Intermediate Accounting, 10e (Spiceland)

Chapter 4 The Income Statement, Comprehensive Income, and

the Statement of Cash Flows

1) Income from continuing operations sometimes includes gains from nonoperating activities.

Answer: TRUE
Difficulty: 1 Easy
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

2) Unlike the balance sheet, the income statement measures activity over a period of time.

Answer: TRUE
Difficulty: 1 Easy
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

3) The single-step format of the income statement first lists all the revenues and gains included in
income from continuing operations.

Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement―Single-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

1
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4) The single-step format of the income statement does not separately report nonoperating gains
in the revenues section of the income statement.

Answer: FALSE
Difficulty: 2 Medium
Topic: Income statement―Single-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

5) The multiple-step format of the income statement reports a series of intermediate subtotals
such as gross profit, operating income, and income before taxes.

Answer: TRUE
Difficulty: 1 Easy
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

6) Revenues and expenses typically occur as a result of normal operating activity.

Answer: TRUE
Difficulty: 1 Easy
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

7) Gains and losses typically occur as a result of normal operating activity.

Answer: FALSE
Difficulty: 1 Easy
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

2
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written consent of McGraw-Hill Education.
8) Income from continuing operations consists only of those items expected to be permanent
components of earnings.

Answer: FALSE
Difficulty: 1 Easy
Topic: Earnings quality―Components
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

9) Interest expense typically is considered a temporary component of earnings.

Answer: FALSE
Difficulty: 2 Medium
Topic: Earnings quality―Components
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

10) One meaning of earnings quality is the ability of reported earnings to predict a company's
future earnings.

Answer: TRUE
Difficulty: 1 Easy
Topic: Earnings quality―Components
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

11) Managers' income smoothing behavior results in reported earnings being manipulated higher
in each year.

Answer: FALSE
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation
3
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written consent of McGraw-Hill Education.
12) Classification shifting by managers leads to under-reporting of total expenses and over-
statement of bottom-line net income.

Answer: FALSE
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

13) Material restructuring costs are reported as an element of income from continuing operations.

Answer: TRUE
Difficulty: 1 Easy
Topic: Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

14) Restructuring costs most often refer to costs associated with management's plans to
materially change the scope of business operations or the manner in which they are conducted.

Answer: TRUE
Difficulty: 1 Easy
Topic: Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

4
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written consent of McGraw-Hill Education.
15) Intraperiod tax allocation is the process of associating income tax effects with the income
statement components that create those effects.

Answer: TRUE
Difficulty: 1 Easy
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

16) Gains, but not losses, from discontinued operations must be separately reported in an income
statement.

Answer: FALSE
Difficulty: 1 Easy
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

17) A change in accounting principle that is implemented using the retrospective approach
includes restating financial statements of all periods presented as if the new standard had been
used in those periods.

Answer: TRUE
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

5
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written consent of McGraw-Hill Education.
18) A change in accounting principle that is implemented using the modified retrospective
approach includes implementing the change in the current period only and not adjusting for the
cumulative effects on prior periods.

Answer: FALSE
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

19) Changes in estimates are accounted for using the prospective approach.

Answer: TRUE
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

20) Material errors in prior periods' income statements are corrected by making an adjustment to
the beginning balance of the current period's retained earnings.

Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

21) Earnings per share disclosure is required only for income from continuing operations.

Answer: FALSE
Difficulty: 1 Easy
Topic: Earnings per share
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
6
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written consent of McGraw-Hill Education.
22) Comprehensive income reports an expanded version of income to include certain types of
gains and losses not included in traditional income statements.

Answer: TRUE
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

23) Comprehensive income is the total change in shareholders' equity that occurred during the
period.

Answer: FALSE
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

24) The direct and indirect methods of reporting the statement of cash flows present different
information for investing and financing activities.

Answer: FALSE
Difficulty: 1 Easy
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

7
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written consent of McGraw-Hill Education.
25) Income statements prepared according to either U.S. GAAP or International Financial
Reporting Standards (IFRS) require the separate reporting of discontinued operations.

Answer: TRUE
Difficulty: 1 Easy
Topic: IFRS―Income statement
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with
respect to the income statement, statement of comprehensive income, and statement of cash
flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation

26) International Financial Reporting Standards (IFRS) require a company to classify expenses
in an income statement by function.

Answer: FALSE
Difficulty: 1 Easy
Topic: IFRS―Income statement
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with
respect to the income statement, statement of comprehensive income, and statement of cash
flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity; Global
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation

27) In a statement of cash flows prepared under International Financial Reporting Standards
(IFRS), interest received is most often classified as an operating cash flow.

Answer: FALSE
Difficulty: 1 Easy
Topic: IFRS―Statement of cash flows
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with
respect to the income statement, statement of comprehensive income, and statement of cash
flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation

8
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written consent of McGraw-Hill Education.
28) In a statement of cash flows prepared under International Financial Reporting Standards
(IFRS), interest paid is most often classified as a financing cash flow.

Answer: TRUE
Difficulty: 1 Easy
Topic: IFRS―Statement of cash flows
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with
respect to the income statement, statement of comprehensive income, and statement of cash
flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation

29) A decrease in the receivables turnover ratio indicates a decrease in the time between credit
sales and cash collection.

Answer: FALSE
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

30) The decomposition of return on assets illustrates why some companies with low profit
margins can be very profitable if their asset turnover is high.

Answer: TRUE
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

31) A company could improve its return on assets by increasing its income or by increasing its
total assets.

Answer: FALSE
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

9
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written consent of McGraw-Hill Education.
32) Return on equity is increased if a firm can maintain its return on assets but increase its
leverage.

Answer: TRUE
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

33) The difference between single-step and multiple-step income statements is primarily an issue
of:
A) Consistency.
B) Presentation.
C) Measurement.
D) Valuation.

Answer: B
Difficulty: 1 Easy
Topic: Income statement―Single-step format; Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

34) Most real-world income statements are presented using which format?
A) Income-step.
B) Single-step.
C) Magnitude-step.
D) Multiple-step.

Answer: D
Difficulty: 1 Easy
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

10
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
35) A primary advantage of the multiple-step format of the income statement over the single-step
format is that the multiple-step format:
A) classifies expenses by function.
B) results in a higher amount of net income.
C) separately lists income tax expense.
D) lists revenues and expenses in order of their dollar amount.

Answer: A
Difficulty: 1 Easy
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

36) Which of the following profit amounts usually will be listed in both the single-step and
multiple-step formats of the income statement?
A) Gross profit.
B) Operating income.
C) Income before taxes.
D) Net nonoperating income.

Answer: C
Difficulty: 2 Medium
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

11
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
37) The relationship between revenue from selling inventory and the cost of that inventory is
measured as:
A) Net income.
B) Gross profit.
C) Income before taxes.
D) Operating income.

Answer: B
Difficulty: 2 Medium
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

38) The measure of profit reported on a multiple-step income statement that represents the
primary-revenue generating activities of the company is:
A) Net income.
B) Gross profit.
C) Income before taxes.
D) Operating income.

Answer: D
Difficulty: 2 Medium
Topic: Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

12
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
39) Popson Inc. incurred a material loss that was unusual in character. This loss should be
reported as:
A) a discontinued operation.
B) a line item between income from continuing operations and income from discontinued
operations.
C) a line item within income from continuing operations.
D) a line item in the retained earnings statement.

Answer: C
Difficulty: 2 Medium
Topic: Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

40) Provincial Inc. reported the following before-tax income statement items:

Operating income $ 700,000

Nonoperating losses (100,000)

Provincial has a 25% income tax rate.

Provincial would report the following amount of income tax expense as a separately stated line
item in the income statement:
A) $200,000.
B) $150,000.
C) $175,000.
D) $160,000.

Answer: B
Explanation: ($700,000 − $100,000) × 25% = $150,000
Difficulty: 2 Medium
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

13
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written consent of McGraw-Hill Education.
41) Freda's Florist reported the following before-tax income statement items for the year ended
December 31, 2021:

Operating income $ 200,000

Income on discontinued operations 80,000

All income statement items are subject to a 25% income tax rate. In its 2021 income statement,
Freda's separately stated income tax expense and total income tax expense would be:
A) $70,000 and $70,000, respectively.
B) $70,000 and $50,000, respectively.
C) $50,000 and $70,000, respectively.
D) $50,000 and $50,000, respectively.

Answer: C
Explanation:
Income tax expense stated separately
($200,000 × 25%) $50,000
Tax expense due to discontinued operations
($80,000 × 25%) 20,000
Total income tax expense $70,000
Difficulty: 3 Hard
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

42) Earnings quality refers to:

A) the ability of management to budget for expenditures in the following year.
B) the ability of management to sell its inventory for a profit.
C) the ability of management to quickly collect cash from customers.
D) the ability of reported earnings to predict a company's future earnings.

Answer: D
Difficulty: 1 Easy
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

14
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
43) Income smoothing refers to:
A) the ability of management to report an earnings amount in each period less than actual
earnings.
B) the ability of management to use accruals to reduce the volatility of reported earnings over
time.
C) the ability of management to maintain sales to its current customers for several years.
D) the ability of management to report an earnings amount in each period greater than actual
earnings.

Answer: B
Difficulty: 1 Easy
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

44) To accomplish income smoothing, managers could do which of the following?

A) In a year net income is particularly high, estimate future bad debts for a higher amount.
B) Report all revenues on a cash basis.
C) In a year net income is particularly low, estimate future warranty costs for a lower amount.
D) Report all expenses on a cash basis.

Answer: A
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

15
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
45) Managers may engage in classification shifting by:
A) reporting sales to fictitious customers to inflate reported revenues.
B) reducing estimates of accrued expenses to inflate reported net income.
C) reporting operating expenses as nonoperating expenses to inflate reported operating income.
D) increasing estimates of accrued expenses to inflate reported net income.

Answer: C
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Remember
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

46) A likely method that managers use for classification shifting is to report certain operating
expenses as:
A) revenues.
B) nonoperating expenses.
C) income tax expense.
D) assets.

Answer: B
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Remember
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

47) Classification shifting by managers has the effects of increasing which level of profitability?
A) Operating income.
B) Net income.
C) Income before taxes.
D) All of the other answers are correct.

Answer: A
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Remember
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

16
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
48) Financial statement users typically begin their assessment of permanent earnings with:
A) sales revenue.
B) income from continuing operations.
C) net income.
D) gross profit.

Answer: B
Difficulty: 1 Easy
Topic: Earnings quality―Components
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

49) Temporary earnings are best characterized as:

A) earnings that do not have corresponding cash flows.
B) earnings from nonoperating activities.
C) earnings that do not conform to Generally Accepted Accounting Principles (GAAP).
D) earnings that arise from events that are not likely to recur in the foreseeable future.

Answer: D
Difficulty: 1 Easy
Topic: Earnings quality―Components
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

50) Which of the following most likely would be classified as restructuring costs?
A) Advertising costs to sell a product recently developed by a company.
B) Severance pay for employee layoffs associated with facility closings.
C) Brokerage fees from the issuance of additional shares of stock.
D) Acquisition fees associated with the purchase of land and buildings.

Answer: B
Difficulty: 2 Medium
Topic: Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

17
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written consent of McGraw-Hill Education.
51) Restructuring costs typically can be defined as:
A) costs of external financing through issuance of debt or equity securities.
B) costs associated safeguarding a company's assets and ensuring accuracy of financial reporting.
C) costs associated with management's plans to materially change the scope of business
operations or the manner in which they are conducted.
D) costs of expenditures made on capital projects and executive compensation.

Answer: C
Difficulty: 1 Easy
Topic: Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

52) Non-GAAP earnings:

A) could be considered management's view of permanent earnings.
B) are needed for the correction of errors.
C) are standardized under generally accepted accounting principles
D) are useful to compare two different firms' performance.

Answer: A
Difficulty: 1 Easy
Topic: Earnings quality―Components; Earnings quality―Management practices
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

53) A common component of income excluded from the calculation of non-GAAP earnings is:
A) Interest expense.
B) Income tax expense.
C) Cost of goods sold.
D) Restructuring costs.

Answer: D
Difficulty: 2 Medium
Topic: Earnings quality―Components; Earnings quality―Restructuring costs
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

18
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written consent of McGraw-Hill Education.
54) The distinction between operating and nonoperating income relates to:
A) continuity of income.
B) primary activities of the reporting entity.
C) consistency of income stream.
D) reliability of measurements.

Answer: B
Difficulty: 2 Medium
Topic: Continuing operations―Components; Earnings quality―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

55) A company reports the following amounts at the end of the current year:

Sales revenue $ 860,000

Selling expense 250,000
Gain on sale of investments 30,000
Interest expense 10,000
Cost of goods sold 520,000

Under normal circumstances (ignoring tax effects), permanent earnings would be computed as:
A) $90,000.
B) $110,000.
C) $80,000.
D) $50,000.

