Financial Accounting And Reporting
Exam 1 Questions And Answers 2026
Which of the following items would be reported net of tax on the face of the income
statement?
-Prior period adjustment
-Unusual gain
-change in realizability of receivables
-Discontinued operations - CORRECT ANSWER- Discontinued operations
Earnings per share should always be shown separately for
-net income and gross margin
-net income and pretax income
-income from continuing operations
-discontinued operation items and prior period adjustments - CORRECT ANSWER-
income from continuing operations
Earnings per share data are required on the face of the
-statement of retained earnings
-statement of stockholders' equity
-income statement
-balance sheet - CORRECT ANSWER- income statement
Companies report the results of operations of a component of a business that will be
disposed of separately from continuing operations.
-True
-False - CORRECT ANSWER- True
Revenues and gains increase both net income and owners' equity.
-True
-False - CORRECT ANSWER- True
Which of the following would represent the least likely use of an income statement
prepared for a business enterprise?
-Use by customers to determine a company's ability to provide needed goods and
services.
-Use by labor unions to examine earnings closely as a basis for salary discussions.
-Use by government agencies to formulate tax and economic policy.
-Use by investors interested in the financial position of the entity - CORRECT
ANSWER- Use by investors interested in the financial position of the entity
Which of the following is an example of managing earnings down?
-Changing estimated bad debts from 3 percent to 2.5 percent of sales
-Revising the estimated life of equipment from 10 years to 8 years
- Not wring off obsolete inventory
-Reducing research and development expenditures - CORRECT ANSWER-
Revising the estimated life of equipment from 10 years to 8 years
, What might a manger do during the last quarter of a fiscal year if she wanted improve
current annual net income?
- Increase research and development activities
-Relax credit policies for customers
-Delay shipments to customers until after the end of the fiscal year
-Delay purchases from suppliers until after the end of the fiscal year - CORRECT
ANSWER- Relax credit policies for customers
Which of the following is not generally practiced method of presenting the income
statement?
-Including prior period adjustments in determining net income.
-The single-step income statement
-The consolidated statement of income
-Including gains and losses form discounted operations of a component of a business in
determining net income. - CORRECT ANSWER- Including prior period adjustments
in determining net income
The occurrence which most likely would have no effect on 2020 net income(if all
amounts involved are material) is the
-Sale in 2020 of an office building, acquired in 2001) at its book value
-Collection in 2020 of a receivable form a customer whose account was written in 2016
by a charge to the allowance account
-Sale in 2020 of fully depreciated equipment for less than its salvage(book) value
-None of the above - CORRECT ANSWER- Collection in 2020 of a receivable from
a customer whose account was written off in 2016 by a charge to the allowance account
Which of the following is a required disclosure in the income statement when reporting
the disposal of a component of the business.
-The gain or loss on disposal should be reported as a unusual gain or loss
-Results of operations of a discontinued component should be disclosed immediately
before income form continuing operations
-Earnings per share from continuing operations, discontinued operations, and ent
income should be disclosed on the face of the income statement.
-The gain or loss on disposal should not be segregated, but should be reported together
with the results of continuing operations - CORRECT ANSWER- Earnings per share
from continuing operations, discontinued operations, and net income should be
disclosed on the face of the income statement.
When a company discontinues an operation and disposes of the discontinued operation
(component), the transaction should be included in the income statement as a gain or
loss on disposal reported as
-a prior adjustment
-an extraordinary item
-an amount after continuing operations
-a bulk sale of plant assets included in income from continuing operations -
CORRECT ANSWER- an amount after continuing operations
The following information was extracted from the 2020 financial statements of Max
Company:
Income from continuing operations before income tax $705,000
Selling and administrative expenses 480,000
Exam 1 Questions And Answers 2026
Which of the following items would be reported net of tax on the face of the income
statement?
-Prior period adjustment
-Unusual gain
-change in realizability of receivables
-Discontinued operations - CORRECT ANSWER- Discontinued operations
Earnings per share should always be shown separately for
-net income and gross margin
-net income and pretax income
-income from continuing operations
-discontinued operation items and prior period adjustments - CORRECT ANSWER-
income from continuing operations
Earnings per share data are required on the face of the
-statement of retained earnings
-statement of stockholders' equity
-income statement
-balance sheet - CORRECT ANSWER- income statement
Companies report the results of operations of a component of a business that will be
disposed of separately from continuing operations.
-True
-False - CORRECT ANSWER- True
Revenues and gains increase both net income and owners' equity.
-True
-False - CORRECT ANSWER- True
Which of the following would represent the least likely use of an income statement
prepared for a business enterprise?
-Use by customers to determine a company's ability to provide needed goods and
services.
-Use by labor unions to examine earnings closely as a basis for salary discussions.
-Use by government agencies to formulate tax and economic policy.
-Use by investors interested in the financial position of the entity - CORRECT
ANSWER- Use by investors interested in the financial position of the entity
Which of the following is an example of managing earnings down?
-Changing estimated bad debts from 3 percent to 2.5 percent of sales
-Revising the estimated life of equipment from 10 years to 8 years
- Not wring off obsolete inventory
-Reducing research and development expenditures - CORRECT ANSWER-
Revising the estimated life of equipment from 10 years to 8 years
, What might a manger do during the last quarter of a fiscal year if she wanted improve
current annual net income?
- Increase research and development activities
-Relax credit policies for customers
-Delay shipments to customers until after the end of the fiscal year
-Delay purchases from suppliers until after the end of the fiscal year - CORRECT
ANSWER- Relax credit policies for customers
Which of the following is not generally practiced method of presenting the income
statement?
-Including prior period adjustments in determining net income.
-The single-step income statement
-The consolidated statement of income
-Including gains and losses form discounted operations of a component of a business in
determining net income. - CORRECT ANSWER- Including prior period adjustments
in determining net income
The occurrence which most likely would have no effect on 2020 net income(if all
amounts involved are material) is the
-Sale in 2020 of an office building, acquired in 2001) at its book value
-Collection in 2020 of a receivable form a customer whose account was written in 2016
by a charge to the allowance account
-Sale in 2020 of fully depreciated equipment for less than its salvage(book) value
-None of the above - CORRECT ANSWER- Collection in 2020 of a receivable from
a customer whose account was written off in 2016 by a charge to the allowance account
Which of the following is a required disclosure in the income statement when reporting
the disposal of a component of the business.
-The gain or loss on disposal should be reported as a unusual gain or loss
-Results of operations of a discontinued component should be disclosed immediately
before income form continuing operations
-Earnings per share from continuing operations, discontinued operations, and ent
income should be disclosed on the face of the income statement.
-The gain or loss on disposal should not be segregated, but should be reported together
with the results of continuing operations - CORRECT ANSWER- Earnings per share
from continuing operations, discontinued operations, and net income should be
disclosed on the face of the income statement.
When a company discontinues an operation and disposes of the discontinued operation
(component), the transaction should be included in the income statement as a gain or
loss on disposal reported as
-a prior adjustment
-an extraordinary item
-an amount after continuing operations
-a bulk sale of plant assets included in income from continuing operations -
CORRECT ANSWER- an amount after continuing operations
The following information was extracted from the 2020 financial statements of Max
Company:
Income from continuing operations before income tax $705,000
Selling and administrative expenses 480,000
