ACC 311 PROBLEM SET 4|QUESTIONS AND CORRECT SOLUTIONS|LATEST UPDATE 100% CORRECT

ESTUDYR



ACC 311 PROBLEM SET 4|QUESTIONS AND CORRECT
SOLUTIONS|LATEST UPDATE 100% CORRECT
A strength of the income statement as compared to the balance sheet is that items which
cannot be measured reliably can be reported in the income statement.
A. True
B. False
Rationale: Unreliable items are generally not reported; both the income statement and balance
sheet rely on measurable amounts. Conservatism and disclosure can address uncertainty, but
unreliable amounts are usually disclosed, not recognized.

Your earnings management generally makes income statement information more useful
for predicting future earnings and cash flows.
A. True
B. False
Rationale: Earnings management usually reduces the reliability and predictive value of reported
earnings by introducing discretionary adjustments.

Companies frequently report income tax expense separately as the last item before net
income on a single-step income statement.
A. True
B. False
Rationale: It is common practice to present income tax expense as a separate line (often
immediately before net income) to clarify the tax effect on income.

Revenues and gains increase both net income and owners’ equity.
A. True
B. False
Rationale: Revenues and gains increase net income, which flows into retained earnings — a
component of owners’ equity.

The phrase “income from continuing operations” is used only when gains or losses on
discontinued operations occur.
A. True
B. False
Rationale: The phrase appears whenever reporting distinguishes continuing operations from
discontinued operations; if there are discontinued operations, separate presentation is
required — so the user’s original answer was True in their source.

, ESTUDYR


The primary advantage of the multi-step income statement format lies in the simplicity of
presentation and the absence of any implication that one type of revenue or expense has
priority over another.
A. True
B. False
Rationale: This statement is false — the multi-step format is not chosen for simplicity; it
provides subtotals (gross profit, income from operations) that imply hierarchy and provide
analytical detail.

Gross profit and income from operations are reported on a multiple-step but not on a
single-step income statement.
A. True
B. False
Rationale: Multiple-step statements display gross profit and operating income explicitly; single-
step statements aggregate revenues and expenses and typically do not show those subtotals.

The accounting profession has adopted a current operating performance approach to
income reporting.
A. True
B. False
Rationale: Historically there has been debate between the “current operating performance”
approach and other views; the profession has not exclusively adopted only the current
operating performance approach — statement given as False per your source.

Companies report the results of operations of a component of a business that will be
disposed of separately from continuing operations.
A. True
B. False
Rationale: Discontinued operations are presented separately, net of tax, to distinguish them
from continuing operations.

Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable
to the parent company.
A. True
B. False
Rationale: Noncontrolling interest (minority interest) represents shareholders’ equity in a
consolidated subsidiary not owned by the parent.

Discontinued operations and unusual gains and losses are both reported net of tax in the
income statement.