Answer: C
Explanation: $860,000 − $520,000 − $250,000 − $10,000 = $80,000
Difficulty: 2 Medium
Topic: Earnings quality―Components
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

19
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
56) Which of the following is most likely to be classified as discontinued operations?
A) Sale of a small equity method investment in another company.
B) Sale of a group of assets that represents a strategic shift in operations.
C) Sale of undeveloped land due to lack of customer demand for additional store locations.
D) All of the other answers would be classified as discontinued operations.

Answer: B
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

57) A company has decided to discontinue a component of its business and sells the component
by the end of the year. The amount that the company would report as income from discontinued
operations is (ignore tax effects):
A) only income from operations for the year.
B) only the gain or loss on the disposal of the component's assets.
C) income from operations for the year and only a loss on the disposal of the component's assets.
D) income from operations for the year and either a gain or loss on the disposal of the
component's assets.

Answer: D
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

20
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
58) A company has decided to discontinue a component of its business but, when the reporting
period ends, the component has not yet been sold. The amount that the company would report as
income from discontinued operations is (ignore tax effects):
A) income from operations for the year and the amount by which the component's fair value less
cost to sell is greater than book value.
B) income from operations for the year and the amount by which the component's fair value less
cost to sell is less than book value.
C) only the amount by which the component's fair value less cost to sell is less than book value.
D) only the component's income from operations for the year.

Answer: B
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

59) The principal benefit of separately reporting discontinued operations is to enhance:

A) predictive ability of future profitability.
B) consistency in reporting.
C) intraperiod continuity.
D) comprehensive reporting.

Answer: A
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

21
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
60) Which of the following best explains why the taxes on discontinued operations are reported
separately from taxes on continuing operations?
A) The tax rate applied to discontinued operations typically is lower than that applied to
continuing operations.
B) The taxes on discontinued operations are not expected to recur in future years.
C) The tax rate applied to discontinued operations typically is higher than that applied to
continuing operations.
D) Companies are allowed to delay tax payments for discontinued operations for up to five years.

Answer: B
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

61) Intraperiod income tax presentation is primarily a matter of:

A) Valuation.
B) Going concern.
C) Periodicity.
D) Allocation.

Answer: D
Difficulty: 1 Easy
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

22
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
62) The Claxton Company manufactures children's toys and also has a division that makes
automobile parts. Due to a change in its strategic focus, the company sold the automobile parts
division. The division qualifies as a component of the entity according to GAAP. How should
Claxton report the sale in its income statement?
A) Report it as restructuring costs.
B) Report it as a discontinued operation.
C) Report the income or loss from operations of the division in discontinued operations.
D) Report it as a gain on sale of investments included in income from continuing operations.

Answer: C
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

63) On August 1, 2021, Rocket Retailers adopted a plan to discontinue its catalog sales division,
which qualifies as a separate component of the business according to GAAP regarding
discontinued operations. The disposal of the division was expected to be concluded by June 30,
2022. On January 31, 2022, Rocket's fiscal year-end, the following information relative to the
discontinued division was accumulated:

Operating loss Feb. 1, 2021–Jan. 31, 2022 $ 115,000

Estimated operating losses, Feb. 1–June 30, 2022 80,000
Impairment of division assets at Jan. 31, 2022 10,000

In its income statement for the year ended January 31, 2022, Rocket would report a before-tax
loss on discontinued operations of:
A) $(115,000).
B) $(195,000).
C) $(65,000).
D) $(125,000).

Answer: D
Explanation: $(115,000) + $(10,000) = $(125,000)
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

23
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
64) On November 1, 2021, Jamison Inc. adopted a plan to discontinue its barge division, which
qualifies as a separate component of the business according to GAAP regarding discontinued
operations. The disposal of the division was expected to be concluded by April 30, 2022. On
December 31, 2021, the company's year-end, the following information relative to the
discontinued division was accumulated:

Operating loss Jan. 1–Dec. 31, 2021 $ 65 million

Estimated operating losses, Jan. 1 to April 30, 2022 80 million
Excess of fair value, less costs to sell, over book value at Dec. 31,
15 million
2021

In its income statement for the year ended December 31, 2021, Jamison would report a before-
tax loss on discontinued operations of:
A) $65 million.
B) $50 million.
C) $130 million.
D) $145 million.

Answer: A
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

24
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
65) On October 28, 2021, a company committed to a plan to sell a division that qualified as a
component of the entity according to GAAP regarding discontinued operations and was properly
classified as held for sale on December 31, 2021, the end of the company's fiscal year. The
division's loss from operations for 2021 was $2,000,000.

The division's book value and fair value less cost to sell on December 31 were $3,000,000 and
$2,500,000, respectively. What before-tax amount(s) should the company report as loss on
discontinued operations in its 2021 income statement?
A) $2,000,000 loss.
B) $2,500,000 loss.
C) No loss would be reported.
D) $500,000 impairment loss included in continuing operations and a $2,000,000 loss from
discontinued operations.

Answer: B
Explanation: $2,000,000 loss from discontinued operations and $500,000 impairment loss =
$2,500,000.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

25
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
66) On October 28, 2021, a company committed to a plan to sell a division that qualified as a
component of the entity according to GAAP regarding discontinued operations and was properly
classified as held for sale on December 31, 2021, the end of the company's fiscal year. The
division's loss from operations for 2021 was $2,000,000.

The division's book value and fair value less cost to sell on December 31 were $3,000,000 and
$3,500,000, respectively. What before-tax amount(s) should the company report as loss on
discontinued operations in its 2021 income statement?
A) $2,000,000 loss.
B) $2,500,000 loss.
C) No loss would be reported.
D) $500,000 gain included in continuing operations and a $2,000,000 loss from discontinued
operations.

Answer: A
Explanation: $2,000,000 loss from discontinued operations only. There is no impairment loss.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

26
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
67) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for
$80 million. The sale was completed on December 31, 2021.

The following additional facts pertain to the transaction:

• The Footwear Division qualifies as a component of the entity according to

GAAP regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2021.
• Foxtrot's income tax rate is 25%.

In the income statement for the year ended December 31, 2021, Foxtrot Co. would report:
A) Income (loss) on its total operations for the year without separation.
B) Income (loss) on its continuing operation only.
C) Income (loss) from its continuing and discontinued operations separately.
D) Income and gains separately from losses.

Answer: C
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

27
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
68) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for
$80 million. The sale was completed on December 31, 2021.

The following additional facts pertain to the transaction:

• The Footwear Division qualifies as a component of the entity according to

GAAP regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2021.
• Foxtrot's income tax rate is 25%.

In the income statement for the year ended December 31, 2021, Foxtrot Co. would report:
A) All income taxes combined into one line item.
B) Income taxes separated for continuing and discontinued operations.
C) Income taxes reported for income and gains only.
D) None of these answer choices are correct.

Answer: B
Difficulty: 2 Medium
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

28
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
69) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for
$80 million. The sale was completed on December 31, 2021.

The following additional facts pertain to the transaction:

• The Footwear Division qualifies as a component of the entity according to

GAAP regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2021.
• Foxtrot's income tax rate is 25%.

In the income statement for the year ended December 31, 2021, Foxtrot Co. would report income
from discontinued operations of:
A) $14.0 million.
B) $16.5 million.
C) $22.0 million.
D) $24.5 million.

Answer: B
Explanation: 75% (i.e., 1 – tax rate) × $22 million ($32 million gain on asset sale – $10 million
operating loss)
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

29
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
70) On May 1, Tango Co. agreed to sell the assets of its Formal Wear Division to Top Hat Inc.

The following additional facts pertain to the transaction:

• The Formal Wear Division qualifies as a component of the entity according to

GAAP regarding discontinued operations.
• The book value of Formal Wear's assets totaled $48 million on December 31, 2021.
• Formal Wear's operating income was a pre-tax loss of $10 million in 2021.
• Tango's income tax rate is 25%.

Suppose that the Formal Wear Division's assets had not been sold by December 31, 2021, but
were considered held for sale. Assume that the fair value of these assets was $40 million at
December 31, 2021. In the income statement for the year ended December 31, 2021, Tango Co.
would report discontinued operations of:
A) $7.5 million loss.
B) $10.0 million loss.
C) $13.5 million loss.
D) $18.0 million loss.

Answer: C
Explanation: 75% (i.e., 1 – tax rate) × $18 million loss ($8 million impairment loss on Formal
Wear's assets + $10 million operating loss = $18 million pretax loss).
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

30
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
71) On May 1, Tango Co. agreed to sell the assets of its Formal Wear Division to Top Hat Inc.

The following additional facts pertain to the transaction:

• The Formal Wear Division qualifies as a component of the entity according to

GAAP regarding discontinued operations.
• The book value of Formal Wear's assets totaled $48 million on December 31, 2021.
• Formal Wear's operating income was a pre-tax loss of $10 million in 2021.
• Tango's income tax rate is 25%.

Suppose that the Formal Wear Division's assets had not been sold by December 31, 2021, but
were considered held for sale. Assume that the fair value of these assets was $80 million at
December 31, 2021. In the income statement for the year ended December 31, 2021, Tango Co.,
would report discontinued operations of a:
A) $7.5 million loss.
B) $10.0 million loss.
C) $16.5 million income.
D) None of these answer choices are correct.

Answer: A
Explanation: 75% (i.e., 1 – tax rate) × $10 million operating loss = $7.5 million pretax loss).
There is no impairment of assets and only impairments are included if the assets are still held for
sale.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

31
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
72) Major Co. reported 2021 income of $300,000 from continuing operations before income
taxes and a before-tax loss on discontinued operations of $80,000. All income is subject to a 25%
tax rate. In the income statement for the year ended December 31, 2021, Major Co. would show
the following line-item amounts for income tax expense and net income:
A) $55,000 and $165,000 respectively.
B) $75,000 and $165,000 respectively.
C) $75,000 and $145,000 respectively.
D) $55,000 and $220,000 respectively.

Answer: B
Explanation:
Income from continuing operations before income taxes $ 300,000
Income tax expense 75,000
Income from continuing operations $ 225,000
Loss on discontinued operations (net of $20,000 tax
(60,000)
benefit)
Net income $ 165,000

Difficulty: 3 Hard
Topic: Discontinued operations; Net income after income tax expense
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

32
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
73) Howard Co.'s 2021 income from continuing operations before income taxes was $280,000.
Howard Co. reported before-tax income on discontinued operations of $60,000. All tax items are
subject to a 25% tax rate. In its income statement for 2021, Howard Co. would show the
following line-item amounts for income tax expense and net income:
A) $70,000 and $255,000 respectively.
B) $55,000 and $220,000 respectively.
C) $85,000 and $340,000 respectively.
D) $85,000 and $255,000 respectively.

Answer: A
Explanation:
Income from continuing operations before income taxes $ 280,000
Income tax expense ($280,000 × 25%) 70,000
Income from continuing operations $ 210,000
Income on discontinued operations (net of $15,000 tax
45,000
expense)
Net income $ 255,000

Difficulty: 3 Hard
Topic: Discontinued operations; Net income after income tax expense
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

33
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
74) Misty Company reported the following before-tax items during the current year:

Sales revenue $ 600

Selling and administrative expenses 260
Restructuring charges 20
Loss on discontinued operations 40

Misty's effective tax rate is 25%.

What is Misty's income from continuing operations?

A) $240.
B) $255.
C) $320.
D) $450.

Answer: A
Explanation: ($600 − $260 − $20) × (1 − 0.25) = $240
Difficulty: 3 Hard
Topic: Continuing operations―Components; Earnings quality―Restructuring costs
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

34
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
75) Misty Company reported the following before-tax items during the current year:

Sales revenue $ 600

Selling and administrative expenses 260
Restructuring charges 20
Loss on discontinued operations 40

Misty's effective tax rate is 25%.

What is Misty's net income for the current year?

A) $280.
B) $210.
C) $240.
D) $200.

Answer: B
Explanation:
Income from continuing operations before taxes ($600 − $260
$ 320
− $20)
Income tax expense ($320 × 25%) 80
Income from continuing operations $ 240
Loss on discontinued operations (net of $10 tax benefit) (30)
Net income $ 210

Difficulty: 3 Hard
Topic: Earnings quality―Restructuring costs; Discontinued operations; Net income after
income tax expense
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations
and describe the appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

35
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
76) Cendant Corporation's results for the year ended December 31, 2021, include the following
material items:

Sales revenue $ 6,200,000

Cost of goods sold 3,800,000
Selling and administrative expenses 1,300,000
Loss on sale of investments 200,000
Loss on discontinued operations 500,000
Loss on impairment from continuing operations 80,000

Cendant Corporation's income from continuing operations before income taxes for 2021 is:
A) $900,000.
B) $880,000.
C) $820,000
D) $320,000.

