ACT-212 Second Semester 1439-1440 16) What is the general approach as to when product costs are recognized as expenses? a. In the period when the expenses are paid. b. In the period when the expenses are incurred. c. In the period when the vendor invoice is received. d. In the period when the related revenue is recognized. 17) Not adjusting the amounts reported in the financial statements for inflation is an example of which basic principle of accounting? a. Economic entity. b. Going concern. c. Historical cost. d. Full disclosure. 18) Recognition of expense related to amortization of an intangible asset illustrates which principle of accounting? a. Expense recognition. b. Full disclosure. c. Revenue recognition. d. Historical cost. 19) Which accounting assumption or principle is being violated if a company reports its corporate headquarter building at its fair value on the balance sheet? a. Going concern. b. Monetary unit. c. Historical cost. d. Full disclosure. 20) Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company's stock price? a. Full disclosure. b. Going concern. c. Historical cost. d. Matching. 21) Which assumption or principle requires that all information significant enough to affect a decision of reasonably informed users should be reported in the financial statements? a. Matching. b. Going concern. c. Historical cost. d. Full disclosure. 22) A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle? a. Revenue recognition. b. Going concern. c. Historical cost. d. Monetary unit. 23) Which of the following are benefits of providing financial information? a. Potential litigation. b. Auditing. c. Disclosure to competition. d. Improved allocation of resources. Intermediate Accounting (ACT-212) Second Semester 1439-1440 CHAPTER 2: INCOME STATEMENT Circle the right answer: (TESTBANK) Teacher: Dr. Raef Bahrini MULTIPLE CHOICE 1. The major elements of the income statement are a. revenue, cost of goods sold, selling expenses, and general expense. b. operating section, nonoperating section, discontinued operations, extraordinary items, and cumulative effect. c. revenues, expenses, gains, and losses. d. all of these. 2. Information in the income statement helps users to a. evaluate the past performance of the enterprise. b. provide a basis for predicting future performance. c. help assess the risk or uncertainty of achieving future cash flows. d. all of these. 3. The income statement reveals a. resources and equities of a firm at a point in time. b. resources and equities of a firm for a period of time. c. net earnings (net income) of a firm at a point in time. d. net earnings (net income) of a firm for a period of time. 4. The income statement information would help in which of the following tasks? a. Evaluate the liquidity of a company. b. Evaluate the solvency of a company c. Estimate future cash flows d. Estimate future financial flexibility 5. Which of the following is an advantage of the single-step income statement over the multiple-step income statement? a. It reports gross profit for the year. b. Expenses are classified by function. c. It matches costs and expenses with related revenues. d. It does not imply that one type of revenue or expense has priority over another. 6. The single-step income statement emphasizes a. the gross profit figure. b. total revenues and total expenses. c. extraordinary items and accounting changes more than these are emphasized in the multiple- step income statement. d. the various components of income from continuing operations. 7.In order to be classified as an extraordinary item in the income statement, an event or transaction should be a. unusual in nature, infrequent, and material in amount. b. unusual in nature and infrequent, but it need not be material. c. infrequent and material in amount, but it need not be unusual in nature. d. unusual in nature and material, but it need not be infrequent. Intermediate Accounting I (ACT-212) Second Semester 1439-1440 8. Which of the following items would be reported net of tax on the face of the income statement? a. Prior period adjustment b. Unusual gain c. Cumulative effect of a change in an accounting principle d. Discontinued operations 9. Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles? a. On the face of the statement of retained earnings (or, statement of stockholders' equity.) b. In the footnotes to the financial statements. c. On the face of the income statement. d. Either (a) or (c). 10. Comprehensive income includes all of the following except a. dividend revenue. b. losses on disposal of assets. c. investments by owners. d. unrealized holding gains. 11. The income statement is useful for helping to assess the risk or uncertainty of achieving future cash flows. a. True. b. False. 12. Companies frequently report income tax expense as the last item before net income on a single-step income statement. 13. 14. a. True. b. False. Both revenues and gains increase both net income and owners' equity. a. True. b. False. The primary advantage of the multiple-step format lies in the simplicity of presentation and the absence of any implication that one type of revenue or expense item has priority over another. a. True. b. False. 15. Gross profit and income from operations are reported on a multiple-step but not a single-step income statement. a. True. b. False. Intermediate Accounting I (ACT-212) 16. Ortiz Co. had the following account balances: Sales Cost of goods sold Salary expense Depreciation expense Dividend revenue Utilities expense Rental revenue $ 131,000 60,000 10,000 20,000 4,000 8,000 20,000 12,000 13,000 Second Semester 1439-1440 Interest expense Advertising expense What would Ortiz report as total revenues in a single-step income statement? a. $155,000 b. $ 10,000 c. $144,000 d. $120,000 17. Ortiz Co. had the following account balances: Sales Cost of goods sold Salary expense Depreciation expense Dividend revenue Utilities expense Rental revenue Interest expense $ 131,000 60,000 10,000 20,000 4,000 8,000 20,000 12,000 13,000 Advertising expense What would Ortiz report as total expenses in a single-step income statement? a. $127,000 b. $134,000 c. $123,000 d. $ 63,000 18. For Mortenson Company, the following information is available: Cost of goods sold Dividend revenue Income tax expense Operating expenses Sales $ 60,000 2,500 6,000 23,000 100,000 In Mortenson's single-step income statement, gross profit a. should not be reported. b. should be reported at $13,500. c. should be reported at $40,000. d. should be reported at $42,500. Second Semester 1439-1440 Intermediate Accounting/ (ACT-212) 19. For Mortenson Company, the following information is available: Cost of goods sold Dividend revenue Income tax expense $ 60,000 2,500 6,000 23,000 100,000 Operating expenses Sales In Mortenson's multiple-step income statement, gross profit a. should not be reported b. should be reported at $13,500. c. should be reported at $40,000. d. should be reported at $42,500. 20. For Rondelli Company, the following information is available: Cost of goods sold Dividend revenue Income tax expense Operating expenses $ 90,000 4,000 9,000 35,000 150,000 Sales In Rondelli's multiple-step income statement, gross profit a. should not be reported b. should be reported at $20,000. c. should be reported at $60,000. d. should be reported at $64,000. 21. Lantos Company had a 40 percent tax rate. Given the following pre-tax amounts, what would be the income tax expense reported on the face of the income statement? Sales Cost of goods sold Salary expense $ 100,000 60,000 8,000 Depreciation expense 11,000 Dividend revenue 9,000 Utilities expense 1,000 Extraordinary loss 10,000 Interest expense 2,000 a. $10,800 b. S 6,800 c. $ 7,200 d. $ 3,200 22. Benedict Corporation reports the following information: Net income Dividends on common stock Dividends on preferred stock Weighted average common shares outstanding Benedict should report earnings per share of a. $3.00. b. $3.60 c. $4.40. d. $5.00. $500,000 140,000 60,000 100,000