Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
c. Loss on the sale of equipment.
d. Accounts receivable increase.
55. Schneider Inc. had salaries payable of $60,000 and $90,000 at the end of 2015 and 2016,
respectively. During 2016, Schneider recorded $620,000 in salaries expense in its income
statement. Cash outflows for salaries in 2016 were:
a. $590,000.
b. $620,000.
c. $650,000.
d. $530,000.
56. Tropical Tours reported revenue of $400,000 for its year ended December 31, 2016. Accounts
receivable at December 31, 2015 and 2016, were $35,000 and $32,000, respectively. Using the
direct method for reporting cash flows from operating activities, Tropical Tours would report
cash collected from customers of:
a. $400,000.
b. $397,000.
c. $403,000.
d. $365,000.
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
57. Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of
$30,000. Shively would report:
a. Operating cash inflows of $18,000.
b. Operating cash inflows of $8,000.
c. Financing cash inflows of $18,000.
d. Investing cash inflows of $18,000.
58. Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term
bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from
activities, as follows:
a. Operating, $2,000; financing, $16,000.
b. Operating, $0; financing, $18,000.
c. Operating, $12,000; financing, $6,000.
d. Operating, $18,000; financing, $0.
59. Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2016.
Accounts receivable at December 31, 2015 and 2016, were $320,000 and $355,000,
respectively. Using the direct method for reporting cash flows from operating activities, Hong
Kong Clothiers would report cash collected from customers of:
a. $4,965,000.
b. $5,000,000.
c. $5,035,000.
d. $5,045,000.
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
60. Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2016. January 1
balances in accounts receivable and accounts payable were $29,000 and $26,000, respectively.
Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that
all relevant information has been presented, Lucia’s cash flows from operating activities would
be:
a. $132,000.
b. $134,000.
c. $136,000.
d. $138,000.
61. Shady Lane’s income tax payable account decreased from $14 million to $12 million during
2016. If its income tax expense was $80 million, what was shown as an operating cash flow
under the direct method?
a. A cash outflow of $12 million.
b. A cash outflow of $78 million.
c. A cash outflow of $80 million.
d. A cash outflow of $82 million.
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
62. Bird Brain Co. reported net income of $45,000 for the year ended December 31, 2016. January
1 balances in accounts receivable and accounts payable were $23,000 and $26,000
respectively. Year-end balances in these accounts were $22,000 and $28,000, respectively.
Assuming that all relevant information has been presented, Bird Brain’s cash flows from
operating activities would be:
a. $48,000.
b. $44,000.
c. $46,000.
d. $45,000.
63. Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2016.
Purchases totaled $152,000. Accounts payable balances at the beginning and end of the year
were $36,000 and $33,000, respectively. Beginning and ending inventory balances were
$44,000 and $46,000, respectively. Assuming that all relevant information has been presented,
Nevada Boot would report operating cash flows of:
a. $155,000.
b. $221,000.
c. $211,000.
d. $151,000.
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
Use the following to answer questions 64–66:
Rowdy’s Restaurants Cash Flow (in millions)
Cash received from:
Customers
$ 1,800
Interest on investments
200
Sale of land
100
Sale of Rowdy’s capital stock
600
Issuance of debt securities
2,000
Cash paid for:
Interest on debt
$ 300
Income tax
80
Debt principal reduction
1,500
Purchase of equipment
4,000
Purchase of inventory
1,000
Dividends on capital stock
200
Operating expenses
500
64. Rowdy’s would report net cash inflows (outflows) from operating activities in the amount of:
a. $(80).
b. $120.
c. $200.
d. $420.
65. Rowdy’s would report net cash inflows (outflows) from investing activities in the amount of:
a. $(4,000).
b. $ 100.
c. $(3,900).
d. $(1,900).
66. Rowdy’s would report net cash inflows (outflows) from financing activities in the amount of:
a. $ 1,100.
b. $(1,100).
c. $ 820.
d. $ 900.
67. Expenses in an income statement prepared under International Financial Reporting Standards:
a. Must be classified by function.
b. Must be classified by natural description.
c. Can be classified either by function or by natural description.
d. None of the other answers is correct.
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
68. In a statement of cash flows prepared under International Financial Reporting Standards, each
of the following items is typically classified as a financing cash flow except:
a. Interest paid.
b. Dividends paid.
c. Proceeds from the issuance of long-term debt.
d. Dividends received.
69. Jacobsen Corporation prepares its financial statements applying U.S. GAAP. During its 2016
fiscal year, the company reported before-tax income of $620,000. This amount does not
include the following two items, both of which are considered to be material in amount:
Unusual gain $200,000
Loss on discontinued operations (300,000)
The company’s income tax rate is 40%. In its 2016 income statement, Jacobsen would report
income from continuing operations of:
a. $312,000.
b. $372,000.
c. $492,000.
d. $620,000.