Answer: C
Explanation: $6,200,000 − $3,800,000 − $1,300,000 − $200,000 − $80,000 = $820,000
Difficulty: 3 Hard
Topic: Continuing operations―Components; Earnings quality―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

77) A change in accounting principle that is implemented using the retrospective approach
includes:
A) implementing the change in the current period only and not adjusting for the cumulative
effects on prior periods.
B) applying the new standard to the adoption period only and recording the cumulative
adjustment for prior periods to the beginning balance of retained earnings.
C) restating financial statements of all periods presented as if the new standard had been used in
those periods.
D) not accounting for the change in the current period or prior periods.

Answer: C
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

36
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
78) A change in accounting principle that is implemented using the modified retrospective
approach includes:
A) implementing the change in the current period only and not adjusting for the cumulative
effects on prior periods.
B) applying the new standard to the adoption period only, and recording the cumulative
adjustment for prior periods to the current period's beginning balance of retained earnings.
C) restating financial statements of all periods presented as if the new standard had been used in
those periods.
D) not accounting for the change in the current period or prior periods.

Answer: B
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

79) Changes in estimates are accounted for using which approach?

A) Prospective.
B) Retrospective.
C) Modified retrospective.
D) Modified prospective.

Answer: A
Difficulty: 1 Easy
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

37
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
80) When a material error is discovered in prior financial statements:
A) prior financial statements are restated to their correct amounts.
B) assets and liabilities in the current period are restated to their appropriate levels.
C) prior income effects are adjusted to the current period's beginning balance of retained
earnings.
D) all of these answer choices are correct.

Answer: A
Difficulty: 2 Medium
Topic: Accounting changes and error corrections
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

81) Which of the following is not true about EPS?

A) It must be reported by all corporations whose stock is publicly traded.
B) It must be reported separately for discontinued operations.
C) It must be reported on operating income.
D) None of these answer choices are correct.

Answer: C
Difficulty: 1 Easy
Topic: Earnings per share
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

82) The Maytag Corporation's income statement includes income from continuing operations and
a loss on discontinued operations. Earnings per share information would be provided for:
A) net income only.
B) income from continuing operations and net income only.
C) income from continuing operations, loss on discontinued operations, and net income only.
D) none of these answer choices are correct.

Answer: C
Difficulty: 2 Medium
Topic: Earnings per share
Learning Objective: 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
38
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written consent of McGraw-Hill Education.
83) Each of the following would be reported as items of other comprehensive income except:
A) foreign currency translation adjustment.
B) gain on projected pension benefit obligation.
C) deferred gain from derivatives.
D) gain from the sale of equipment.

Answer: D
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

84) Reporting comprehensive income can be accomplished by each of the following methods
except:
A) in the statement of shareholders' equity.
B) a single, continuous statement of comprehensive income.
C) in two separate, but consecutive statements.
D) All of these answer choices are acceptable methods.

Answer: A
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

39
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
85) During the year, a company's investment in debt securities increases in fair value, resulting in
an unrealized gain on the investment. The investment is not sold by the end of the year. The
company is considering whether to report the unrealized gain as a component of net income or as
a component of other comprehensive income. Under which reporting requirement would the
company have a higher ending balance of total shareholders' equity?
A) As a component of net income.
B) As a component of other comprehensive income.
C) Total shareholders' equity would be the same with either reporting requirement.
D) None of the other answers are correct.

Answer: C
Difficulty: 2 Medium
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

86) Consider the following two separate events for a company during the year:

1. Gain on sale of investments = $10.

2. Unrealized gain on investment from increase in fair value = $20.

The company reports the unrealized gain as a component of other comprehensive income. By
how much would these two events increase net income and comprehensive income, ignoring tax
effects?
A) Net income = $10; Comprehensive income = $20.
B) Net income = $10; Comprehensive income = $30.
C) Net income = $30; Comprehensive income = $30.
D) Net income = $30; Comprehensive income = $20.

Answer: B
Difficulty: 2 Medium
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

40
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written consent of McGraw-Hill Education.
87) Consider the following two separate events for a company during the year:

1. Loss on sale of investments = $30.

2. Unrealized gain on investment from increase in fair value = $20.

The company reports the unrealized gain as a component of other comprehensive income. By
how much would these two events affect net income and comprehensive income, ignoring tax
effects?
A) Net income = $(30); Comprehensive income = $(10).
B) Net income = $(30); Comprehensive income = $20.
C) Net income = $0; Comprehensive income = $(10).
D) Net income = $(10); Comprehensive income = $20.

Answer: A
Difficulty: 2 Medium
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

88) Consider the following two separate events for a company during the year:

1. Loss on sale of investments = $20.

2. Unrealized gain on investment from increase in fair value = $30.

The company reports the unrealized gain as a component of other comprehensive income. By
how much would these two events affect the balance of retained earnings, ignoring tax effects?
A) Increase of $30.
B) Increase of $10.
C) Decrease of $20.
D) Decrease of $10.

Answer: C
Difficulty: 2 Medium
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

41
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
89) Reporting comprehensive income according to International Financial Reporting Standards
(IFRS) can be accomplished by each of the following methods except:
A) in the statement of shareholders' equity.
B) a combined statement of income and comprehensive income.
C) in two separate statements.
D) the entity may choose either a combined statement of income and comprehensive income or
two separate statements.

Answer: A
Difficulty: 1 Easy
Topic: IFRS―Comprehensive income
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with
respect to the income statement, statement of comprehensive income, and statement of cash
flows.
Bloom's: Remember
AACSB: Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation

90) Comprehensive income is the change in equity from:

A) Owner transactions.
B) Nonowner transactions.
C) Owner and nonowner transactions.
D) Capital transactions.

Answer: B
Difficulty: 1 Easy
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

91) Financial statements that report changes over time include:

A) statement of shareholders' equity, balance sheet, and statement of cash flows.
B) balance sheet, statement of cash flows, and income statement.
C) statement of cash flows, income statement, and statement of shareholders' equity.
D) statement of shareholders' equity, balance sheet, and income statement.

Answer: C
Difficulty: 1 Easy
Topic: Statement of cash flows―Content
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
42
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
92) For the statement of cash flows, investments in Treasury bills with very short maturity period
would normally be included as:
A) Operating activities.
B) Investing activities.
C) Financing activities.
D) Cash equivalents.

Answer: D
Difficulty: 2 Medium
Topic: Statement of cash flows―Content
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

93) In comparing the direct method with the indirect method of preparing the statement of cash
flows:
A) only operating activities are presented differently.
B) only investing activities are presented differently.
C) only financing activities are presented differently.
D) all activities are presented differently.

Answer: A
Difficulty: 1 Easy
Topic: Statement of cash flows―Content
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

94) The statement of cash flows reports cash flows from the activities of:
A) operating, purchasing, and investing.
B) borrowing, paying, and investing.
C) financing, investing, and operating.
D) using, investing, and financing.

Answer: C
Difficulty: 1 Easy
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation
43
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written consent of McGraw-Hill Education.
95) Operating cash flows would not include:
A) Interest received.
B) Interest paid.
C) Dividends paid.
D) Dividends received.

Answer: C
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

96) Operating cash outflows would include:

A) Purchase of investments.
B) Purchase of equipment.
C) Payment of cash dividends.
D) Purchases of inventory.

Answer: D
Difficulty: 1 Easy
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

97) Cash flows from investing do not include cash flows from:
A) lending money to another corporation.
B) the sale of equipment.
C) borrowing.
D) the purchase of other corporation's securities.

Answer: C
Difficulty: 1 Easy
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

44
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
98) Cash flows from investing do not include cash flows from:
A) lending money to another corporation.
B) the purchase of equipment.
C) the sale of a building.
D) the purchase of a corporation's own securities.

Answer: D
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

99) Cash flows from financing activities include:

A) Interest received.
B) Interest paid.
C) Dividends received.
D) Dividends paid.

Answer: D
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

100) Cash flows from investing activities do not include:

A) proceeds from issuing bonds.
B) payment for the purchase of equipment.
C) proceeds from the sale of marketable securities.
D) cash outflows from acquiring land.

Answer: A
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

45
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
101) The FASB's stated preference for reporting operating cash flows is the:
A) Indirect method.
B) Direct method.
C) Working capital method.
D) All financial resources method.

Answer: B
Difficulty: 2 Medium
Topic: Statement of cash flows―Content
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

102) In the operating activities section of the statement of cash flows, we start with net income:
A) in the direct method.
B) in the indirect method.
C) in both the direct and the indirect methods.
D) in neither the direct nor the indirect methods.

Answer: B
Difficulty: 1 Easy
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

103) Which of the following is added to net income as an adjustment under the indirect method
of preparing the statement of cash flows?
A) Salaries payable decrease.
B) Gain on the sale of land.
C) Loss on the sale of equipment.
D) Accounts receivable increase.

Answer: C
Difficulty: 2 Medium
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

46
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
104) Schneider Inc. had salaries payable of $60,000 and $90,000 at the end of 2020 and 2021,
respectively. During 2021, Schneider recorded $620,000 in salaries expense in its income
statement. Cash outflows for salaries in 2021 were:
A) $590,000.
B) $620,000.
C) $650,000.
D) $530,000.

Answer: A
Explanation: $620,000 − $30,000 increase in salaries payable = $590,000.
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

105) Howard Inc. had prepaid rent of $75,000 and $80,000 at the end of 2020 and 2021,
respectively. During 2021, Howard recorded $240,000 in rent expense in its income statement.
Cash outflows for rent in 2021 were:
A) $235,000.
B) $240,000.
C) $245,000.
D) $250,000.

Answer: C
Explanation: $240,000 + $5,000 increase in prepaid rent = $245,000.
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

47
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written consent of McGraw-Hill Education.
106) Martel Co. had supplies of $24,000 and $33,000 at the end of 2020 and 2021, respectively.
During 2021, Howard paid $128,000 for supplies. Supplies expense in the 2021 income
statement was:
A) $119,000.
B) $128,000.
C) $137,000.
D) $110,000.

Answer: A
Explanation: $128,000 − $9,000 increase in supplies = $119,000.
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

107) Stinley Co. paid utilities of $134,000 during 2021. At the end of 2021, utilities payable
equals $17,000 and utilities expense equals $145,000. What was the balance of utilities payable
at the beginning of 2021?
A) $22,000.
B) $6,000.
C) $17,000.
D) $11,000.

Answer: B
Explanation: $17,000 − $145,000 utilities expense + $134,000 utilities paid = $6,000.
Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

48
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written consent of McGraw-Hill Education.
108) Tropical Tours reported revenue of $400,000 for its year ended December 31, 2021.
Accounts receivable at December 31, 2020 and 2021, 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.

Answer: C
Explanation:
Accounts Receivable

12/31/2020 35,000
Sales 400,000 ?

12/31/2021 32,000

Cash collections = $35,000 + $400,000 − $32,000 = $403,000

Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

109) 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.

Answer: D
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

49
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
110) 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.

Answer: C
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

111) Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31,
2018. Accounts receivable at December 31, 2017 and 2018, 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.

Answer: A
Explanation:
Accounts Receivable

12/31/2020 320,000
Sales 5,000,000 ?

12/31/2021 355,000

Cash collections = $320,000 + $5,000,000 − $355,000 = $4,965,000

Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

50
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written consent of McGraw-Hill Education.
112) Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2021. 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.

Answer: A
Explanation:
Net income $ 135,000
Subtract increase in A/R (1,000)
Subtract decrease in A/P (2,000)
Cash flows from operating activities $ 132,000

Difficulty: 3 Hard
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

113) Shady Lane's income tax payable account decreased from $14 million to $12 million during
2021. 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.

Answer: D
Explanation: Income taxes payable: $14 million + $80 million − x = $12 million. x = $82
million.
Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

51
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written consent of McGraw-Hill Education.
114) Bird Brain Co. reported net income of $45,000 for the year ended December 31, 2021.
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.

Answer: A
Explanation:
Net income $ 45,000
Add decrease in A/R 1,000
Add increase in A/P 2,000
Cash flows from operating activities $ 48,000

Difficulty: 3 Hard
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

52
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written consent of McGraw-Hill Education.
115) Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2021.
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.

Answer: C
Explanation:
Net income $ 216,000
Deduct increase in Inventory (2,000)
Deduct decrease in A/P (3,000)
Cash flows from operating activities $ 211,000

Difficulty: 3 Hard
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

53
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written consent of McGraw-Hill Education.
116) 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 common 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 common stock 200
Operating expenses 500

Rowdy's would report net cash inflows (outflows) from operating activities in the amount of:
A) ($80) million.
B) $120 million.
C) $200 million.
D) $420 million.

