Income Statement Other Items
Easy Test
Easy Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
a. dividends paid to owners
b. purchase of treasury stock
c. gain or loss on foreign currency
d. gain on sale of equipment
Answer
a. as other revenue and expenses
b. as part of gross profit
c. as income tax expense
d. as an operating expense
Answer
a. it is identified
b. it is incurred
c. it is paid
d. the sale occurs
Answer
a. on a separate line item under income from continuing operations
b. by restating all accounts impacted for all prior years
c. the same as a change in an estimate
d. as a separate item only on the statement of stockholder’s equity
Answer
a. the total common shares outstanding at the end of the period
b. the total average common shares outstanding during the period
c. the total average of preferred and common shares during the period
d. the average total common shares issued during the period
Answer
a. earnings per share is computed after deducting preferred dividends paid
b. only earnings per share for net income is required
c. the weighted average common shares outstanding during the period is used
d. all of the above all true
Answer
a. operates with no interaction with the other parts of the company
b. that will only be sold in the current period
c. is held as a separate legal entity
d. has separate and distinguishable cash flows
Answer
a. operations in Asia
b. a major product line with many products
c. a manufacturing plant producing part of a product line
d. all of the above is considered a component of an entity
Answer
a. cumulative income or loss from operations through the date of sale
b. the gain on impairment of assets held for sale
c. income or loss from operations during the current period
d. the gain or loss on the anticipated sale of assets
Answer
a. before tax
b. after tax
c. gross
d. none of the above
Answer
A Not reported on the income statement
B Restate the affected accounts for all periods presented
C Part of continuing operations
D Discontinued Operations
a._______ Correction of a prior period error discovered in the current period
b._______ Change in an estimate
c._______ Income generated from a component of an entity that is held for sale
d._______ Restructuring expenses expected to be incurred next period
e._______ An impairment gain on assets that are held for sale
f. _______ A transaction that is infrequent
g. _______ The amount received above book value for an asset sold
Answer
b. C Changes in estimates are reported in the current period by adjusting the accounts that are impacted in the current period
c. D A component of an entity held for sale qualifies as a discontinued operation
d. A Only restructuring expenses that are incurred in the current period are reported
e. A Impairment gains are never recorded. An impairment is always a loss
f. C A transaction that is infrequent only will be reported as part of other revenues and expenses which is part of income from continuing operations
g. C This is a gain that does not qualify as discontinued operations since it is not the sale of a component of an entity. It is reported as other revenues
Answer
Income earned from January 1 to May 31 | $250,000 |
Loss earned from June 1 to December 31 | $100,000 |
The book value of assets were greater than fair market on December 31 by | $160,000 |
The expected gain from the sale that did not occur this period | $400,000 |
The tax rate is 30% |
Prepare the discontinued operations section of the income statement
Answer
Income from continuing operations: | $ X,XXX |
Discontinued Operations: | |
Income from discontinued operations, net of tax $45,000 | $ 105,000 |
Impairment Loss, net of tax of $48,000 benefit | $(112,000) |
Total Discontinued Operations: | $ (7,000) |
Net Income | $ X,XXX |
Income from discontinued operations includes the period from the beginning of the year to the end of the year:
$250,000 income - $100,000 loss = $150,000 income x .70 (1-tax rate) = 105,000 net of tax
An impairment loss occurs when book value is greater than fair market value:
$160,000 x (1 – .30 = .70) = 112,000 net of tax
The gain that is expected to occur when the assets are sold is not reported until the sale occurs and the gain is realized. Expected losses on the sale are normally recorded as part of an impairment loss in the current period.