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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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Arrow Printers paid $2,000 interest on short-term notes payable,$10,000 interest on long-term bonds,and $6,000 in dividends on its common stock.Arrow would report cash outflows from activities,as follows:

A) Operating,$2,000;financing,$16,000.
B) Operating,$0;financing,$18,000.
C) Operating,$12,000;financing,$6,000.
D) Operating,$18,000;financing,$0.

E) B) and C)
F) A) and B)

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Question 2

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Major Co.reported 2016 income of $300,000 from continuing operations before income taxes and a before-tax loss on discontinued operations of $80,000.All income is subject to a 30% tax rate.In the 2016 income statement,Major Co.would show the following line-item amounts for income tax expense and net income:

A) $66,000 and $210,000.
B) $90,000 and $154,000.
C) $90,000 and $276,000.
D) $66,000 and $220,000.

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

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Question 3

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Operating cash flows would exclude:

In a recent press release,Foot Locker Inc.reported that its fiscal first-quarter net income fell 46% due to losses related to discontinued operations,but earnings from continuing operations jumped 19% amid a modest increase in sales.The specialty athletic retailer said net income was $20 million for the quarter ended May 4,compared with net income of $37 million a year earlier.The latest results included a loss of $18 million from discontinued operations.Last year,the company had earnings of $5 million,or four cents a share,from discontinued operations.Foot Locker said earnings from continuing operations were $38 million,compared with $32 million a year earlier.Discuss how Foot Locker's press release relates to its earnings quality.

Gains,but not losses,from discontinued operations must be separately reported in an income statement.

Comprehensive income is the total change in shareholders' equity that occurred during the period.

International Financial Reporting Standards require a company to classify expenses in an income statement by function.

Presented below is an excerpt ($ in millions)from the 2014 annual report to shareholders of Microsoft Corporation.Explain how the shareholder should interpret the difference between the net income and total comprehensive income for Microsoft in 2014.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

What is Misty's net income for the current year?

Use the following to answer questions The trial balance of Rollins Inc.included the following accounts as of December 31,2016: Rollins had 100,000 shares of stock outstanding throughout the year.Income tax expense has not yet been accrued.The effective tax rate is 40%. -Required: Prepare a 2016 separate statement of comprehensive income for Rollins Inc.

Briefly explain why the income statement is referred to as a change statement.

Net income,often referred to as "the bottom line," is not always a good predictor of future income.Explain this statement.

In comparing the direct method with the indirect method of preparing the statement of cash flows:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Use the following to answer questions On September 1,2016,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 2016 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 2: Assume that Jacob had not yet sold the division's assets by the end of 2016.Further,assume that the fair value less costs to sell of the division's assets at December 31,2016,was $24 million and was expected to remain the same when the assets are sold in 2017.The book value of the division's assets was $19 million at the end of the year.Under these assumptions,what would Jacob report in its 2016 income statement regarding the office equipment division? Explain where this information would be presented.

Income from continuing operations sometimes includes gains from nonoperating activities.

Jacobsen Corporation prepares its financial statements applying U.S.GAAP.During its 2016 fiscal year,the company reported before-tax income of $620,000.This amount does not include the following two items,both of which are considered to be material in amount: The company's income tax rate is 40%.In its 2016 income statement,Jacobsen would report income from continuing operations of:

In the operating activities section of the statement of cash flows,we start with net income:

Nevada Boot Co.reported net income of $216,000 for its year ended December 31,2016.Purchases totaled $152,000.Accounts payable balances at the beginning and end of the year were $36,000 and $33,000,respectively.Beginning and ending inventory balances were $44,000 and $46,000,respectively.Assuming that all relevant information has been presented,Nevada Boot would report operating cash flows of: