ACG EXAMS EVALUATION TEST 2025/2026 QUESTIONS
AND SOLUTION RATED A+
✔✔The statement, "linkage between these costs and individual sales is difficult to
establish," refers to
A. period costs.
B. expired costs.
C. product costs.
D. traceable costs. - ✔✔period costs
✔✔Income statements are classified into sections to
A. separate earned income from unearned income.
B. distinguish between sustainable and transitory income.
C. separate real income from book income.
D. distinguish between book income and taxable income. - ✔✔distinguish between
sustainable and transitory income
✔✔The rationale behind the rules for multiple-step income statements is to subdivide
the income in a manner that facilitates
A. cash flows.
B. forecasting.
C. tax return preparation.
D. audits - ✔✔forecasting
✔✔The best measure of a firm's sustainable income is
A. income from continuing operations.
B. income before extraordinary items.
C. income before extraordinary item and change in accounting principle.
D. net income. - ✔✔income from continuing operations
✔✔On the income statement, income from discontinued operations is shown
A. as a separate section of income from continuing operations.
B. as an accounting principle change.
C. without any income tax effect.
D. net of taxes after income from continuing operations. - ✔✔net of taxes after income
from continuing operations
✔✔Transitory earnings components fall into all of the following categories except
A. special or unusual items.
B. discontinued operations.
C. extraordinary items.
D. cumulative effect of accounting changes. - ✔✔cumulative effect of accounting
changes
,✔✔Black & Decker decides to discontinue producing toasters in lieu of more versatile
toaster ovens. In the process of discontinuing this line, the company disposes of the old
equipment and buys new. The disposal of the old equipment would be reported in the
income statement as
A. gain or loss on the sale of equipment as part of continuing operations.
B. gain or loss on the sale of production equipment as part of extraordinary gains and
losses.
C. gain or loss on the disposal of discontinued business component.
D. income from operation of a discontinued business component. - ✔✔gain or loss on
the sale of equipment as part of continuing operations
✔✔A component of an entity may be a/an
A. reportable or operating segment.
B. subsidiary.
C. asset group.
D. reportable or operating segment, subsidiary, or asset group. - ✔✔reportable or
operating segment, subsidiary, or asset group
✔✔The discontinued operations section of the income statement is comprised of which
one of the following
A. Income from the operation of discontinued business component and gain or loss from
the disposal of the discontinued component.
B. Income from the operation of discontinued business component, net of tax, and gain
or loss from the disposal of the discontinued component, net of tax.
C. Income from the operation of discontinued business component, net of tax and gain
or loss from the disposal of the discontinued component.
D. Gain or loss from the disposal of the discontinued component, net of tax. -
✔✔Income from the operation of discontinued business component, net of tax, and gain
or loss from the disposal of the discontinued component, net of tax
✔✔To be reported as an extraordinary item on the income statement, an event must be
A. both unusual in nature and an infrequent occurrence.
B. either unusual in nature or an infrequent occurrence.
C. unusual in nature.
D. an infrequent occurrence - ✔✔both unusual in nature and an infrequent occurrence
✔✔If a material event is either unusual in nature or an infrequent occurrence it is
classified on the income statement as a/an
A. special item in continuing operations.
B. special item in continuing operations shown net of tax.
C. extraordinary item.
D. extraordinary item shown net of tax. - ✔✔special item in continuing operations
✔✔Which one of the following events would be considered an extraordinary event
A. A tornado in Kansas.
,B. An earthquake in New York.
C. A flood in St. Louis near the Mississippi River.
D. An earthquake in southern California. - ✔✔An earthquake in New York
✔✔A special one-time charge resulting from corporate restructurings would be reported
on the income statement as a/an
A. extraordinary item shown net of tax.
B. special item in continuing operations.
C. special item in continuing operations, shown net of tax.
D. special item in discontinued operations, shown net of tax. - ✔✔special item in
continuing operations
✔✔When reporting a change in an accounting principle, the general rule requires that
the current year's income from continuing operations reflect
A. use of the newly adopted principle for the current year recognition.
B. use of the old principle for the current year recognition.
C. management's choice of either the old or newly adopted principle for the current year
recognition.
D. FASB's designation of either the old or newly-adopted principle based on the item
being changed. - ✔✔use of the newly adopted principle for the current year recognition
✔✔A cumulative effect of a change in an accounting principle is measured as
A. the difference between prior periods' income under the old method and what would
have been reported if the new method had been used in the prior years.
B. the after-tax difference between prior periods' income under the old method and what
would have been reported if the new method had been used in the prior years.
C. the difference between prior periods' income and current income under the old
method and what would have been reported if the new method had been used in the
prior years and the current year.