Answer: B
Explanation:
Customers $ 1,800
Interest on investments 200
Interest on debt (300 )
Income tax (80 )
Purchase of inventory (1,000)
Operating expenses (500 )
Cash inflows from operating activities $ 120

Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

54
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written consent of McGraw-Hill Education.
117) 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 common 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 common stock 200
Operating expenses 500

Rowdy's would report net cash inflows (outflows) from investing activities in the amount of:
A) ($4,000) million.
B) $100 million.
C) ($3,900) million.
D) ($1,900) million.

Answer: C
Explanation:
Sale of land $ 100
Purchase of equipment (4,000)
Cash outflows from investing activities $ (3,900)

Difficulty: 3 Hard
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

55
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written consent of McGraw-Hill Education.
118) 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 common 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 common stock 200
Operating expenses 500

Rowdy's would report net cash inflows (outflows) from financing activities in the amount of:
A) $1,100 million.
B) ($1,100) million.
C) $820 million.
D) $900 million.

Answer: D
Explanation:
Sale of common stock $ 600
Issuance of debt securities 2,000
Debt principal reduction (1,500 )
Dividends on common stock (200 )
Cash inflows from financing activities $ 900

Difficulty: 3 Hard
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

56
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written consent of McGraw-Hill Education.
119) Expenses in an income statement prepared under International Financial Reporting
Standards (IFRS):
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 these answer choices are correct.

Answer: C
Difficulty: 1 Easy
Topic: IFRS―Income statement
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with
respect to the income statement, statement of comprehensive income, and statement of cash
flows.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation

120) In a statement of cash flows prepared under International Financial Reporting Standards
(IFRS), 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.

Answer: D
Difficulty: 1 Easy
Topic: IFRS―Statement of cash flows
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with
respect to the income statement, statement of comprehensive income, and statement of cash
flows.
Bloom's: Understand
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation

57
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written consent of McGraw-Hill Education.
121) During its 2021 fiscal year, Jacobsen Corporation 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 25%.

Jacobsen Corporation prepares its financial statements applying U.S. GAAP. In its 2021 income
statement, Jacobsen would report income from continuing operations of:
A) $391,500.
B) $465,000.
C) $615,000.
D) $620,000.

Answer: C
Explanation: $620,000 + $200,000 = $820,000 × (1 − 0.25) = $615,000. The $200,000 gain is
included in income from continuing operations.
Difficulty: 3 Hard
Topic: Discontinued operations; Comprehensive income–Components-Presentation; Income
tax–Separate line or Intraperiod
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

58
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
122) During its 2021 fiscal year, Jacobsen Corporation 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 25%.

Jacobsen Corporation prepares its financial statement applying International Financial Reporting
Standards (IFRS). In its 2021 income statement, Jacobsen would report income from continuing
operations of:
A) $391,500.
B) $465,000.
C) $615,000.
D) $620,000.

Answer: C
Explanation: $620,000 + $200,000 = $820,000 × (1 − 0.25) = $615,000. The $200,000 gain is
included in income from continuing operations.
Difficulty: 3 Hard
Topic: IFRS―Income statement
Learning Objective: 04-09 Discuss the primary differences between U.S. GAAP and IFRS with
respect to the income statement, statement of comprehensive income, and statement of cash
flows.
Bloom's: Apply
AACSB: Diversity; Knowledge Application
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation

123) In the DuPont formula, return on assets equals:

A) Gross margin on sales × Inventory turnover.
B) Profit margin on sales × Inventory turnover.
C) Gross margin on sales × Asset turnover.
D) Profit margin on sales × Asset turnover.

Answer: D
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

59
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
124) A company is effectively leveraging when:
A) the return on assets exceeds the return on equity.
B) the return on equity exceeds the return on assets.
C) the return on equity is increasing.
D) the return on assets is increasing.

Answer: B
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

125) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and
key ratios are presented below (all numbers are in millions):

2021 2020
Accounts receivable (net) $ 20 $ 16
Net sales $ 115 $ 100
Cost of goods sold $ 60 $ 55
Net income $ 20 $ 17
Inventory turnover 5.22
Return on assets 10.3%
Equity multiplier 2.36

Dowling's 2021 profit margin is (rounded):

A) 17.4%.
B) 18.5%.
C) 18.0%.
D) 16.5%.

Answer: A
Explanation: $20/$115 = 17.4%
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

60
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
126) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and
key ratios are presented below (all numbers are in millions):

2021 2020
Accounts receivable (net) $ 20 $ 16
Net sales $ 115 $ 100
Cost of goods sold $ 60 $ 55
Net income $ 20 $ 17
Inventory turnover 5.22
Return on assets 10.3%
Equity multiplier 2.36

Dowling's 2021 average collection period is (rounded):

A) 50 days.
B) 63 days.
C) 57 days.
D) 51 days.

Answer: C
Explanation:
Avg. collection period = 365 / (accounts receivable turnover)
= 365 / (net sales / {avg A/R})
= 365 / (115 /{20 + 16} /2)
= 57.13 days
= 57 days rounded

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

61
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
127) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and
key ratios are presented below (all numbers are in millions):

2021 2020
Accounts receivable (net) $ 20 $ 16
Net sales $ 115 100
Cost of goods sold $ 60 55
Net income $ 20 17
Inventory turnover 5.22
Return on assets 10.3%
Equity multiplier 2.36

Dowling's return on equity for 2021 is (rounded):

A) 22%.
B) 24.3%.
C) 17.4%.
D) 9%.

Answer: B
Explanation: ROE = ROA × equity multiplier = 10.3% × 2.36 = 24.3%
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

62
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
128) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and
key ratios are presented below (all numbers are in millions):

2021 2020
Accounts receivable (net) $ 20 $ 16
Net sales $ 115 100
Cost of goods sold $ 60 55
Net income $ 20 17
Inventory turnover 5.22
Return on assets 10.3%
Equity multiplier 2.36

Dowling's average total assets for 2021 is (rounded):

A) 32.
B) 210.
C) 115.
D) 194.

Answer: D
Explanation:
Return on assets = Net income / (Average assets), so Average assets = Net income / ROA
= 20 / 0.103 = 194
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

63
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
129) Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and
key ratios are presented below (all numbers are in millions):

2021 2020
Accounts receivable (net) $ 20 $ 16
Net sales $ 115 100
Cost of goods sold 60 55
Net income 20 17
Inventory turnover 5.22
Return on assets 10.3%
Equity multiplier 2.36

Dowling's average inventory balance for 2021 is (rounded):

A) 11.
B) 12.
C) 11.5.
D) 12.5.

Answer: C
Explanation:
Inventory turnover = Cost of goods sold / (Average inventory), so Average inventory
= COGS / (Inventory turnover) = 60/5.22 = 11.5.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

64
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
130) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are
presented below:

2021 2020
Accounts receivable $ 40,000 $ 36,000
Merchandise inventory $ 28,000 35,000
Net sales 190,000 186,000
Cost of goods sold 114,000 108,000
Total assets 425,000 405,000
Total shareholders' equity 240,000 225,000
Net income 32,500 28,000

Hulkster's 2021 receivables turnover is:

A) 2.85.
B) 4.70.
C) 5.00.
D) 10.63.

Answer: C
Explanation:

= 5.0

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

65
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
131) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are
presented below:

2021 2020
Accounts receivable $ 40,000 $ 36,000
Merchandise inventory $ 28,000 35,000
Net sales 190,000 186,000
Cost of goods sold 114,000 108,000
Total assets 425,000 405,000
Total shareholders' equity 240,000 225,000
Net income 32,500 28,000

Hulkster's 2021 inventory turnover is (rounded):

A) 3.62.
B) 3.96.
C) 4.07.
D) 6.03.

Answer: A
Explanation:

= 3.62

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

66
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
132) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are
presented below:

2021 2020
Accounts receivable $ 40,000 $ 36,000
Merchandise inventory $ 28,000 35,000
Net sales 190,000 186,000
Cost of goods sold 114,000 108,000
Total assets 425,000 405,000
Total shareholders' equity 240,000 225,000
Net income 32,500 28,000

Hulkster's 2021 asset turnover is (rounded):

A) 3.73.
B) 2.79.
C) 2.24.
D) 0.46.

Answer: D
Explanation:

= 0.46

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

67
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
133) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are
presented below:

2021 2020
Accounts receivable $ 40,000 $ 36,000
Merchandise inventory $ 28,000 35,000
Net sales 190,000 186,000
Cost of goods sold 114,000 108,000
Total assets 425,000 405,000
Total shareholders' equity 240,000 225,000
Net income 32,500 28,000

Hulkster's 2021 average collection period is:

A) 73 days.
B) 104 days.
C) 109 days.
D) 128 days.

Answer: A
Explanation:

Receivable turnover = = 5.0

Average collection period = 365/5.0 = 73 days

Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

68
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
134) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are
presented below:

2021 2020
Accounts receivable $ 40,000 $ 36,000
Merchandise inventory $ 28,000 35,000
Net sales 190,000 186,000
Cost of goods sold 114,000 108,000
Total assets 425,000 405,000
Total shareholders' equity 240,000 225,000
Net income 32,500 28,000

Hulkster's 2021 average days in inventory is (rounded):

A) 61 days.
B) 92 days.
C) 101 days.
D) 90 days.

Answer: C
Explanation:

Inventory turnover = = 3.62

Average days in inventory = 365/3.62 = 100.8 days = 101 days rounded.

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

69
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
135) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are
presented below:

2021 2020
Accounts receivable $ 40,000 $ 36,000
Merchandise inventory $ 28,000 35,000
Net sales 190,000 186,000
Cost of goods sold 114,000 108,000
Total assets 425,000 405,000
Total shareholders' equity 240,000 225,000
Net income 32,500 28,000

Hulkster's 2021 profit margin is (rounded):

A) 17.1%.
B) 13.5%.
C) 7.6%.
D) 4.5%.

Answer: A
Explanation: $32,500 / $190,000 = 17.1%
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

70
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
136) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are
presented below:

2021 2020
Accounts receivable $ 40,000 $ 36,000
Merchandise inventory $ 28,000 35,000
Net sales 190,000 186,000
Cost of goods sold 114,000 108,000
Total assets 425,000 405,000
Total shareholders' equity 240,000 225,000
Net income 32,500 28,000

Hulkster's 2021 return on assets is (rounded):

A) 7.1%.
B) 7.8%.
C) 13.5%.
D) 47.7%.

Answer: B
Explanation:

= 7.8%

Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

71
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
137) Excerpts from Hulkster Company's December 31, 2021 and 2020, financial statements are
presented below:

2021 2020
Accounts receivable $ 40,000 $ 36,000
Merchandise inventory $ 28,000 35,000
Net sales 190,000 186,000
Cost of goods sold 114,000 108,000
Total assets 425,000 405,000
Total shareholders' equity 240,000 225,000
Net income 32,500 28,000

Hulkster's 2021 return on shareholders' equity is (rounded):

A) 17.1%.
B) 14.0%.
C) 12.6%.
D) 7.1%.

Answer: B
Explanation:

= 14.0%

Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis / Keyboard Navigation

72
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
138) 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. Temporary earnings Made to correct a material error. ____

Answer:
TERM PHRASE NUMBER
1. Taxable income Also known as income tax expense. 4
2. Intraperiod tax allocation From transactions or events that are not 5
likely to occur in the foreseeable future.
3. Prior period adjustment Associates tax with income statement items. 2
4. Provision for income tax Used as the base for computing taxes 1
currently payable.
5. Temporary earnings Made to correct a material error. 3

Difficulty: 2 Medium
Topic: Income tax―Separate line or Intraperiod; Earnings quality―Components; Accounting
changes and error corrections
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations
and describe the appropriate income statement presentation for these transactions.; 04-05 Discuss
additional reporting issues related to accounting changes, error corrections, and earnings per
share (EPS).
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

73
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
139) 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 Is directly related to the principal ____
(income statement) revenue-generating activities.

2. Gains Requires note disclosure, if material. ____

3. Income from continuing Increases in equity from peripheral ____

operations transactions.

4. Income from discontinued Income from an identifiable component ____

operations will cease.

5. Change in accounting More useful to analysts in predicting ____

estimate future income than current net income.

Answer:
TERM PHRASE NUMBER
1. Operating activities Is directly related to the principal 1
(income statement) revenue-generating activities.

2. Gains Requires note disclosure, if material. 5

3. Income from continuing Increases in equity from peripheral 2

operations transactions.

4. Income from discontinued Income from an identifiable component 4

operations will cease.

5. Change in accounting More useful to analysts in predicting 3

estimate future income than current net income.

Difficulty: 1 Easy
Topic: Continuing operations―Components; Accounting changes and error corrections;
Discontinued operations; Statement of cash flows―Classify O-I-F
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.; 04-05 Discuss additional
reporting issues related to accounting changes, error corrections, and earnings per share (EPS).;
04-08 Identify and describe the various classifications of cash flows presented in a statement of
cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
74
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
140) 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 Not directly related to a firm's principal ____
statement 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 Related to the acquisition and disposition ____

(income statement) of long-term assets.