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
70. Jacobsen Corporation prepares its financial statement applying International Financial
Reporting Standards. During its 2016 fiscal year, the company reported before-tax income of
$620,000. This amount does not include the following two items, both of which are
considered to be material in amount:
Unusual gain $200,000
Loss on discontinued operations (300,000)
The company’s income tax rate is 40%. In its 2016 income statement, Jacobsen would report
income from continuing operations of:
a. $312,000.
b. $372,000.
c. $492,000.
d. $620,000.
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
Matching Pair Questions
71. Listed below are five terms followed by a list of phrases that describe or characterize each of
the terms. Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. Taxable income
Also known as income tax expense.
____
2. Intraperiod tax allocation
From transactions or events that are not likely
to occur in the foreseeable future.
____
3. Prior period adjustment
Associates tax with income statement items.
____
4. Provision for income tax
Used as the base for computing taxes currently
payable.
____
5. Transitory earnings
Made to correct a material error.
____
TERM
PHRASE
NUMBER
1. Taxable income
Also known as income tax expense.
4
2. Intraperiod tax allocation
From transactions or events that are not likely
5
3. Prior period adjustment
Associates tax with income statement items.
2
4. Provision for income tax
Used as the base for computing taxes currently
payable.
1
5. Transitory earnings
Made to correct a material error.
3
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
72. Listed below are five terms followed by a list of phrases that describe or characterize each of
the terms. Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. Operating activities (income
statement)
Is directly related to the principal revenue–
generating activities.
____
2. Matching principle
Requires note disclosure, if material.
____
3. Income from continuing
operations
Expenses are recognized in the same period
as the related revenues.
____
4. Income from discontinued
operations
Income from an identifiable component
will cease.
____
5. Change in accounting estimate
More useful to analysts in predicting future
income than current net income.
____
Answer:
TERM
statement)
Is directly related to the principal revenue–
generating activities.
1
2. Matching principle
Requires note disclosure, if material.
5
3. Income from continuing
operations
Expenses are recognized in the same period
as the related revenues.
2
4. Income from discontinued
operations
Income from an identifiable component will
cease.
4
More useful to analysts in predicting future
income than current net income.
3
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
73. Listed below are five terms followed by a list of phrases that describe or characterize each of
the terms. Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. Single-step income statement
Not directly related to a firm’s principal
revenue-generating activities.
____
2. Financing activities
Likely to be discontinued within a year.
____
3. Held for sale component
Groups all revenues and gains.
____
4. Nonoperating activities
(income statement)
Related to the acquisition and disposition
of long-term assets.
____
5. Investing activities
Related to the external financing of the
company.
____
Answer:
TERM
NUMBER
1. Single-step income statement
Not directly related to a firm’s principal
2. Financing activities
Likely to be discontinued within a year.
3
3. Held for sale component
Groups all revenues and gains.
1
4. Nonoperating activities
(income statement)
Related to the acquisition and disposition
of long-term assets.
5
5. Investing activities
Related to the external financing of the
company.
2
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
74. Listed below are five terms followed by a list of phrases that describe or characterize each of
the terms. Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. Comprehensive income
Reported in the nonoperating section of
the income statement.
____
2. Discontinued operations
Reported net of tax immediately after
income from continuing operations.
____
3. Gain/loss from sale of
investments
Total nonowner changes in equity for a
reporting period.
____
4. Multiple-step income statement
Reports intermediate subtotals in
arriving at net income.
____
5. Direct method
Reports the cash effects of each
operating activity directly on the
statement.
____
Answer:
TERM
1. Comprehensive income
Reported in the nonoperating section of
the income statement.
3
2. Discontinued operations
Reported net of tax immediately after
income from continuing operations.
2
3. Gain/loss from sale of
investments
Total nonowner changes in equity for a
reporting period.
1
4. Multiple-step income statement
Reports intermediate subtotals in arriving
at net income.
4
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
75. Listed below are five terms followed by a list of phrases that describe or characterize each of
the terms. Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. Earnings per share
Required disclosure for publicly traded
corporations.
____
2. Indirect method
If sold or held for sale, reported as a discontinued
operation.
____
3. Restructuring
costs
Separately stated component of continuing
operations.
____
4. Earnings quality
Calculations work backward from net income to
cash flow from operating activities.
____
5. Component of an
entity
Ability of reported income to predict future
earnings.
____
Answer:
NUMBER
Required disclosure for publicly traded corporations.
2. Indirect method
operation.
5
3. Restructuring costs
operations.
3
4. Earnings quality
flow from operating activities.
2
5. Component of an
entity
4
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
76. Listed below are five terms followed by a list of phrases that describe or characterize each of
the terms. Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. Issuance of common stock
The acquisition of assets by issuing debt
or equity securities.
____
2. Operating activities (SCF)
Costs incurred often relate to
downsizing.
____
3. Restructuring costs
Total nonowner change in equity for a
reporting period.
____
4. Noncash financing and investing
activities
Financing activity (SCF).
____
5. Comprehensive income
When grouped together, essentially net
income on a cash basis.
____
Answer:
TERM
PHRASE
NUMBER
1. Issuance of common stock
The acquisition of assets by issuing debt
or equity securities.