D. the after-tax difference between prior periods' income and current income under the
old method and what would have been reported if the new method had been used in the
prior years and the current year. - ✔✔the after-tax difference between prior periods'
income under the old method and what would have been reported if the new method
had been used in the prior years
✔✔When reporting a cumulative effect of a change in accounting principle, current
disclosure rules require that
A. all prior years' income statements be restated to reflect use of the new principle
unless it is impractical to do so.
B. all prior years' income statements be restated to reflect use of the new principle, and
include a pro forma income figure of the previously reported income.
C. no prior years' income statements be restated, but a pro forma income figure be
provided to reflect use of the new principle for each year presented.
, D. no prior years' income statements be restated, and no pro forma income figures be
provided. - ✔✔all prior years' income statements be restated to reflect use of the new
principle unless it is impractical to do so
✔✔When a company changes from LIFO to another inventory method, the change is
reported
A. prospectively because it is impractical to determine the effects of this change on prior
years' income.
B. as an error correction.
C. as a change in an accounting estimate.
D. using the retrospective approach. - ✔✔using the retrospective approach
✔✔When a company changes from straight-line depreciation to double-declining-
balance depreciation, the change is reported
A. prospectively because it is impractical to determine the effects of this change on prior
years' income.
B. as an error correction.
C. as a change in an accounting estimate.
D. using the retrospective approach. - ✔✔using the retrospective approach
✔✔When a company changes from any inventory method to LIFO, the change is
reported
A. prospectively because it is usually impractical to determine the effects of this change
on prior years' income.
B. as an error correction.
C. as a change in an accounting estimate.
D. using the retrospective approach. - ✔✔prospectively because it is usually impractical
to determine the effects of this change on prior years' income
✔✔Royal, Inc. discovered that equipment purchased three years ago for $300,000
A. $40,000
B. $60,000
C. $90,000
D. $120,000 - ✔✔$90,000
✔✔GAAP requires that each set of EPS numbers includes separately reported numbers
for all of the following except
A. special or unusual items.
B. income from continuing operations.
C. discontinued operations.
D. extraordinary items. - ✔✔special or unusual items
✔✔When EPS is reported as basic EPS for income from continuing operations
excluding the effects of special (i.e., nonrecurring) gains or losses and certain other
non-cash charges such earnings are frequently referred to as
AND SOLUTION RATED A+
✔✔The statement, "linkage between these costs and individual sales is difficult to
establish," refers to
A. period costs.
B. expired costs.
C. product costs.
D. traceable costs. - ✔✔period costs
✔✔Income statements are classified into sections to
A. separate earned income from unearned income.
B. distinguish between sustainable and transitory income.
C. separate real income from book income.
D. distinguish between book income and taxable income. - ✔✔distinguish between
sustainable and transitory income
✔✔The rationale behind the rules for multiple-step income statements is to subdivide
the income in a manner that facilitates
A. cash flows.
B. forecasting.
C. tax return preparation.
D. audits - ✔✔forecasting
✔✔The best measure of a firm's sustainable income is
A. income from continuing operations.
B. income before extraordinary items.
C. income before extraordinary item and change in accounting principle.
D. net income. - ✔✔income from continuing operations
✔✔On the income statement, income from discontinued operations is shown
A. as a separate section of income from continuing operations.
B. as an accounting principle change.
C. without any income tax effect.
D. net of taxes after income from continuing operations. - ✔✔net of taxes after income
from continuing operations
✔✔Transitory earnings components fall into all of the following categories except
A. special or unusual items.
B. discontinued operations.
C. extraordinary items.
D. cumulative effect of accounting changes. - ✔✔cumulative effect of accounting
changes
,✔✔Black & Decker decides to discontinue producing toasters in lieu of more versatile
toaster ovens. In the process of discontinuing this line, the company disposes of the old
equipment and buys new. The disposal of the old equipment would be reported in the
income statement as
A. gain or loss on the sale of equipment as part of continuing operations.
B. gain or loss on the sale of production equipment as part of extraordinary gains and
losses.
C. gain or loss on the disposal of discontinued business component.
D. income from operation of a discontinued business component. - ✔✔gain or loss on
the sale of equipment as part of continuing operations
✔✔A component of an entity may be a/an
A. reportable or operating segment.
B. subsidiary.
C. asset group.
D. reportable or operating segment, subsidiary, or asset group. - ✔✔reportable or
operating segment, subsidiary, or asset group
✔✔The discontinued operations section of the income statement is comprised of which
one of the following
A. Income from the operation of discontinued business component and gain or loss from
the disposal of the discontinued component.
