QuestionQuestions1. Income from continuing operations sometimes includes gains from non-operating activities. 2. Intraperiod tax allocation is the process of associating

2. Intraperiod tax allocation is the process of associating income tax effects with the income statement components that create those effects.

3. Material restructuring costs are reported as an element of income from continuing operations.

4. Earnings quality refers to the ability of reported earnings (income) to predict future earnings.

5. Gains, but not losses, from discontinued operations must be separately reported in an income statement.

6. An item must meet the subjective criteria of being either unusual or infrequent to be reported as extraordinary.

7. The definition of what constitutes an extraordinary item should be independent of the operating environment.

8. Income statements prepared according to both U.S. GAAP and International Accounting Standards require the separate reporting, as an extraordinary item, of material gains and losses from events that are both unusual and infrequent.

9. A change in depreciation method is accounted for by retrospectively revising prior years’ financial statements.

10. Changes in accounting estimates require disclosure of their effects, if material, on current year net income and EPS but do not require restatement of prior years’ financial statements.

11. The income effect of a change in reporting entity is shown separately in the income statement in the year of the change.

12. EPS disclosure is required only for income from continuing operations.

13. Comprehensive income reports an expanded version of income to include four types of gains and losses not included in traditional income statements.

14. Comprehensive income is the total change in shareholders’ equity that occurred during the period.

15. The direct and indirect methods of reporting the statement of cash flows present different information for investing and financing activities.

Essay Questions

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase.
Terms:
A. Change in accounting estimate
B. Income from discontinued operations
C. Income from continuing operations
D. Intraperiod tax allocation
E. Matching principle
F. Operating activities (income statement)
G. Prior period adjustment
H. Provision for income tax
I. Taxable income
J. Transitory earnings

16. _____ Also known as income tax expense.

17. _____ From transactions or events that are not likely to occur in the foreseeable future.

18. _____ Associates tax with income statement items.

19. _____ Used as the base for computing taxes currently payable.

20. _____ Made to correct a material error.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase.

Terms:
A. Change in accounting estimate
B. Income from discontinued operations
C. Income from continuing operations
D. Intraperiod tax allocation
E. Matching principle
F. Operating activities (income statement)
G. Prior period adjustment
H. Provision for income taxes
I. Taxable income
J. Transitory earnings

21. _____ Is directly related to the principal revenue-generating activities

22. _____ Requires note disclosure, if material.

23. _____ Expenses are recognized in the same period as the related revenues.

24. _____ Income (loss) from an identifiable component will cease.

25. _____ More useful to analysts in predicting future income than current net income.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase.

Terms:
A. Cumulative effect of a change in accounting principle
B. Direct method
C. Discontinued operations
D. Financing activities
E. Gain/loss from early extinguishment of debt
F. Investing activities
G. Held for sale component
H. Multiple-step income statement
I. Non-operating activities (income statement)
J. Single-step income statement

26. _____ Not directly related to a firm’s principal revenue-generating activities.

27. _____ Likely to be discontinued within a year.

28. _____ Groups all revenues and gains.

29. _____ Related to the acquisition and disposition of long-term assets.

30. _____ Related to the external financing of the company.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase.

Terms:
A. Cumulative effect of a change in accounting principle
B. Direct method
C. Discontinued operations
D. Financing activities
E. Gain/loss from early extinguishment of debt
F. Investing activities
G. Held for sale component
H. Multiple-step income statement
I. Non-operating activities (income statement)
J. Single-step income statement

31. _____ Difference between book value of debt and payment to retire debt.

32. _____ Reported net of tax immediately after income from continuing operations.

33. _____ No longer included in current income for voluntary changes in accounting principle.

34. _____ Reports intermediate subtotals in arriving at net income.

35. _____ Reports the cash effects of each operating activity directly on the statement.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase.

Terms:
A. Change in reporting entity
B. Component of an entity
C. Comprehensive income
D. Earnings quality
E. Earnings per share
F. Extraordinary items
G. Indirect method
H. Non-cash financing and investing activities
I. Operating activities (SCF)
J. Restructuring costs

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