5. Investing activities Related to the external financing of the ____

company.

Answer:
TERM PHRASE NUMBER
1. Single-step income Not directly related to a firm's principal 4
statement revenue-generating activities.

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 Related to the acquisition and disposition 5

(income statement) of long-term assets.

5. Investing activities Related to the external financing of the 2

company.

Difficulty: 1 Easy
Topic: Income statement―Single-step format; Discontinued operations; Statement of cash
flows―Classify O-I-F
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.; 04-08 Identify and describe the
various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

75
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
141) 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 Total nonowner changes in equity for a ____

investments reporting period.

4. Multiple-step income Reports intermediate subtotals in ____

statement arriving at net income.

5. Direct method Reports the cash effects of each ____

operating activity directly on the
statement.

76
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Answer:
TERM PHRASE NUMBER
1. Comprehensive income Reported in the nonoperating section of 3
the income statement.

2. Discontinued operations Reported net of tax immediately after 2

income from continuing operations.

3. Gain/loss from sale of Total nonowner changes in equity for a 1

investments reporting period.

4. Multiple-step income Reports intermediate subtotals in 4

statement arriving at net income.

5. Direct method Reports the cash effects of each 5

operating activity directly on the
statement.

Difficulty: 2 Medium
Topic: Income statement―Multiple-step format; Discontinued operations; Comprehensive
income—Components-Presentation; Statement of cash flows―Classify O-I-F; Statement of cash
flows―Direct method
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.; 04-06 Explain the difference
between net income and comprehensive income and how we report components of the
difference.; 04-08 Identify and describe the various classifications of cash flows presented in a
statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

77
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
142) 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 Ability of reported income to predict future ____

an entity earnings.

78
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Answer:
TERM PHRASE NUMBER
1. Earnings per share Required disclosure for publicly traded 1
corporations.

2. Indirect method If sold or held for sale, reported as a discontinued 5

operation.

3. Restructuring costs Separately stated component of continuing 3

operations.

4. Earnings quality Calculations work backward from net income to 2

cash flow from operating activities.

5. Component of Ability of reported income to predict future 4

an entity earnings.

Difficulty: 2 Medium
Topic: Earnings quality―Management practices; Earnings quality―Components; Discontinued
operations; Earnings per share; Statement of cash flows―Indirect method
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations and
describe the appropriate income statement presentation for these transactions.; 04-05 Discuss
additional reporting issues related to accounting changes, error corrections, and earnings per
share (EPS).; 04-07 Describe the purpose of the statement of cash flows.; 04-08 Identify and
describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

79
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
143) 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 on Costs incurred often relate to ____

statement of cash flows downsizing.

3. Restructuring costs Total nonowner change in equity for a ____

reporting period.

4. Noncash financing and Financing activity on statement of cash ____

investing activities flows.

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 4
debt or equity securities.

2. Operating activities on Costs incurred often relate to 3

statement of cash flows downsizing.

3. Restructuring costs Total nonowner change in equity for a 5

reporting period.

4. Noncash financing and Financing activity on statement of 1

investing activities cash flows.

5. Comprehensive income When grouped together, essentially net 2

income on a cash basis.

Difficulty: 2 Medium
Topic: Earnings quality―Restructuring costs; Comprehensive income―Components-
Presentation; Statement of cash flows―Classify O-I-F
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.; 04-06 Explain the difference between net income and
comprehensive income and how we report components of the difference.; 04-08 Identify and
describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement
80
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
144) 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 Reports a series of intermediate subtotals. ____

statement
5. Foreign currency Accounted for prospectively. ____
translation adjustment
6. Change in estimate Tangentially related to normal operations. ____

7. Nonoperating income Accounted for retrospectively by revising ____

prior years' statements.

8. Change in accounting Other comprehensive income item. ____

principle
9. Discontinued operations Total nonowner change in equity. ____

10. Earnings quality Ability of reported income to predict future ____

earnings.

81
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Answer:
TERM PHRASE NUMBER
1. Earnings per share Required disclosure for publicly traded 1
corporations.

2. Comprehensive income Component of the entity has been sold or 9

will be sold.

3. Restructuring costs Costs generally associated with 3

downsizing.

4. Multiple-step income Reports a series of intermediate subtotals. 4

statement
5. Foreign currency Accounted for prospectively. 6
translation adjustment
6. Change in estimate Tangentially related to normal operations. 7

7. Nonoperating income Accounted for retrospectively by revising 8

prior years' statements.

8. Change in accounting Other comprehensive income item. 5

principle
9. Discontinued operations Total nonowner change in equity. 2

10. Earnings quality Ability of reported income to predict future 10

earnings.

Difficulty: 2 Medium
Topic: Income statement―Multiple-step format; Continuing operations―Components;
Earnings per share; Accounting changes and error corrections; Earnings quality―Management
practices; Earnings quality―Components; Restructuring costs; Discontinued operations;
Comprehensive income―Components-Presentation
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-02 Describe earnings quality and how it is impacted by
management practices to alter reported earnings.; 04-03 Discuss the components of operating
and nonoperating income and their relationship to earnings quality.; 04-04 Define what
constitutes discontinued operations and describe the appropriate income statement presentation
for these transactions.; 04-05 Discuss additional reporting issues related to accounting changes,
error corrections, and earnings per share (EPS).; 04-06 Explain the difference between net
income and comprehensive income and how we report components of the difference.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

82
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Use this information to answer the following questions:

On September 1, 2021, Jacob Furniture Mart enters into a tentative agreement to sell the assets of
its Office Furniture 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 2021 was a $3 million loss before income tax. Jacob has an average tax rate of 25%.

Required: Consider independently the appropriate accounting by Jacob under the three scenarios
below.

145) Scenario 1: Assume that Jacob sold the division's assets on December 31, 2021, for $24
million. The book value of the division's assets was $19 million at that date.

In this scenario, what would Jacob report in its 2021 income statement regarding the Office
Furniture division?
Explain where this information would be presented.

Answer: Scenario 1:
Jacob would report $1.5 million as income from discontinued operations. This is a combination
of operating loss and gain on disposal, net of tax. This income would be reported as a separate
item between income from continuing operations and net income in Jacob's income statement.

Calculation:
$(3,000,000) Operating loss from operations of discontinued component
— 5,000,000 Gain on disposal of assets of discontinued component
2,000,000 Discontinued operations before tax
— 500,000 Income tax ($2,000,000 × 0.25)
$ 1,500,000 Income on discontinued operations
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

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146) Scenario 2: Assume that Jacob had not yet sold the division's assets by the end of 2021.
Further, assume that the fair value less cost to sell of the division's assets at December 31, 2021,
was $24 million and was expected to remain the same when the assets are sold in 2022. The
book value of the division's assets was $19 million at the end of 2021.

1) In this scenario, what would Jacob report in its 2021 income statement regarding the Office
Furniture division?
Explain where this information would be presented.

2) In this scenario, what would Jacob report in its 2021 balance sheet regarding the information
provided for Office Furniture Division?
Explain how this information would be classified in the balance sheet.

Answer: Scenario 2:
1) Jacob would report $2.25 million loss on discontinued operations which is the operating loss,
net of tax. This loss would be reported as a separate item between income from continuing
operations and net income in Jacob's income statement.

Calculation:
$(3,000,000) Operating loss
— 750,000 Income tax benefit ($3,000,000 × 0.25)
$(2,250,000) Loss on discontinued operations

2) The assets of the component are reported at their book value of $19 million which is less than
the $24 million fair value minus cost to sell. And, because the division's assets are no longer in
use, and will be sold in the next year, the assets are separately classified as current assets held for
sale. The assets are no longer reported as part of property, plant, and equipment and are not
depreciated or amortized.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement

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147) Scenario 3: Assume that Jacob had not yet sold the Office Furniture division by the end of
2021. Further, assume that the fair value less cost to sell of the division's assets at December 31,
2021, was $12 million and was expected to remain the same when the assets are sold in 2022.
The book value of the division's assets was $19 million at the end of 2021.

1) In this scenario, what would Jacob report in its 2021 income statement regarding the Office
Furniture division?
Explain where this information would be presented.

2) In this scenario, what would Jacob report in its 2021 balance sheet regarding the information
provided for the Office Furniture Division?
Explain how this information would be classified in the balance sheet.

Answer: Scenario 3:
1) Jacob would report a $7.5 million loss on discontinued operations which is a combination of
the operating loss and the impairment loss, net of tax. This loss would be reported as a separate
item between income from continuing operations and net income in Jacob's income statement.

Calculation:
$(3,000,000) Operating loss
— (7,000,000) Impairment loss (fair value less cost to sell is lower than book value;
$12 million less $19 million)

(10,000,000) Loss from discontinued operations

— ( 2,500,000) Income tax benefit ($10,000,000 × 0.25)
$( 7,500,000) Loss on discontinued operations

2) The assets of the component are reported at their fair value less cost to sell of $12 million
which is less than the $19 million book value. And, because the division's assets are no longer in
use, and will be sold in the next year, the assets are separately classified as current assets held for
sale. The assets are no longer reported as part of property, plant, and equipment and are not
depreciated or amortized.
Difficulty: 3 Hard
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

85
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148) The Filzinger Corporation's December 31, 2021 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 expense 350,000
General and administrative expense 948,000
Interest expense 30,000
Research and development expense 600,000
Income tax expense 145,000

Required: Calculate the company's operating income for the year using a single-step income
statement format.

Answer:
Sales revenue $6,700,000
Less operating expenses:
Cost of goods sold $4,200,000
Selling expense 350,000
General and administrative expenses 948,000
Research and development expenses 600,000 6,098,000
Operating income $ 602,000
Difficulty: 2 Medium
Topic: Income statement―Single-step format; Continuing operations―Components
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

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149) Canton Corporation reported the following items in its adjusted trial balance for the year
ended December 31, 2021:

Income from continuing operations before income taxes $120,000

Gain on disposal of discontinued component 28,000
Loss from operations of discontinued component (60,000)

Canton is subject to a 25% tax rate.

Required: Prepare the December 31, 2021, income statement for Canton Corporation, starting
with income from continuing operations before income taxes.

Answer:
Canton Corporation
Partial Income Statement
For the Year Ended December 31, 2021

Income from continuing operations before income taxes $120,000

Income tax expense 30,000
Income from continuing operations 90,000
Discontinued operations:
Loss from operations of discontinued component
(including gain on disposal of $28,000) $(32,000)
Income tax benefit 8,000
Loss on discontinued operations (24,000)
Net income $ 66,000
Difficulty: 3 Hard
Topic: Net income after income tax expense; Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

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Use this information to answer the following questions:

Plano Co. 12/31/2021 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 expense 150,000
Interest expense 40,000
General and administrative expenses 100,000

Plano had 50,000 shares of stock outstanding throughout the year. Income tax expense has not
yet been accrued. The effective tax rate is 25%.

150) Required: Prepare a single-step income statement with earnings per share disclosure.

Answer: Plano Co.

Income Statement
For the Year Ended December 31, 2021
Revenues and gains:
Sales revenue $700,000
Gain on sale of investments 110,000
Interest revenue 60,000
Total revenues and gains 870,000
Expenses:
Cost of goods sold $500,000
Selling expense 150,000
General and administrative expense 100,000
Interest expense 40,000
Total expenses 790,000
Income before income taxes 80,000
Income tax expense 20,000
Net income $ 60,000

Earnings per share $1.20

Difficulty: 3 Hard
Topic: Income statement―Single-step format; Net income after income tax expense; Earnings
per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-05 Discuss additional reporting issues related to accounting
changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement
88
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151) Required: Prepare a multiple-step income statement with earnings per share disclosure.

Answer: Plano Co.

Income Statement
For the Year Ended December 31, 2021
Sales revenue $700,000
Cost of goods sold 500,000
Gross profit 200,000
Operating expenses:
Selling expense $150,000
General and administrative expense 100,000
Total operating expenses 250,000
Operating income (loss) (50,000)
Other income (expense):
Gain on sale of investments 110,000
Interest revenue 60,000
Interest expense (40,000)
Total other income, net 130,000
Income before income taxes 80,000
Income tax expense 20,000
Net income $ 60,000

Earnings per share $1.20

Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Net income after income tax expense; Earnings
per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-05 Discuss additional reporting issues related to accounting
changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

89
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written consent of McGraw-Hill Education.
Use this information to answer the following questions:

The trial balance of Kroeger Inc. included the following accounts as of December 31, 2021:

Debits Credits
Sales revenue 8,200,000
Interest revenue 60,000
Gain on sale of investments 120,000
Gain on debt securities 140,000
Loss on projected benefit obligation 160,000
Cost of goods sold 6,100,000
Selling expense 600,000
Goodwill impairment loss 500,000
Interest expense 30,000
General and administrative expense 500,000

The gain on debt securities represents the increase in the fair value of debt securities and is
classified a component of other comprehensive income. Kroeger had 300,000 shares of stock
outstanding throughout the year. Income tax expense has not yet been recorded. The effective tax
rate is 25%.

