Understanding Income Statements

8 questions

1. 1. Which of the following is not a necessary condition for revenue recognition?
   Delivery has occurred or services have been rendered.The seller’s price to the buyer is fixed or determinable.Cash has been collected
2. 2. A company records items on the cash basis and converts to an accrual basis at the end of the year. The company's net income on cash-basis is $70,000. We have the following comparative balance sheet information about the company:

   

   What amount should the company report as its accrual-based net income for the current year?

   $68,800 $70,200 $71,200
3. 3. Which of the following transactions qualify as a discontinued operation?
   Disposal of part of a line of business. Planned and approved sale of a segment. Phasing out of a production line.
4. 4. We have the following information regarding the common and preferred shares of a company.

   

   The company reported a net income of $1,000,000 at December 31. Calculate the number of shares the company should use as the denominator in the computation of basic EPS?

   $499,000 $502,000 $538,000
5. 5. A company had the following business activities in a year:

   • Gross sales: $4,600,000

   • Cost of goods sold: $1,200,000

   • Selling and administrative expense: $500,000

   • Adjustment for a prior-year understatement of amortization expense: $45,000

   • Sales returns: $34,000

   • Gain on sale of available-for-sale securities: $8,000

   • Gain on disposal of a discontinued business segment: $4,000

   • Unrealized gain on available-for-sale securities: $1,000

   The effective tax rate for the company is 35%. Calculate the company's net income for the year?

   $2,267,700 $2,273,300 $2,314,600
6. 6. Which of the following statements correctly describes the purpose of reporting comprehensive income?
   It summarizes all changes in equity from non-owner sources. To provide a consolidation of the income of the firm's segments. To provide information for each segment of the business.
7. 7. Which of the following is most likely a component of other comprehensive income?
   Foreign currency translation adjustments. In increase in market value of inventory. Unrealized gain on trading securities.
8. 8. Convertible bonds that are dilutive generally affect the calculation of:
   Basic EPS: Yes; Diluted EPS: YesBasic EPS: No; Diluted EPS: NoBasic EPS: No; Diluted EPS: Yes