior years. Explain how changes in estimates are accounted for in the current year?

6. A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to beginning retained earnings of the earliest period presented. Explain what this means?

7. A required disclosure in the income statement when reporting the disposal of a component of the business includes reporting earnings per share from continuing operations, discontinued operations, and net income on the face of the income statement. Provide an example of how this required disclosure would be presented (on the face of the income statement).

8. Carrot Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as a prior period adjustment. Explain what Carrot Corporation needs to do (how do they go about reporting a prior period adjustment)