90
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152) Required: Prepare a 2021 multiple-step income statement for Kroeger Inc. with earnings
per share disclosure.

Answer: Kroeger Inc.

Income Statement
For the Year Ended December 31, 2021

Sales revenue $8,200,000

Cost of goods sold 6,100,000
Gross profit 2,100,000
Operating expenses:
Selling expense $600,000
General and administrative expense 500,000
Goodwill impairment loss 500,000
Total operating expenses 1,600,000
Operating income 500,000
Other income (expense):
Gain on sale of investments 120,000
Interest revenue 60,000
Interest expense (30,000)
Total other income, net 150,000
Income before income taxes 650,000
Income tax expense 162,500
Net income $ 487,500

Earnings per share $1.625

Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net
income after income tax expense; Earnings quality―Components; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to
accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

91
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written consent of McGraw-Hill Education.
153) Required: Prepare a 2021 separate statement of comprehensive income for Kroeger Inc.

Answer: Kroeger Inc.

Statement of Comprehensive Income
For the Year Ended December 31, 2021
Net income $487,500
Other comprehensive income (net of tax):
Gain on debt securities 105,000
Loss on projected benefit obligation (120,000)
Total other comprehensive income (loss) (15,000)
Comprehensive income $472,500
Difficulty: 3 Hard
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

92
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written consent of McGraw-Hill Education.
154) Required: Prepare a 2021 single, continuous statement of comprehensive income for
Kroeger Inc. Use a multiple-step income statement format.

Answer: Kroeger Inc.

Statement of Comprehensive Income
For the Year Ended December 31, 2021
Sales revenue $8,200,000
Cost of goods sold 6,100,000
Gross profit 2,100,000
Operating expenses:
Selling expense $600,000
General and administrative expense 500,000
Goodwill impairment loss 500,000
Total operating expenses 1,600,000
Operating income 500,000
Other income (expense):
Gain on sale of investments 120,000
Interest revenue 60,000
Interest expense (30,000)
Total other income, net 150,000
Income before income taxes 650,000
Income tax expense 162,500
Net income 487,500
Other comprehensive income (net of tax):
Gain on debt securities 105,000
Loss on projected benefit obligation (120,000)
Total other comprehensive income (loss) (15,000)
Comprehensive income $472,500

Earnings per share $1.625

Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net
income after income tax expense; Earnings quality―Components; Earnings per share;
Comprehensive income―Components-Presentation
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to
accounting changes, error corrections, and earnings per share (EPS).; 04-06 Explain the
difference between net income and comprehensive income and how we report components of the
difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

93
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written consent of McGraw-Hill Education.
155) The following income statement items appeared on the adjusted trial balance of Foxworthy
Corporation for the year ended December 31, 2021 ($ in 000s): sales revenue, $22,300; cost of
goods sold, $14,500; selling expense, $2,300; general and administrative expense, $1,200;
dividend revenue from investments, $200; interest expense, $300. Income taxes have not yet
been accrued. The company's income tax rate is 25% on all items of income or loss. These
revenue and expense items appear in the company's income statement every year. The company's
controller, however, has asked for your help in determining the appropriate treatment of the
following nonrecurring transactions that also occurred during 2021 ($ in 000s). All transactions
are material in amount.

1. Investments were sold during the year at a loss of $300. Foxworthy also had an unrealized
loss of $200 for the year on investments. The unrealized loss represents a decrease in the fair
value of debt securities and is classified as part of other comprehensive income.
2. One of the company's factories was closed during the year. Restructuring costs incurred were
$2,000.
3. During the year, Foxworthy completed the sale of one of its operating divisions that qualifies
as a component of the entity according to GAAP regarding discontinued operations. The division
had incurred operating income of $800 in 2021 prior to the sale, and its assets were sold at a loss
of $1,800.
4. A positive foreign currency translation adjustment for the year totaled $600.

Required:
Prepare Foxworthy's single, continuous statement of comprehensive income for 2021, including
earnings per share disclosures. Use a multiple-step income statement format. Three million
shares of common stock were outstanding throughout the year.

94
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written consent of McGraw-Hill Education.
Answer:
Foxworthy Manufacturing Corporation
Statement of Comprehensive Income
For the Year Ended December 31, 2021
($ in 000s)

Sales revenue $22,300

Cost of goods sold 14,500
Gross profit 7,800
Operating expenses:
Selling expense $2,300
General and administrative expense 1,200
Restructuring costs 2,000
Total operating expenses 5,500
Operating income 2,300
Other income (expense):
Loss on sale of investments (300)
Interest expense (300)
Dividend revenue 200
Total other income, net (400)
Income from continuing operations before income taxes 1,900
Income tax expense 475
Income from continuing operations 1,425
Discontinued operations:
Loss from operations of discontinued component
(including loss on disposal of $1,800) (1,000)
Income tax benefit 250
Loss on discontinued operations (750)
Net income 675
Other comprehensive income (net of tax):
Loss on debt securities (150)
Foreign currency translation adjustment 450
Total other comprehensive income 300
Comprehensive income $ 975

Earnings per share:

Income from continuing operations $0.475
Discontinued operations (0.250)
Net income $0.225
Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net
income after income tax expense; Earnings quality―Restructuring costs; Discontinued
operations; Earnings per share; Comprehensive income–Components-Presentation

95
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written consent of McGraw-Hill Education.
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations
and describe the appropriate income statement presentation for these transactions.; 04-05 Discuss
additional reporting issues related to accounting changes, error corrections, and earnings per
share (EPS).; 04-06 Explain the difference between net income and comprehensive income and
how we report components of the difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

96
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written consent of McGraw-Hill Education.
Use this information to answer the following questions:

The trial balance of Lakewood Inc. included the following accounts as of December 31, 2021:

Debits Credits
Sales revenue 1,800,000
Interest revenue 80,000
Gain on sale of investments 50,000
Cost of goods sold 1,100,000
Selling expense 220,000
Loss on inventory write-down 30,000
Interest expense 40,000
General and administrative expense 200,000

Lakewood Inc. had 100,000 shares of stock outstanding throughout the year. Income tax expense
has not yet been accrued. The effective tax rate is 25%.

156) Required: Prepare a single-step income statement with earnings per share disclosure.

97
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written consent of McGraw-Hill Education.
Answer:
Lakewood Inc.
Income Statement
For the Year Ended December 31, 2021

Revenues and gains:

Sales revenue $1,800,000
Gain on sale of investments 50,000
Interest revenue 80,000
Total revenues and gains 1,930,000
Expenses and losses:
Cost of goods sold $1,100,000
Selling expense 220,000
General and administrative expense 200,000
Interest expense 40,000
Loss on inventory write-down 30,000
Total expenses and losses 1,590,000
Income before income taxes 340,000
Income tax expense 85,000
Net income 255,000

Earnings per share: $2.55

Difficulty: 3 Hard
Topic: Income statement―Single-step format; Continuing operations―Components; Net
income after income tax expense; Earnings quality―Components; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to
accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

98
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written consent of McGraw-Hill Education.
157) Required: Prepare a multiple-step income statement with earnings per share disclosure.

Answer:
Lakewood Inc.
Income Statement
For the Year Ended December 31, 2021

Sales revenue $1,800,000

Cost of goods sold 1,100,000
Gross profit 700,000
Operating expenses:
Selling expense $220,000
General and administrative expense 200,000
Loss on inventory write-down 30,000
Total operating expenses 450,000
Operating income 250,000
Other income (expense):
Gain on sale of investments 50,000
Interest revenue 80,000
Interest expense (40,000)
Total other income, net 90,000
Income before income taxes 340,000
Income tax expense _85,000
Net income 255,000

Earnings per share $2.55

Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net
income after income tax expense; Earnings quality―Components; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to
accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

99
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written consent of McGraw-Hill Education.
Use this information to answer the following questions:

The trial balance of Rollins Inc. included the following accounts as of December 31, 2021:

Debits Credits
Sales revenue 5,900,000
Interest revenue 40,000
Loss on sale of investments 10,000
Loss on debt investments 160,000
Gain on projected benefit obligation 260,000
Cost of goods sold 4,400,000
Selling expense 400,000
Restructuring costs 190,000
Interest expense 20,000
General and administrative expense 300,000

The loss on debt investments represents a decrease in the fair value of debt securities and is
classified as part of other comprehensive income. Rollins had 100,000 shares of stock
outstanding throughout the year. Income tax expense has not yet been accrued. The effective tax
rate is 25%.

158) Required: Prepare a 2021 multiple-step income statement for Rollins Inc. with earnings per
share disclosure.

100
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written consent of McGraw-Hill Education.
Answer:
Rollins Inc.
Income Statement
For the Year Ended December 31, 2021

Sales revenue $5,900,000

Cost of goods sold 4,400,000
Gross profit 1,500,000
Operating expenses:
Selling $400,000
General and administrative 300,000
Restructuring costs 190,000
Total operating expenses 890,000
Operating income 610,000
Other income (expense):
Loss on sale of investments (10,000)
Interest revenue 40,000
Interest expense (20,000)
Total other income, net 10,000
Income before income taxes 620,000
Income tax expense 155,000
Net income $ 465,000

Earnings per share $4.65

Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net
income after income tax expense; Earnings quality―Components; Earnings per share
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to
accounting changes, error corrections, and earnings per share (EPS).
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

101
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written consent of McGraw-Hill Education.
159) Required: Prepare a 2021 separate statement of comprehensive income for Rollins Inc.

Answer:
Rollins Inc.
Statement of Comprehensive Income
For the Year Ended December 31, 2021

Net income $465,000

Other comprehensive income (net of tax):
Loss on debt investments (120,000)
Gain on projected benefit obligation 195,000
Total other comprehensive income 75,000
Comprehensive income $540,000
Difficulty: 3 Hard
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

102
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written consent of McGraw-Hill Education.
160) Required: Prepare a 2021 single, continuous statement of comprehensive income for
Rollins Inc. Use a multiple-step income statement format.

Answer: Rollins Inc.

Statement of Comprehensive Income
For the Year Ended December 31, 2021

Sales revenue $5,900,000

Cost of goods sold 4,400,000
Gross profit 1,500,000
Operating expenses:
Selling expense $400,000
General and administrative expense 300,000
Restructuring costs 190,000
Total operating expenses 890,000
Operating income 610,000
Other income (expense):
Loss on sale of investments (10,000)
Interest revenue 40,000
Interest expense (20,000)
Total other income, net 10,000
Income before income taxes 620,000
Income tax expense 155,000
Net income $ 465,000
Other comprehensive income (net of tax):
Loss on debt investments (120,000)
Gain on projected benefit obligation 195,000
Total other comprehensive income 75,000
Comprehensive income $540,000

Earnings per share $4.65

Difficulty: 3 Hard
Topic: Income statement―Multiple-step format; Continuing operations―Components; Net
income after income tax expense; Earnings quality―Components; Earnings per share;
Comprehensive income―Components-Presentation
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-05 Discuss additional reporting issues related to
accounting changes, error corrections, and earnings per share (EPS).; 04-06 Explain the
difference between net income and comprehensive income and how we report components of the
difference.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

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161) Calstone, Inc., prepares a single, continuous statement of comprehensive income. The
following situations occurred during the company's 2021 fiscal year:

1. Land that had been held as an investment was sold and a gain was recognized.
2. There was a loss on projected benefit obligation at December 31, 2021.
3. Interest revenue was recognized.
4. A division was sold that qualifies as a separate component according to GAAP regarding
discontinued operations.
5. There was an unrealized loss on debt securities during the year. The unrealized loss
represents a decrease in the fair value of debt securities as is classified as part of other
comprehensive income.
6. Restructuring costs were incurred due to downsizing and reorganization of a manufacturing
facility.

Required:
For each situation, identify the appropriate reporting treatment from the list below (consider each
event to be material).
a. As a component of operating income.
b. As a nonoperating income item (other income or expense).
c. As a discontinued operation.
d. As an item of other comprehensive income.

Answer:
1. b. As a nonoperating income item.
2. d. As an item of other comprehensive income.
3. b. As a nonoperating income item.
4. c. As a discontinued operation.
5. d. As an item of other comprehensive income.
6. a. As a component of operating income.
Difficulty: 2 Medium
Topic: Continuing operations―Components; Earnings quality―Components; Discontinued
operations; Comprehensive income―Components-Presentation
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.; 04-03 Discuss the components of operating and nonoperating income
and their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations
and describe the appropriate income statement presentation for these transactions.; 04-06 Explain
the difference between net income and comprehensive income and how we report components of
the difference.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

104
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162) The following information is for Redwood Inc. for the year ended December 31, 2021.
Redwood had a balance for cash and cash equivalents of $5,200 on January 1, 2021.

Cash received from:

Customers $ 1,900
Interest on investments 200
Sale of land 100
Issuance of common 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 4,100
Purchase of inventory 1,000
Dividends on common stock 200
Operating expenses 500

Required: Prepare a statement of cash flows for the year using the direct method for operating
activities.

105
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Answer:
REDWOOD INC.
Statement of Cash Flows
For the Year Ended December 31, 2021

Cash flows from operating activities:

Cash received from customers $ 1,900
Interest on investments 200
Interest on debt (300)
Payment of income tax (80)
Purchase of inventory (1,000)
Payment of operating expenses (500)
Net cash flows from operating activities $220

Cash flows from investing activities

Sale of land 100
Purchase of equipment (4,100)
Net cash flows from investing activities (4,000)

Cash flows from financing activities:

Issuance of common stock 600
Issuance of debt securities 2,000
Payment on debt (1,500)
Dividends paid to shareholders (200)
Net cash flows from financing activities 900

Net decrease in cash (2,880)

Cash and cash equivalents, January 1 5,200
Cash and cash equivalents, December 31 $ 2,320
Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method; Statement of cash flows―Classify O-I-F;
Statement of cash flows―Content
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.; 04-08 Identify
and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

106
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written consent of McGraw-Hill Education.
163) The chief accountant for Julius Co. provides you with the company's most recent income
statement and comparative balance sheets below. The accountant has asked for your help in
preparing part of the company's 2021 statement of cash flows.

2021 Income Statement ($ in thousands)

Sales revenue $5,000
Depreciation expense 280
3,720
Selling & administrative expense 4,000
Income before taxes 1,000
Income tax expense 300
Net income $700

Balance Sheet (all $ in thousands) 12/31/2021 12/31/2020

Cash $800 $750
Accounts receivable 450 365
Property, plant & equipment 1,900 1,450
Less: Accumulated depreciation ( 800) (520)
$2,350 $2,045

Accrued liabilities for selling & administration expense 300 325

Income taxes payable 180 130
Common stock 700 700
Retained earnings 1,170 890
$2,350 $2,045

Required:
In the space provided below, determine the cash flow from operating activities for Julius Co.,
using the direct method.

107
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written consent of McGraw-Hill Education.
Answer:
Cash flows from operating activities:

Cash collected from customers $ 4,915 *

Cash paid for selling & administrative costs (3,745) **
Cash paid for income taxes (250) ***
Cash flows from operating activities $920

*Accounts receivable (beg.) + Sales — Accounts receivable (end)

$365 + $5,000 — $450 = $4,915

**Accrued S & A liabilities (beg.) + S & A. expense — Accrued S & A liabilities (end)

$325 + $3,720 — $300 = $3,745

*** Income taxes payable (beg.) + Income tax expense — Income taxes payable (end)
$130 + $300 — $180 = $250
Difficulty: 3 Hard
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

108
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written consent of McGraw-Hill Education.
164) The accounting records of Rockness Company provided the data below ($ in 000s).

Net income $25,200

Depreciation expense 3,300
Decrease in accounts receivable 2,000
Increase in inventory 4,500
Increase in prepaid insurance 300
Increase in salaries payable 900
Decrease in interest payable 400

Required:
Prepare a reconciliation of net income to net cash flows from operating activities.

Answer: Cash flows from operating activities:

Net income $25,200

Adjustments for noncash effects:
Depreciation expense 3,300
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,000
Increase in inventory (4,500)
Increase in prepaid insurance (300)
Increase in salaries payable 900
Decrease in interest payable (400)
Net cash flows from operating activities $26,200
Difficulty: 3 Hard
Topic: Statement of cash flows―Indirect method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

109
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written consent of McGraw-Hill Education.
165) The statement of cash flows for the year ended December 31, 2021, for Whiteside
Incorporated is presented below.

Whiteside Incorporated
Statement of Cash Flows
For the Year Ended December 31, 2021

Cash flows from operating activities:

Cash received from customers $420,000
Interest on notes receivable 12,000
Dividends received 4,500
Purchase of inventory (156,000)
Payment of operating expenses (83,000)
Payment of interest on debt (16,000)
Net cash flows from operating activities $181,500

Cash flows from investing activities:

Sale of investments 42,000
Purchase of equipment (180,000)
Net cash flows from investing activities (138,000)

Cash flows from financing activities:

Proceeds from issuance of long-term debt 200,000
Reacquisition of common stock shares previously
sold (140,000)
Dividends paid to shareholders (50,000)
Net cash flows from financing activities 10,000

Net increase in cash 53,500

Cash and cash equivalents, January 1 68,900

Cash and cash equivalents, December 31 $122,400

Required:
Prepare the statement of cash flows assuming that Whiteside prepares its financial statements
according to International Financial Reporting Standards (IFRS). Where IFRS allows flexibility,
use the classification used most often in IFRS financial statements.

110
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written consent of McGraw-Hill Education.
Answer:
Whiteside Incorporated
Statement of Cash Flows
For the Year Ended December 31, 2021

Cash flows from operating activities:

Cash received from customers $420,000
Purchase of inventory (156,000)
Payment of operating expenses (83,000)
Net cash flows from operating activities $181,000

Cash flows from investing activities:

Interest received 12,000
Dividends received 4,500
Sale of investments 42,000
Purchase of equipment (180,000)
Net cash flows from investing activities (121,500)

Cash flows from financing activities:

Interest paid (16,000)
Issuance of long-term debt 200,000
Transactions with owners (140,000)
Dividends paid (50,000)
Net cash flows from financing activities (6,000)

Net increase in cash 53,500

Cash and cash equivalents, January 1 68,900

Cash and cash equivalents, December 31 $122,400

Difficulty: 3 Hard
Topic: IFRS―Statement of cash flows
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.; 04-09 Discuss the primary differences between U.S.
GAAP and IFRS with respect to the income statement, statement of comprehensive income, and
statement of cash flows.
Bloom's: Analyze; Apply
AACSB: Analytical Thinking; Knowledge Application; Diversity
AICPA/Accessibility: BB Global; FN Measurement

111
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Use this information to answer the following questions:

Missoula Inc. reported the following selected financial statement data:

Dec 31, 2020 Dec 31, 2021

Cash $ 30,000 $ 32,000
Accounts receivable (net) 48,000 52,000
Inventory 68,000 72,000
Plant assets (net) 210,000 218,000
Total assets 405,000 395,000
Liabilities 145,000 145,000
Shareholders' equity 260,000 250,000
Net sales 340,000 400,000
Cost of goods sold 220,000 280,000
Net income 20,000 25,000

166) Required: Compute the receivables turnover ratio for 2021.

Answer: $400,000 / [($48,000 + $52,000)/2] = 8.0

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

167) Required: Compute the inventory turnover ratio for 2021.

Answer: $280,000 / [($68,000 + $72,000)/2] = 4.0

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

168) Required: Compute the asset turnover ratio for 2021.

Answer: $400,000 / [$405,000 + $395,000)/2] = 1.0

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

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169) Required: Compute the average collection period (rounded to one decimal place) for 2021.

Answer: 365 / 8.0 = 45.6 days

Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

170) Required: Compute the average days in inventory for 2021.

Answer: 365 / 4.0 = 91.25 days

Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

171) Required: Compute the profit margin on sales for 2021.

Answer: $25,000 / $400,000 = 6.25%

Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

172) Required: Compute the return on assets for 2021.

Answer: $25,000 / [($405,000 + $395,000)/2] = 6.25%

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

113
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173) Required: Compute the return on equity for 2021. Round your answer to one decimal
place, e.g., .1234 as 12.3%.

Answer: $25,000 / [($260,000 + $250,000)/2] = 9.8%

Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

114
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Use this information to answer the following questions:

The following information (in $ millions) comes from the Annual Report of Saratoga Springs
Co. for the year ending 12/31/2021:

Year ended 12/31/2021

Net sales 7,949
Cost of goods sold 4,767
Selling and administrative expense 1,909
Interest expense 416
Income before taxes 857
Net income 458

12/31/2021 12/31/2020
Cash and cash equivalents 975 64
Receivables, net 1,010 664
Inventories 1,055 519
Land, buildings and equipment at cost, net 13,500 3,844
Total assets 16,540 5,091

Total current liabilities 5,747 2,209

Long-term debt 5,591 2,221
Total liabilities 11,338 4,430
Total stockholders' equity 5,202 661

Required: Compute the following amounts for Saratoga Springs Co.

174) Its profit margin on sales for 2021. Round your answer to one decimal place, e.g., 0.1234 as
12.3%.

Answer: Its profit margin on sales for the year = $458/$7,949 = 5.8%.
Difficulty: 1 Easy
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

115
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175) Its receivables turnover ratio for 2021. Round your answer to one decimal place.

Answer: Its receivables turnover ratio for the year = $7,949/[($1,010 + $664)/2] = 9.5.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

176) Its inventory turnover ratio for 2021. Round your answer to one decimal place.

Answer: Its inventory turnover ratio for the year = $4,767/[($1,055 + $519)/2] = 6.1.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

177) Its asset turnover ratio for 2021. Round your answer to two decimal places.

Answer: Its asset turnover ratio for the year = $7,949/[($16,540 + $5,091)/2] = 0.73.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

178) Its average collection period for 2021. Round your final answer to one decimal place.

Answer: Its average collection period for the year = 365/9.5 = 38.4 days.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

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179) Its average days in inventory for 2021. Round your final answer to one decimal place.

Answer: Its average days in inventory for the year = 365/6.1 = 59.8 days.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

180) Its return on assets for 2021. Round your answer to one decimal place, e.g., 0.1234 as
12.3%.

Answer: Its return on assets for the year = $458/[($16,540 + $5,091)/2] = 4.2%.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

181) Its return on equity for 2021. Round your answer to one decimal place, e.g., 0.1234 as
12.3%.

Answer: Its return on equity for the year = $458/[($5,202 + $661)/2] = 15.6%.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

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182) The following information is provided in the 2021 annual report to shareholders of paris-
perfume.com:

December 31, 2021 December 31, 2020

Accounts receivable (E) $100 million
Inventory $70 million $30 million
Other assets (G) $170 million
Total assets (A) $300 million

Total liabilities (C) $100 million

Total stockholders' equity (B) $200 million

For the year ended Dec. 31,

2021
Net sales (D)
Cost of goods sold (F)
Net income $40 million

Return on assets 10%

Receivables turnover 8.0
Inventory turnover 12.0
Asset turnover 2.5
Return on equity 20%
Profit margin on sales 4%

Required: Compute the missing amount in the paris-perfume.com financial statement

information, and indicate your answers by marking them (A) to (G).

Answer:
(A) ROA = 10 % = $40/Ave. total assets; Ave. total assets = $400;
12/31/2021 TA = $500 million
(B) ROE = 20% = $40/Ave. SE; Ave. SE = $200; 12/31/2021 SE = $200 million
(C) 12/31/2021 Total liabilities = SE — TA = $500 — $200 = $300 million
(D) Profit margin on sales = 4% = Net income/Sales; Sales = $40/4% = $1 billion
(E) Receivables turnover = 8 = Sales/Ave. AR = $1 billion/Ave. AR;
Therefore, Ave. AR = $125; 12/31/2021 AR = $150 million
(F) Inventory turnover = 12 = CGS/Ave Inventory = CGS/$50; CGS = 12 × $50 = $600 million
(G) 12/31/2021 Other Assets = Total assets — AR — Inventory = $500 — $150 — $70
= $280 million
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

118
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183) The following information is provided in the 2021 annual report to shareholders of The
BizStore:

December 31, 2021 December 31, 2020

Accounts receivable (Y) $6 million
Inventory $25 million $20 million
Total assets $250 million (X)
Total stockholders' equity (W) $130 million

Net sales $115 million

Cost of Goods Sold (Z)
Net income (U)

Average collection period 22.2 days

Average days in inventory 104 days
Equity multiplier 1.9
Return on equity 16.0%
Profit margin on sales 17.4%
ROA (V)

Required: Compute items U–Z in the table above.

Answer:
• U: Profit margin = NI / sales, so NI = (Profit margin) x (Sales) = (.174)($115);
U = $20.
• V: ROE = ROA × Equity multiplier, so ROA = ROE/Equity multiplier = 0.16/1.9;
V = 8.4%
• W: ROE = 16% = Net income / Avg. equity = $20/{[W + $130]/2}; W = $120.
• X: ROA = NI / Avg. assets, so 8.4% = $20/ {[$250 + X]/2; X = $226.
• Y: Average collection period = 22.2 days = 365/AR turnover
= 365/(Sales / Avg. AR). 22.2 = 365 / ($115 / {[Y + $6] / 2}); Y = $8.
• Z: Average days in inventory = 104 days = 365 / Inventory turnover
= 365 / (COGS / Avg. inventory). 104 = 365 / (Z / {[$25 + $20]/2}); Z = $79.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

119
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184) Briefly explain when and why intraperiod tax allocation is necessary.

Answer: Intraperiod tax allocation associates income tax expense with each component of
income that causes it. It is required when a discontinued operation is reported.
Difficulty: 2 Medium
Topic: Income tax―Separate line or Intraperiod
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

185) Briefly explain why the income statement is referred to as a change statement.

Answer: The income statement is one of three primary financial statements that is a change
statement. That is, it reports on activities over a distinct period of time that caused some element
or elements of financial position to change. Specifically, the income statement reports periodic
revenues, gains, expenses, and losses, that is, changes in the retained earnings component of
shareholders' equity. A year is the longest time frame reported. Statements covering periods of
less than a year are referred to as interim statements.
Difficulty: 2 Medium
Topic: Income statement―Single-step format; Income statement―Multiple-step format
Learning Objective: 04-01 Discuss the importance of income from continuing operations and
describe its components.
Bloom's: Understand
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement

186) Net income, often referred to as "the bottom line," is not always a good predictor of future
income. Explain this statement.

Answer: Net income is of low quality when items such as discontinued operations or other
unusual items are present. Income from continuing operations becomes more important when
these items are present. Material items included in continuing operations, such as restructuring
charges, may make income from continuing operations less predictable (in terms of its relation to
future profitability) as well.
Difficulty: 2 Medium
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Understand
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement

120
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187) Explain, using an example, how a company can use earnings management and justify it by
conservatism.

Answer: To comply with accrual accounting, companies must estimate various items that impact
income. For example, the use of allowances for such items such as bad debts and warranties
requires professional judgment for estimating appropriate amounts that will affect both the
income statement and the balance sheet. These allowances are reviewed each period to make
further adjustments to the respective allowance account. If a company was having a very good
performance year and anticipated a more difficult year in the future, it might create a larger than
usual allowance adjustment (expense) in the current year, justifying it by conservatism, that
could lead to taking a smaller adjustment (expense) in a later period. By doing so, current income
would be pushed into the future, thereby shifting earnings.
Difficulty: 3 Hard
Topic: Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.
Bloom's: Understand
AACSB: Ethics; Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement

188) In a press release, Foot Locker Inc. reported that its fiscal first-quarter net income fell 46%
due to losses related to discontinued operations, but earnings from continuing operations jumped
19% amid a modest increase in sales. The specialty athletic retailer said net income was $20
million for the quarter ended May 4, compared with net income of $37 million a year earlier. The
latest results included a loss of $18 million from discontinued operations. Last year, the company
had earnings of $5 million, or four cents a share, from discontinued operations. Foot Locker said
earnings from continuing operations were $38 million, compared with $32 million a year earlier.
Discuss how Foot Locker's press release relates to its earnings quality.

Answer: Separating the reported loss on the discontinued component of its operations allows
users to assess the permanent (going forward) component of Foot Locker's earnings. By doing
so, the reader will note that the company actually improved the performance of the continuing
part of its operations, thereby suggesting an upward trend in future earnings. While this may not
occur, it is likely to be a better predictor of future earnings than one based on bottom line net
income.
Difficulty: 3 Hard
Topic: Earnings quality―Components; Discontinued operations
Learning Objective: 04-03 Discuss the components of operating and nonoperating income and
their relationship to earnings quality.; 04-04 Define what constitutes discontinued operations and
describe the appropriate income statement presentation for these transactions.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement

121
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189) In a press release, Estée Lauder Co. reported "a fiscal fourth-quarter loss due to a
restructuring charge but said it expects to see earnings growth in its fiscal second through fourth
quarters." The New York skin care and cosmetics company reported a net loss of $25.4 million,
or 13 cents a share, for the quarter ended June 30, compared with net income of $20.4 million, or
six cents a share, a year earlier. Excluding the restructuring charge of $76.9 million, or 32 cents a
share, the company said profit would have been $51.5 million, or 19 cents a share. Discuss how
Estée Lauder's press release relates to its earnings quality.

Answer: Company management is pointing out that, in their opinion, the loss from the
restructuring charge is temporary and should not be considered part of permanent earnings. In
addition, by taking the charge now, future earnings seem likely to be on an upward trend.
Difficulty: 2 Medium
Topic: Earnings quality―Components; Earnings quality―Management practices
Learning Objective: 04-02 Describe earnings quality and how it is impacted by management
practices to alter reported earnings.; 04-03 Discuss the components of operating and
nonoperating income and their relationship to earnings quality.
Bloom's: Analyze
AACSB: Ethics; Analytical Thinking; Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement

190) Briefly define discontinued operations and explain how they are reported according to U.S.
GAAP.

Answer: A discontinued operation is defined as a component of an entity or a group of

components. A component of an entity includes activities and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest of the company. A
component could include an operating segment, a reporting unit, a subsidiary, or an asset group.
A component or group of components that has been sold or disposed of in some other way, or is
considered held for sale is reported as a discontinued operation if the disposal represents a
strategic shift that has, or will have, a major effect on a company's operations and financial
results. Discontinued operations are reported, net of tax, after income from continuing
operations.
Difficulty: 2 Medium
Topic: Discontinued operations
Learning Objective: 04-04 Define what constitutes discontinued operations and describe the
appropriate income statement presentation for these transactions.
Bloom's: Remember
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement

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191) Presented below is an excerpt ($ in millions) from the 2016 annual report to shareholders of
Microsoft Corporation. Explain how the shareholder should interpret the difference between the
net income and total comprehensive income for Microsoft in 2016.

Comprehensive Income:
Net income $16,798
Other comprehensive income (loss),
net of tax:
Net unrealized loss on derivatives (238)
Net unrealized loss on investments (228)
Translation adjustment and other (519)
Other comprehensive income (loss) (985)

Comprehensive income $15,813

Answer: The $16,798 million in net income is the reported results of operations for the year,
measured according to GAAP. In this measure, certain nonowner changes in equity are omitted,
such as the effects of holding assets in foreign currencies that are subject to fluctuation,
unrealized gains and losses on certain investments, and the effects of hedging derivative
contracts. Although these events are not reported directly in the income statement, they are
disclosed in the computation of comprehensive income. By disclosing them there, the company
reports the entire nonowner change in equity for the year.
Difficulty: 3 Hard
Topic: Comprehensive income―Components-Presentation
Learning Objective: 04-06 Explain the difference between net income and comprehensive
income and how we report components of the difference.
Bloom's: Understand
AACSB: Communication
AICPA/Accessibility: BB Critical Thinking; FN Measurement

192) Give an example of a major investing activity cash outflow that would be reported in the
statement of cash flows for a manufacturing company.

Answer: Purchases of property, plant, and equipment would typically be a major investing cash
outflow for a manufacturing company.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-07 Describe the purpose of the statement of cash flows.; 04-08 Identify
and describe the various classifications of cash flows presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

123
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written consent of McGraw-Hill Education.
193) List at least four operating activities that would be reported in the statement of cash flows
for Walmart. Assume the use of the direct method.

Answer:
Typical operating cash inflows (Walmart)
Cash collected from customers

Typical operating cash outflows (Walmart)

Payments of salaries and other operating expenses
Payments to vendors for merchandise
Payments of income taxes
Difficulty: 2 Medium
Topic: Statement of cash flows―Direct method
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: BB Critical Thinking; FN Measurement

194) Give an example of a noncash financing and investing activity and explain when and how it
would be reported in the financial statements.

Answer: The purchase of land and building in exchange for a mortgage note would be one
example of a noncash financing and investing activity. Such activities can either be reported in a
separate schedule in the statement of cash flows or reported in a disclosure note.
Difficulty: 2 Medium
Topic: Statement of cash flows―Classify O-I-F
Learning Objective: 04-08 Identify and describe the various classifications of cash flows
presented in a statement of cash flows.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking; FN Measurement

195) Briefly explain how you can determine if a company is effectively using leverage.

Answer: A company is successfully using leverage when the return on equity is greater than the
return on assets. Successful leverage can be thought of as making money with someone else's
money.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

124
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written consent of McGraw-Hill Education.
Use this information to answer the following questions:

The following table presents a summary of ratio analysis for McDonald's and averages for its
peer group:

McDonald's Industry
Peer Group
Profit margin 8.0% 7.0%
Inventory turnover 114.5 99.6
Asset turnover 0.75 1.22
Equity multiplier 2 2.5
Return on equity 12.0% 21.3%

196) Using the information provided above, use the DuPont framework to briefly summarize the
operating performance of McDonald's relative to its benchmark competitors.

Answer: McDonald's has a slightly higher profit margin than its industry peer group, but much
lower asset turnover and lower leverage. These combine to provide lower return on equity for
McDonald's than for its industry peer group. McDonald's poor asset turnover is not due to its
inventory management, since it turns over its inventory much more quickly than the industry
average.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

197) Are differences between McDonald's and the industry likely driven by differences in size
between McDonald's and the average company in its industry peer group? Explain briefly.

Answer: No, differences are not likely to be driven by differences in size because ratios adjust
for size. It is possible that larger companies enjoy economies of scale that enhance their
profitability, but those sorts of advantages or disadvantages are relevant and so should be
included in the analysis.
Difficulty: 2 Medium
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

125
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written consent of McGraw-Hill Education.
198) Besides size differences, what other differences between McDonald's and its industry peer
group could limit your ability to make meaningful comparisons about the performance of
McDonald's from the data above?

Answer: The industry peer group might be broadly enough defined to include companies that
are not McDonald's direct competitors. Ideally, the peer group would be based on other
companies that serve the kind of food and beverage products that McDonald's serves (e.g.,
Wendy's, Burger King). Also, there could be differences in the accounting methods and estimates
made by McDonald's and its competitors, which could weaken financial comparisons.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Create
AACSB: Reflective Thinking; Communication
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

199) Based on this information, if you were going to advise McDonald's about how it could
enhance return on equity, what would you suggest? Be as specific as possible in the operational
or financial changes you would recommend.

Answer: The company's profit margin is already higher than the industry average. It is possible
McDonald's could improve it further, but it may be reaching the maximum possible, given
competitive pressures in the industry. Therefore, I would encourage McDonald's to increase its
asset turnover and leverage. It could improve asset turnover by selling off poor performing stores
or shifting from owning to leasing assets and by focusing on operational efficiency to make more
sales with the existing asset base. McDonald's could also take on debt to buy back equity to
enhance leverage.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Create
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

126
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written consent of McGraw-Hill Education.
Use this information to answer the following questions:

The following table presents a summary of ratio analysis for Uncle Joe's Coffee, based on the
most recent 12 months and five-year comparisons of Uncle Joe's with averages in the restaurant
industry and the services sector, respectively.

Company Industry Sector

Return on assets 10.68% 9.04% 5.09%
Return on assets- 5 yr. avg. 8.23% 8.37% 6.78%
Return on equity 13.94% 17.55% 10.97%
Return on equity- 5 yr. avg. 11.28% 15.69% 15.76%
Receivable turnover 34.15 27.99 16.11
Inventory turnover 11.88 34.73 15.94
Asset turnover 1.58 1.30 1.22

200) Using the information provided for Uncle Joe's and the industry and sector, briefly
summarize the operating performance of Uncle Joe's relative to its benchmark competitors.

Answer: Uncle Joe's shows efficient management of assets that is about average for its industry
and better than others in the sector over the past five years. Further, its recent performance is on
a significant upswing, both in absolute and relative terms. Uncle Joe's has a return on equity that
is below industry averages, but is improving both in relative and absolute terms. Compared to
peers, Uncle Joe's has very fast receivable and asset turnover, but lower than average inventory
turnover.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication; Resource Management
AICPA/Accessibility: BB Resource Management; FN Risk Analysis

201) What limitations exist in drawing meaningful comparisons about the performance of Uncle
Joe's from the data above?

Answer: There is a wide array of businesses in the benchmark industry and sector data. More
meaningful comparisons could be drawn from data about companies that serve the kind of food
and beverage products that Uncle Joe's does, if these data are available. Further, there may be
differences in the accounting methods and estimates used by Uncle Joe's in comparisons with its
competitors. These data do not reflect what the numbers would be if all companies used exactly
the same methods and estimates in preparing financial statements.
Difficulty: 3 Hard
Topic: Profitability analysis
Learning Objective: 04-10 Identify and calculate the common ratios used to assess profitability.
Bloom's: Understand
AACSB: Reflective Thinking; Communication
AICPA/Accessibility: BB Resource Management; FN Risk Analysis
127
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written consent of McGraw-Hill Education.