1 The major distinction made between the multiple step and single step income statement formats is the separation of A Operating and nonoperating data B Income tax expense and administrative expenses C Cost of goods sold expense and administrative expenses D The effect on income taxes due to extraordinary items and the effect on income taxes due to income before extraordinary items 2 Which of the following is false about an income statement a Items that cannot be measured reliably are not reported in the income statement b It is used to measure the solvency of a company c Income measurement involves judgment d Income numbers are affected by the accounting methods employed 3 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 4 Which of the following is an example of managing earnings up a 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 Writing off obsolete inventory d Increasing research and development expenditures 5 What might a manager do during the last quarter of a fiscal year if she wanted to improve current annual net income a Increase research and development activities b Relax credit policies for customers c Delay shipments to customers until after the end of the fiscal year d Delay purchases from suppliers until after the end of the fiscal year 6 The occurrence that most likely would have no effect on 2014 net income is the a sale in 2014 of an office building contributed by a stockholder in 1961 b collection in 2014 of a dividend from an investment c correction of an error in the financial statements of a prior period discovered subsequent to their issuance d stock purchased in 1996 deemed worthless in 2014 7 Which of the following is true of accounting for changes in estimates a A company does not recognize a change in estimate by making a retrospective adjustment to the financial statements b A company accounts for changes in estimates only in the period of change even though it affects the future periods c Changes in estimates are carried back to adjust prior years d Changes in estimates are considered as errors or extraordinary items 8 Which of these is generally an example of an extraordinary item a b c d Loss incurred because of a strike by employees Write off of deferred marketing costs believed to have no future benefit Gain resulting from the devaluation of the U S dollar Gain resulting from the state exercising its right of eminent domain on a piece of land used as a parking lot 9 How should an unusual event not meeting the criteria for an extraordinary item be disclosed in the financial statements a Shown as a separate item in operating revenues or expenses if material and combined with other items if not material in amount b Shown in operating revenues or expenses if material but not shown as a separate item c Shown net of income tax after ordinary net earnings but before extraordinary items d Shown net of income tax after extraordinary items but before net earnings 10 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 11 When a company discontinues an operation and disposes of the discontinued operation component 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 but before extraordinary items d a bulk sale of plant assets included in income from continuing operations 12 Companies use intraperiod tax allocation for all of the following items except a discontinued operations b extraordinary items c changes in accounting estimates d income from continuing operations 13 Which of the following items would be reported net of tax on the face of the income statement a Prior period adjustment b Unusual gain c Change in realizability of receivables d Discontinued operations 14 Which of the following items would be reported at its gross amount on the face of the income statement a Extraordinary loss b Prior period adjustment c Cumulative effect of a change in an accounting principle d Unusual loss 15 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 The effect on EPS from unusual items c EPS for gross profit d EPS for income from continuing operations 16 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 17 A correction of an error in prior periods income will be reported a b c d In the income statement Yes No Yes No Net of tax Yes No No Yes 18 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 investments account b Material losses resulting from unusual sales of assets not acquired for resale c Material losses resulting from the write off of intangibles d Material losses resulting from correction of errors related to prior periods 19 Watts Corporation made a very large arithmetical error in the preparation of its year end financial statements by improper placement of a decimal point in the calculation of depreciation The error caused the net income to be reported at almost double the proper amount Correction of the error when discovered in the next year should be treated as a an increase in depreciation expense for the year in which the error is discovered b a component of income for the year in which the error is discovered but separately listed on the income statement and fully explained in a note to the financial statements c an extraordinary item for the year in which the error was made d a prior period adjustment 20 Which of the following is not an acceptable way of displaying the components of other comprehensive income a Combined