Ch 4 – Practice MCQs

1) The business model may be broken down into three activities:

a) investing, operating, allocating.

 b) investing, operating, financing.

3. financing, operating, and comprehensive income.
4. balance sheet, income statement, cash flow statement.

2. The first step in the financial risk management process is

a) buying insurance.

   b) identifying risks.

3. managing risks.
4. monitoring risks.

 

3. Segregating a company’s recurring operating income from nonrecurring income sources is useful because

1. recurring income is constantly changing.
2. nonrecurring income is subject to greater management bias and uncertainty.
3. results from continuing operations have greater significance for predicting future performance.
4. nonrecurring income is irrelevant to stakeholders.

4. The view of income that IFRS generally supports is referred to as the

a) all-inclusive approach.

2. current operating performance approach.
3. other comprehensive income approach.
4. operating income approach.

5. Accumulated other comprehensive income would be reported in

   a) shareholders’ equity.

2. retained earnings.
3. net income.
4. net income from continuing operations.

6. Which of the following is a required disclosure in the income statement when reporting the disposal of a segment of the business?

1. The gain or loss on disposal should be reported as an unusual item.
2. Results of operations of a discontinued segment should be disclosed in other comprehensive income.

 c) Earnings per share from both continuing operations and for the discontinued segment should be disclosed either on the face of the statement or in the notes.

d) The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations.

 

7. Which of the following is NOT a generally practiced method of presenting the income statement?

  a) including corrections of errors made in a prior period

2. the single-step income statement
3. the multiple-step income statement
4. including gains and losses from discontinued operations

8. Intraperiod tax allocation

a) allocates tax balances between fiscal years.

    b) allocates tax balances within a fiscal period.

3. is used for income from continuing operations but not for income from discontinued operations.
4. is used for other comprehensive income but not for income from discontinued operations.

9. Honeysuckle Inc. reported the following information for 2020:

Sales revenue............................................................................................	$780,000
Cost of goods sold.....................................................................................	525,000
Operating expenses...................................................................................	82,500
Gain on the sale of equipment...................................................................	105,000
Cash dividends received on investment securities....................................	4,500

For 2020, on a multiple-step income statement, Honeysuckle would report other income of

 a) $277,500.

   b) $109,500.

c) $105,000.

d) $4,500.

 

10. Changes in accounting principle are allowed where

1. they are required by a primary source of GAAP.
2. they result in reliable and more relevant information.
3. the company reports less favourable results under the new policy.