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Exam 4: The Income Statement, Comprehensive Income, and the Statement of Cash Flows

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Question 1

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On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2018. The following additional facts pertain to the transaction: • The Footwear Division qualifies as a component of the entity according to GAAP Regarding discontinued operations. • The book value of Footwear's assets totaled $48 million on the date of the sale. • Footwear's operating income was a pre-tax loss of $10 million in 2018. • Foxtrot's income tax rate is 40%. - In the income statement for the year ended December 31, 2018, Foxtrot Co. would report income from discontinued operations of:

A) $9.2 million.
B) $13.2 million.
C) $22 million.
D) $26 million.

E) A) and B)
F) None of the above

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Question 2

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A change in accounting principle that is implemented using the retrospective approach includes restating financial statements of all periods presented as if the new standard had been used in those periods.

A) True
B) False

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Question 3

Multiple Choice

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Comprehensive income is the change in equity from:

Reporting comprehensive income can be accomplished by each of the following methods except:

The direct and indirect methods of reporting the statement of cash flows present different information for investing and financing activities.

Reporting comprehensive income according to International Financial Reporting Standards (IFRS) can be accomplished by each of the following methods except:

The relationship between revenue from selling inventory and the cost of that inventory is measured as:

Most real-world income statements are presented using which format?

Earnings quality refers to the ability of reported earnings (income) to predict future earnings.

The trial balance of Kroeger Inc. included the following accounts as of December 31, 2018: Kroeger had 300,000 shares of stock outstanding throughout the year. Income tax expense has not yet been accrued. The effective tax rate is 40%. -Required: Prepare a 2018 single, continuous statement of comprehensive income for Kroeger Inc. Use a multiple-step income statement format.

Cash flows from investing do not include cash flows from:

Plano had 50,000 shares of stock outstanding throughout the year. Income tax expense has not yet been accrued. The effective tax rate is 30%. -Required: Prepare a single-step income statement with earnings per share disclosure.

On September 1, 2018, Jacob Furniture Mart enters into a tentative agreement to sell the assets of its office equipment division. This division qualifies as a component of the entity according to GAAP regarding discontinued operations. The division's contribution to Jacob's operating income for 2018 was a $3 million loss before taxes. Jacob has an average tax rate of 30%. Required: Consider independently the appropriate accounting by Jacob under the three scenarios below. -Scenario 3: Assume that Jacob had not yet sold the office furniture division by the end of 2018. Further, assume that the fair value less costs to sell of the division's assets at December 31, 2018, was $12 million and was expected to remain the same when the assets are sold in 2019. The book value of the division's assets was $19 million at the end of 2018. Under these assumptions, what would Jacob report in its 2018 income statement regarding the office equipment division? Explain where this information would be presented.

Excerpts from Hulkster Company's December 31, 2018 and 2017, financial statements are presented below: - Hulkster's 2018 average days in inventory is (rounded) :

Missoula Inc. reported the following selected financial statement data: -Required: Compute the profit margin on sales for 2018.

Based on this information, if you were going to advise McDonald's about how it could enhance return on shareholders' equity, what would you suggest? Be as specific as possible in the operational or financial changes you would recommend.

Operating cash outflows would include:

A common component of income excluded from the calculation of non-GAAP earnings is:

The trial balance of Kroeger Inc. included the following accounts as of December 31, 2018: Kroeger had 300,000 shares of stock outstanding throughout the year. Income tax expense has not yet been accrued. The effective tax rate is 40%. -Required: Prepare a 2018 multiple-step income statement for Kroeger Inc. with earnings per share disclosure.

A change in accounting principle that is implemented using the retrospective approach includes: