Problem 1: Which of the following is a change in accounting principle?
a. A change in the estimated service life of machinery
b. A change from FIFO to LIFO
c. A change from straight-line to double-declining balance
d. A change from FIFO to LIFO and a change from straight-line to double-declining balance
Problem 2: When a company discontinues an operation and disposes of the discontinued operation (segment), the transaction should be included in the income statement as a gain or loss on disposal reported as
a. a prior period adjustment.
b. an extraordinary item.
c. an amount after continuing operations and before extraordinary items.
d. a bulk sale of plant assets included in earnings from continuing operations.
Problem 3: 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.
Problem 4: Blass Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial
balance at December 31, 1998 included the following expense and loss accounts:
Accounting and legal fees $140,000
Advertising 180,000
Freight-out 80,000
Interest 70,000
Loss on sale of long-term investment 30,000
Officers' salaries 225,000
Rent for office space 220,000
Sales salaries and commissions 170,000
One-half of the rented premises is occupied by the sales department.
Blass's total selling expenses for 1998 are
a. $540,000.
b. $460,000.
c. $430,000.
d. $370,000.
Problem 5: A measure of a company's financial flexibility is the
a. cash debt coverage ratio.
b. current cash debt coverage ratio.
c. free cash flow.
d. cash debt coverage ratio and free cash flow.