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.