Question 1

Which of the following best describes the difference between net income and comprehensive income?

Accepted Answer

Comprehensive income includes net income plus other comprehensive income items, while net income excludes these items.

Question 2

Which of the following is an example of a transitory component of earnings?

Accepted Answer

Gain on the sale of equipment

Question 3

A company reports the following for the year: Net income of $$100,000, unrealized gain on available-for-sale securities of 5$$,000, and foreign currency translation loss of $2,000. What is the company's comprehensive income for the year?

Accepted Answer

$103,000

Question 4

Which of the following is NOT a limitation of the income statement?

Accepted Answer

It provides information for evaluating past performance.

Question 5

Which of the following best describes the 'big bath' earnings management technique?

Accepted Answer

Increasing a net loss in a low-earnings year to show higher net income in future periods.

Question 6

A company presents its expenses by function on the income statement. Which of the following is an example of this classification?

Accepted Answer

Selling expenses

Question 7

Which of the following is a key performance measure that is NOT identified in a single-step income statement?

Accepted Answer

Gross profit

Question 8

Under IFRS, which of the following items must be reported on the income statement?

Accepted Answer

Finance costs

Question 9

A company has operating income of $$50,000, non-operating losses of 5$$,000, and an income tax provision of $9,000. What is the income from continuing operations?

Accepted Answer

$36,000

Question 10

Which of the following is NOT a characteristic of a discontinued operation under U.S. GAAP?

Accepted Answer

It is always a subsidiary acquired exclusively with a view to resale.

Question 11

A company sells a division and reports a pre-tax gain of $1,000,000. The tax rate is 30%. What is the after-tax gain reported in discontinued operations?

Accepted Answer

$700,000

Question 12

Which of the following is true regarding the presentation of noncontrolling interest on the statement of net income?

Accepted Answer

It is reported as a separate line item below net income.

Question 13

Which of the following items is typically included in other comprehensive income (OCI) under U.S. GAAP?

Accepted Answer

Unrealized gains and losses on available-for-sale securities

Question 14

Which of the following would increase accumulated other comprehensive income on the statement of stockholders’ equity?

Accepted Answer

Positive other comprehensive income for the period

Question 15

A company has beginning retained earnings of $$500,000, net income of 120$$,000, and declares dividends of $20,000. What is the ending retained earnings balance?

Accepted Answer

$600,000

Question 16

Which of the following best describes vertical analysis of the income statement?

Accepted Answer

Expressing each line item as a percentage of sales revenue.

Question 17

If a company’s profit margin is calculated as $$\frac{	ext{Net Income}}{	ext{Sales Revenue}}$$, what does a higher profit margin indicate?

Accepted Answer

The company is returning a higher percentage of each sales dollar to shareholders.

Question 18

A company has net income of $$80,000, average total assets of 800$$,000, and average shareholders’ equity of $400,000. What is the return on assets (ROA)?

Accepted Answer

$$0.10 or$$ $$10\%$$

Question 19

Which of the following is a reason why companies prepare comparative financial statements?

Accepted Answer

To provide information for more than one reporting period, allowing users to compare performance over time.

Question 20

Which of the following is NOT a required disclosure for discontinued operations?

Accepted Answer

Future expected sales from the discontinued operation

Chapter 5: Statements of Net Income and Comprehensive Income – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards