ACCT 301 TEST ACCURATE WITH VERIFIED ANSWERS
Net Income - Answers - Sales Revenue-COGS-Operating expenses
Comprehensive income - Answers - Sales revenue-COGS-Operating expenses+
Foreign Currency Translation adjustment
I. Use the same accounting principles followed in preparing its latest annual financial
statements.
II. Allocate expenses among all interim periods benefited, if the expenses are expected
to benefit not only the period of occurrence but also additional period(s) in the same
fiscal year.
III. Allocate revenues and expenses evenly over the quarters, regardless of when they
actually occurred. - Answers - I and II only
When preparing interim financial statements, the company must use the same
accounting principles used in preparing its latest annual financial statements unless a
change in accounting policy has been adopted in the current year. Expenses incurred in
an interim period that are expected to benefit that and one or more other interim periods
in the same fiscal year should be allocated among the interim periods benefited.
Allocating revenues and expenses evenly over the quarters, regardless of when they
are actually occurred, would be incorrect as it would be a violation of both the accrual
and the cash methods of accounting.
Comprehensive income includes - Answers - net income plus other comprehensive
income (OCI); or all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The company's net income includes
sales revenues of $350,000 minus costs of goods sold of $150,000 minus operating
expenses of $110,000, for a net amount of $90,000. Other comprehensive income
(OCI) includes the foreign currency translation adjustment of $25,000. Therefore,
comprehensive income equals $115,000 ($90,000 + $25,000).
On February 1, Pinn Corp., paid $40,000 in advertising expenses for ads that will run in
a periodical for the entire calendar year. On July 3, Pinn paid $430,000 for anticipated
major repairs to their machinery used for business. The repairs will benefit operations
for the remainder of the calendar year. Assuming Pinn is a calendar year corporation,
what amount of these expenses should Pinn include in its third quarter interim financial
statements? - Answers - Expenses incurred in an interim period that are expected to
benefit that and one or more other interim periods in the same fiscal year are allocated
among the interim periods benefited. The $40,000 in advertising expenses benefits the
entire year and will be recognized at $10,000 per quarter. The anticipated major repairs
will benefit the last two quarters of Pinn's year and will be allocated at the rate of
$215,000 per quarter. The total affecting the third quarter would therefore be $10,000 +
$215,000, or $225,000.
, During the year ended December 31, 2018, Dalgliesh Co. had sales of $1,500, cost of
goods sold of $800, and sales, general and administrative expenses of $200. In
addition, Dalgiesh is involved in a restructuring process expected to last several years,
and incurred restructuring costs in 2018 of $125. During the year the company also sold
various investments for a net pre-tax gain of $125, and received $40 in dividends from
investments. The effective tax rate is 40%. What amount of operating and nonoperating
income will Dalgiesh present in its 2018 income statement?
Operating
Nonoperating - Answers - 375 and 165
Both operating and nonoperating income are presented prior to tax effects on the
income statement, as part of income from continuing operations. Because restructuring
costs will be incurred for several more years to come, they will be presented as part of
operating income, for total operating income of $1,500 - $800 - $200 - $125, or $375.
The gain on sale of investments and the dividend income are components of
nonoperating income, for a nonoperating total of $125 + $40, or $165.
Note: To avoid confusion about the classification of restructuring costs, there is no
answer that is otherwise correct but for how the restructuring costs are classified.
Answer A is wrong because it includes restructuring costs in Operating and presents
nonoperating after tax.
Answer B is wrong because it takes the correct pre-tax numbers, with restructuring in
Operating, and presents them after tax.
Answer D is wrong because it includes restructuring costs in Operating and presents
both operating and nonoperating after tax.
