Chapter 004 The Income Statement and Statement of Cash Flows 1 Income from continuing operations sometimes includes gains from non operating activities TRUE 2 Intraperiod tax allocation is the process of associating income tax effects with the income statement components that create those effects TRUE 3 Material restructuring costs are reported as an element of income from continuing operations TRUE 4 Earnings quality refers to the ability of reported earnings income to predict future earnings TRUE True False Questions AACSB Reflective thinking Blooms Knowledge Learning Objective 1 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 1 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 1 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 2 Level of Learning 1 4 1 Chapter 004 The Income Statement and Statement of Cash Flows 5 Gains but not losses from discontinued operations must be separately reported in an income statement FALSE 6 An item must meet the subjective criteria of being either unusual or infrequent to be reported as extraordinary FALSE 7 The definition of what constitutes an extraordinary item should be independent of the operating environment FALSE AACSB Reflective thinking Blooms Knowledge Learning Objective 4 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 5 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 5 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 5 Level of Learning 1 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 FALSE 4 2 Chapter 004 The Income Statement and Statement of Cash Flows 9 A change in depreciation method is accounted for by retrospectively revising prior years financial statements FALSE 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 TRUE 11 The income effect of a change in reporting entity is shown separately in the income statement in the year of the change FALSE 12 EPS disclosure is required only for income from continuing operations FALSE AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 7 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 7 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 8 Level of Learning 1 4 3 Chapter 004 The Income Statement and Statement of Cash Flows 13 Comprehensive income reports an expanded version of income to include four types of gains and losses not included in traditional income statements TRUE 14 Comprehensive income is the total change in shareholders equity that occurred during the period FALSE 15 The direct and indirect methods of reporting the statement of cash flows present different information for investing and financing activities FALSE AACSB Reflective thinking Blooms Knowledge Learning Objective 9 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 9 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 11 Level of Learning 1 4 4 Chapter 004 The Income Statement and Statement of Cash Flows 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 Essay Questions H J AACSB Reflective thinking Blooms Comprehension AACSB Reflective thinking Blooms Comprehension 4 5 17 From transactions or events that are not likely to occur in the foreseeable future Chapter 004 The Income Statement and Statement of Cash Flows 18 Associates tax with income statement items AACSB Reflective thinking Blooms Comprehension 19 Used as the base for computing taxes currently payable D I G AACSB Reflective thinking Blooms Comprehension 20 Made to correct a material error AACSB Reflective thinking Blooms Comprehension 4 6 Chapter 004 The Income Statement and Statement of Cash Flows 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 F A E 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 AACSB Reflective thinking Blooms Comprehension 22 Requires note disclosure if material 23 Expenses are recognized in the same period as the related revenues AACSB Reflective thinking Blooms Comprehension AACSB Reflective thinking Blooms Comprehension 4 7 AACSB Reflective thinking Blooms Comprehension AACSB Reflective thinking Blooms Comprehension B C I Chapter 004 The Income Statement and Statement of Cash Flows 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