1 the following items were


1)      The following items were among those that were reported on dye co.'s income statement for the year ended Dec. 31, 2010:

Legal and audit fees                                                                                        $130,000

Rent for office space                                                                                      $180,000

Interest on inventory floor plan                                                                                $210,000

Loss on abandoned equipment used in operations                          $35,000

The office space is used equally by dye's sales and accounting departments. What amount of the above-listed items should be classified as general and administrative expenses in dye's multiple-step income statement?

a)      $310,000

b)      $430,000

c)       $220,000

d)      $225,000                                             

 

2)      Chase corp. had the following infrequent transactions during 2010:

A $150,000 gain from selling the only investment chase has ever owned

A $210,000 gain on the sale of equipment

A $70,000 loss on the write- down of inventories

In its 2010 income statement, what amount should chase report as total infrequent net gains that are not considered extraordinary?

a)      $290,000

b)      $80,000

c)       $360,000

d)      $140,000

 

3)      Which one of the following types of losses is excluded from the determination of net income in income statements?

a)      Material losses resulting from transactions in the company's investment accounts

b)      Material losses resulting from correction of errors related to prior periods

c)       Material losses resulting from the write-off of intangibles

d)      Material losses resulting from unusual sales of assets not acquired for resale

 

4)      Leonard Corporation reports the following information:

Correction of overstatements of depreciation expense

 in prior years, net of tax                                                               $215,000

Dividends declared                                                                         $160,000

Net income                                                                                        $500,000

Retained earnings, 1/1/10, as reported                                  $1,000,000

 

Leonard should report retained earning, 12/31/10, at

a)      $1,340,000

b)      $785,000

c)       $1,125,000

d)      $1,555,000

 

5)      Gross billings for merchandise sold by Lang Co. to its customers last year amounted to $15,720,000; sales returns and allowances were $370,000, sales discounts were $175,000, and freight-out was $140,000. Net sales last year for Lang Co. were

a)      $15,720,000

b)      $15,350,000

c)       15,175,000

d)      15,035,000

 

6)      A material item which is unusual in nature or infrequent in occurrence, but not both should be shown in the income statement

Net of Tax                           Disclosed separately

a)                NO                                                       Yes

b)               NO                                                        NO

c)                 Yes                                                       No

d)                Yes                                                       Yes

 

7)      Which of the following items would be reported at its gross amount on the face of the income statement?

a)      Unusual gain

b)       Prior period adjustment

c)       Extraordinary loss

d)      Cumulative effect of a change in an accounting principle

 

8)      Ortiz co. had the following account balances:

Sales                                                      $120,000

Costs of goods sold                         60,000

Salary expense                                 10,000

Depreciation expense                   20,000

Dividend revenue                            4,000

Utilities expense                              8,000

Rental revenue                                 20,000

Interest expense                             12,000

Sales returns                                      11,000

Advertising expense                      13,000

What would Ortiz report as total expenses in a single-step income statement?

a)      $127,000

b)      123,000

c)       134,000

d)      63,000

 

9)      The income statement information would help in which of the following tasks?

a)      Evaluate the liquidity of a company

b)      Estimate future financial flexibility

c)       Estimate future cash flows

d)      Evaluate the solvency of a company

 

10)   Lantos company had a 40% tax rate. Given the following pre-tax amounts, what would be in the income tax expense reported on the face of the income statement?

Sales                                      $100,000

Cost of goods sold           60,000

Salary expense                 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)      7,200

c)       6,800

d)      3,200

 

11)   What might a manager do during the last quarter of a fiscal year if she wanted to improve current annual net income?

a)      Delay shipments to customers until after the end of the fiscal year

b)      Relax credit policies for customers

c)       Delay purchases from suppliers until after the end of the fiscal year

d)      Increase research and development activities

 

12)   Which disclosure method do most companies use to display the components of other comprehensive income?

a)      Second income statement

b)      Combined statement of retained earnings

c)       As part of the statement of stockholder's equity

d)      Combined statement of comprehensive income

 

13)   Which of the following is an example of managing earnings down?

a)      Not writing off obsolete inventory

b)      Reducing research and development expenditures

c)       Revising the estimated life of equipment from 10 years to 8 years

d)      Changing estimated bad debts from 3% to 2.5% of sales

 

14)   Which of the following would represent the least likely use of an income statement prepared for a business enterprise?

a)      Use by government agencies to formulate tax and economic policy.

b)      Use by labor unions to examine earning closely as a basis for salary discussions

c)       Use by customers to determine a company's ability to provide needed goods and services

d)      Use by investors interested in the financial position of the entity                     

 

15)   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

 

16)   Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?

a)      The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations.

b)      Earnings per share from both continuing operations and net income should be disclosed on the face of the income statement.

c)       Results of operations of a discontinued component should be disclosed immediately below extraordinary items.

d)      The gain or loss on disposal should be reported as an extraordinary item.

 

17)   Earnings per share should always be shown separately for

a)      Net income and pretax income

b)      Extraordinary items and prior period adjustments

c)       Net income and gross margin

d)      Income before extraordinary items

 

18)   Arreaga Corp. has a tax rate of 40% and income before non-operating items of $232,000. It also has the following items (gross amounts):

                Unusual loss                                                       $37,000

                Extraordinary loss                                            101,000

                Gain on disposal of equipment                  8,000

                Change in accounting principle

                   Increasing prior year's income                74,000

What is the amount of income tax expense to be reported on the income statement?

a)      92,800

b)      81,200

c)       99,200

d)      62,000

 

19)   Which of the following earnings per share figures must be disclosed on the face of the income statement?                        

a)      EPS for income before taxes

b)      EPS for gross profit

c)       EPS for income from continuing operations

d)      The effect on EPS from unusual items

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