Red Builders agrees to construct a new building for Blue Co. for a total contract price of
$6,000,000. The estimated construction costs at inception was $4,000,000. The
construction project was completed after two years. Below are the actual costs for years
1 and 2:
Description
Cumulative
Year 1
Year 2
Cost incurred to date
1,200,000
Net Income - Answers - Sales Revenue-COGS-Operating expenses
Comprehensive income - Answers - Sales revenue-COGS-Operating expenses+
Foreign Currency Translation adjustment
I. Use the same accounting principles followed in preparing its latest annual financial
statements.
II. Allocate expenses among all interim periods benefited, if the expenses are expected
to benefit not only the period of occurrence but also additional period(s) in the same
fiscal year.
III. Allocate revenues and expenses evenly over the quarters, regardless of when they
actually occurred. - Answers - I and II only
When preparing interim financial statements, the company must use the same
accounting principles used in preparing its latest annual financial statements unless a
change in accounting policy has been adopted in the current year. Expenses incurred in
an interim period that are expected to benefit that and one or more other interim periods
in the same fiscal year should be allocated among the interim periods benefited.
Allocating revenues and expenses evenly over the quarters, regardless of when they
are actually occurred, would be incorrect as it would be a violation of both the accrual
and the cash methods of accounting.
Comprehensive income includes - Answers - net income plus other comprehensive
income (OCI); or all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The company's net income includes
sales revenues of $350,000 minus costs of goods sold of $150,000 minus operating
expenses of $110,000, for a net amount of $90,000. Other comprehensive income
(OCI) includes the foreign currency translation adjustment of $25,000. Therefore,
comprehensive income equals $115,000 ($90,000 + $25,000).
On February 1, Pinn Corp., paid $40,000 in advertising expenses for ads that will run in
a periodical for the entire calendar year. On July 3, Pinn paid $430,000 for anticipated
major repairs to their machinery used for business. The repairs will benefit operations
for the remainder of the calendar year. Assuming Pinn is a calendar year corporation,
what amount of these expenses should Pinn include in its third quarter interim financial
statements? - Answers - Expenses incurred in an interim period that are expected to
benefit that and one or more other interim periods in the same fiscal year are allocated
among the interim periods benefited. The $40,000 in advertising expenses benefits the
entire year and will be recognized at $10,000 per quarter. The anticipated major repairs
will benefit the last two quarters of Pinn's year and will be allocated at the rate of
$215,000 per quarter. The total affecting the third quarter would therefore be $10,000 +
$215,000, or $225,000.
, During the year ended December 31, 2018, Dalgliesh Co. had sales of $1,500, cost of
goods sold of $800, and sales, general and administrative expenses of $200. In
addition, Dalgiesh is involved in a restructuring process expected to last several years,
and incurred restructuring costs in 2018 of $125. During the year the company also sold
various investments for a net pre-tax gain of $125, and received $40 in dividends from
investments. The effective tax rate is 40%. What amount of operating and nonoperating
income will Dalgiesh present in its 2018 income statement?
Operating
Nonoperating - Answers - 375 and 165
Both operating and nonoperating income are presented prior to tax effects on the
income statement, as part of income from continuing operations. Because restructuring
costs will be incurred for several more years to come, they will be presented as part of
operating income, for total operating income of $1,500 - $800 - $200 - $125, or $375.
The gain on sale of investments and the dividend income are components of
nonoperating income, for a nonoperating total of $125 + $40, or $165.
Note: To avoid confusion about the classification of restructuring costs, there is no
answer that is otherwise correct but for how the restructuring costs are classified.
Answer A is wrong because it includes restructuring costs in Operating and presents
nonoperating after tax.
Answer B is wrong because it takes the correct pre-tax numbers, with restructuring in
Operating, and presents them after tax.
Answer D is wrong because it includes restructuring costs in Operating and presents
both operating and nonoperating after tax.
Red Builders agrees to construct a new building for Blue Co. for a total contract price of
$6,000,000. The estimated construction costs at inception was $4,000,000. The
construction project was completed after two years. Below are the actual costs for years
1 and 2:
Description
Cumulative
Year 1
Year 2
Cost incurred to date
1,200,000