4
2. Operating activities (SCF)
Costs incurred often relate to
downsizing.
3
5. Comprehensive income
When grouped together, essentially net
income on a cash basis.
2
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
77. Listed below are 10 terms followed by a list of phrases that describe or characterize the terms.
Match each phrase with the number for the correct term.
TERM
PHRASE
NUMBER
1. Earnings per share
Required disclosure for publicly traded
corporations.
____
2. Comprehensive income
Component of the entity has been sold or will be
sold.
____
3. Restructuring costs
Costs generally associated with downsizing.
____
4. Multiple-step income
statement
Reports a series of intermediate subtotals.
____
5. Foreign currency
translation gain
Accounted for prospectively.
____
6. Change in estimate
Tangentially related to normal operations.
____
7. Nonoperating income
Accounted for retrospectively by revising prior
years’ statements.
____
8. Change in accounting
principle
Other comprehensive income item.
____
9. Discontinued operations
Total nonowner change in equity.
____
10. Earnings quality
Ability of reported income to predict future
earnings.
____
Answer:
NUMBER
2. Comprehensive income
Component of the entity has been sold or will be
sold.
9
3. Restructuring costs
Costs generally associated with downsizing.
3
4. Multiple-step income
statement
Reports a series of intermediate subtotals.
4
5. Foreign currency
translation gain
Accounted for prospectively.
6
6. Change in estimate
Tangentially related to normal operations.
7
7. Nonoperating income
Accounted for retrospectively by revising prior
years’ statements.
8
8. Change in accounting
principle
Other comprehensive income item.
5
9. Discontinued operations
Total nonowner change in equity.
2
10. Earnings quality
Ability of reported income to predict future
earnings.
10
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
Problems
Use the following to answer questions 78–80:
On September 1, 2016, Jacob Furniture Mart enters into a tentative agreement to sell the assets of its
office equipment division. This division qualifies as a component of the entity according to GAAP
regarding discontinued operations. The division’s contribution to Jacob’s operating income for 2016
was a $3 million loss before taxes. Jacob has an average tax rate of 30%.
Required: Consider independently the appropriate accounting by Jacob under the three scenarios
below.
78. Scenario 1: Assume that Jacob sold the division’s assets on December 31, 2016, for $24
million. The book value of the division’s assets was $19 million at that date. Under these
assumptions, what would Jacob report in its 2016 income statement regarding the office
equipment division? Explain where this information would be presented.
79. Scenario 2: Assume that Jacob had not yet sold the division’s assets by the end of 2016.
Further, assume that the fair value less costs to sell of the division’s assets at December 31,
2016, was $24 million and was expected to remain the same when the assets are sold in 2017.
The book value of the division’s assets was $19 million at the end of the year. Under these
assumptions, what would Jacob report in its 2016 income statement regarding the office
equipment division? Explain where this information would be presented.
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
80. Scenario 3: Assume that Jacob had not yet sold the office furniture division by the end of
2016. Further, assume that the fair value less costs to sell of the division’s assets at December
31, 2016, was $12 million and was expected to remain the same when the assets are sold in
2017. The book value of the division’s assets was $19 million at the end of the year. Under
these assumptions, what would Jacob report in its 2016 income statement regarding the office
equipment division? Explain where this information would be presented.
81. The Filzinger Corporation’s December 31, 2016 year-end trial balance contained the
following income statement items:
Account Title
Debits
Credits
Sales revenue
6,700,000
Interest revenue
70,000
Gain on sale of investments
52,000
Cost of goods sold
4,200,000
Selling expenses
350,000
General and administrative expenses
948,000
Interest expense
30,000
Research and development expense
600,000
Restructuring costs
330,000
Income tax expense
145,000
Required: Calculate the company’s operating income for the year using a single-step income
statement format.
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
82. Canton Corporation reported the following items in its adjusted trial balance for the year
ended December 31, 2016:
Income from continuing operations before income taxes
$110,000
Gain on disposal of discontinued component
28,000
Loss from operations of discontinued component
(50,000
)
Canton is subject to a 30% tax rate.
Required: Prepare the December 31, 2016, income statement for Canton Corporation, starting
with income from continuing operations before income taxes.
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Discontinued operations:
Loss on discontinued operations
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
Use the following to answer questions 83 and 84:
Plano Co. 12/31/16
Debits
Credits
Partial Trial Balance Data
Sales revenue
700,000
Interest revenue
60,000
Gain on sale of investments
110,000
Cost of goods sold
500,000
Selling expenses
150,000
Restructuring costs
40,000
Interest expense
30,000
General and administrative expenses
60,000
Plano had 50,000 shares of stock outstanding throughout the year. Income tax expense has not yet
been accrued. The effective tax rate is 30%.
83. Required: Prepare a single-step income statement with earnings per share disclosure.
Revenues and gains:
Chapter 4 The Income Statement, Comprehensive Income, and the
Statement of Cash Flows
84. Required: Prepare a multiple-step income statement with earnings per share disclosure.