Chapter 4 Assignment: income Statement and Related information 3 Multiple Choice Questions 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, and cumulative effect e revenues, expenses, gains, and losses. d. revenues, irregular items, and general expenses. 2. Which of the following is not true about the information provided in the income statement? a. It helps in evaluating the past performance of the enterprise. b. It provides a basis for predicting future performance. c. It helps assess the risk or uncertainty of achieving future cash flows. d. It helps in evaluating working capital. 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. The income statement provides investors and creditors with information to predict all of the following except the a. amount of future cash flows. b. sources of future cash flows. c. timing of future cash flows. d. uncertainty of future cash flows. 5. Which of the following is an example of managing earnings down? 2. Changing estimated bad debts from 3 percent to 2.5 percent of sales b. Revising the estimated life of equipment from 10 years to 8 years. c. Not writing off obsolete inventory. d. Reducing research and development expenditures. 6. Which of the following is an example of managing earnings up? a Decreasing estimated salvage value of equipment b. Writing off obsolete inventory. c. Underestimating warranty claims. d. Accruing a contingent liability for an ongoing lawsuit 7 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 D. Expenses are classified by function cit matches costs and expenses with related revenues d. It does not imply that one type of revenue or expense has nority over another 8 9. 10. 11. Which of the following is an not acceptable method of presenting the income statement? a. A single-step income statement b. A multiple-step Income statement C. A consolidated statement of income d. A partial statement of income. Which of the following is not a selling expense? a. Advertising expense b. Office salaries expense C. Freight-out d. Store supplies consumed A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to: a. beginning retained earnings of the earliest period presented. b. net income of the period in which the change occurred. C. comprehensive income for the earliest period presented. d. stockholders' equity of the period in which the change occurred. 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. On the face of the balance sheet. In calculating earnings per share, companies deduct preferred dividends from net income if a. they are noncumulative though not declared. b. the dividends are declared. c. they are convertible preferred shares d. they are callable preferred shares. Which of the following is included in comprehensive income? a. Investments by owners. b. Unrealized gains on available-for-sale securities. o. Distributions to owners. d. Changes in accounting principles. A statement of stockholders equity includes a column for each of the following except a. accumulated other comprehensive income. bi common stock C. net income d. retained earnings. Which of the following items will not appear in the retained earnings statement? a. Net loss D: Prior period adjustment Discontinued operations d. Dividends 12. 13 14. 15 Exercise 1 - Multiple-Step Income Statement Listed below in scrambled order are 11 income statement categories. Use the numerals 1 through 11 to indicate the order in which these categories should appear on a multiple-step Income statement. ( ) Discontinued operations. () Cost of goods sold. () Other revenues and gains. C) Net income. () Income taxes. () Sales revenue. ( ) Gross profit on sales. c) Income from operations. () Income from continuing operations before income taxes. () Operating expenses. () Income from continuing operations