B. Income from the operation of discontinued business component, net of tax, and gain
or loss from the disposal of the discontinued component, net of tax.
C. Income from the operation of discontinued business component, net of tax and gain
or loss from the disposal of the discontinued component.
D. Gain or loss from the disposal of the discontinued component, net of tax. -
✔✔Income from the operation of discontinued business component, net of tax, and gain
or loss from the disposal of the discontinued component, net of tax
✔✔To be reported as an extraordinary item on the income statement, an event must be
A. both unusual in nature and an infrequent occurrence.
B. either unusual in nature or an infrequent occurrence.
C. unusual in nature.
D. an infrequent occurrence - ✔✔both unusual in nature and an infrequent occurrence
✔✔If a material event is either unusual in nature or an infrequent occurrence it is
classified on the income statement as a/an
A. special item in continuing operations.
B. special item in continuing operations shown net of tax.
C. extraordinary item.
D. extraordinary item shown net of tax. - ✔✔special item in continuing operations
✔✔Which one of the following events would be considered an extraordinary event
A. A tornado in Kansas.
,B. An earthquake in New York.
C. A flood in St. Louis near the Mississippi River.
D. An earthquake in southern California. - ✔✔An earthquake in New York
✔✔A special one-time charge resulting from corporate restructurings would be reported
on the income statement as a/an
A. extraordinary item shown net of tax.
B. special item in continuing operations.
C. special item in continuing operations, shown net of tax.
D. special item in discontinued operations, shown net of tax. - ✔✔special item in
continuing operations
✔✔When reporting a change in an accounting principle, the general rule requires that
the current year's income from continuing operations reflect
A. use of the newly adopted principle for the current year recognition.
B. use of the old principle for the current year recognition.
C. management's choice of either the old or newly adopted principle for the current year
recognition.
D. FASB's designation of either the old or newly-adopted principle based on the item
being changed. - ✔✔use of the newly adopted principle for the current year recognition
✔✔A cumulative effect of a change in an accounting principle is measured as
A. the difference between prior periods' income under the old method and what would
have been reported if the new method had been used in the prior years.
B. the after-tax difference between prior periods' income under the old method and what
would have been reported if the new method had been used in the prior years.
C. the difference between prior periods' income and current income under the old
method and what would have been reported if the new method had been used in the
prior years and the current year.
D. the after-tax difference between prior periods' income and current income under the
old method and what would have been reported if the new method had been used in the
prior years and the current year. - ✔✔the after-tax difference between prior periods'
income under the old method and what would have been reported if the new method
had been used in the prior years
✔✔When reporting a cumulative effect of a change in accounting principle, current
disclosure rules require that
A. all prior years' income statements be restated to reflect use of the new principle
unless it is impractical to do so.
B. all prior years' income statements be restated to reflect use of the new principle, and
include a pro forma income figure of the previously reported income.
C. no prior years' income statements be restated, but a pro forma income figure be
provided to reflect use of the new principle for each year presented.
, D. no prior years' income statements be restated, and no pro forma income figures be
provided. - ✔✔all prior years' income statements be restated to reflect use of the new
principle unless it is impractical to do so
✔✔When a company changes from LIFO to another inventory method, the change is
reported
A. prospectively because it is impractical to determine the effects of this change on prior
years' income.
B. as an error correction.
C. as a change in an accounting estimate.
D. using the retrospective approach. - ✔✔using the retrospective approach
✔✔When a company changes from straight-line depreciation to double-declining-
balance depreciation, the change is reported
A. prospectively because it is impractical to determine the effects of this change on prior
years' income.
B. as an error correction.
C. as a change in an accounting estimate.
D. using the retrospective approach. - ✔✔using the retrospective approach
✔✔When a company changes from any inventory method to LIFO, the change is
reported
A. prospectively because it is usually impractical to determine the effects of this change
on prior years' income.
B. as an error correction.
C. as a change in an accounting estimate.
D. using the retrospective approach. - ✔✔prospectively because it is usually impractical
to determine the effects of this change on prior years' income
✔✔Royal, Inc. discovered that equipment purchased three years ago for $300,000
A. $40,000
B. $60,000
C. $90,000
D. $120,000 - ✔✔$90,000
✔✔GAAP requires that each set of EPS numbers includes separately reported numbers
for all of the following except
A. special or unusual items.
B. income from continuing operations.
C. discontinued operations.
D. extraordinary items. - ✔✔special or unusual items
✔✔When EPS is reported as basic EPS for income from continuing operations
excluding the effects of special (i.e., nonrecurring) gains or losses and certain other
non-cash charges such earnings are frequently referred to as
