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Intermediate Accounting

Earl K. Stice, James D. Stice

Chapter 4

The Income Statement - all with Video Answers

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Chapter Questions

Problem 1

FASB Concepts Statement No. 1 states, "The primary focus of financial reporting is information about an enterprise's performance provided by measures of earnings and its components." Why is it unwise for users of financial statements to focus too much attention on the income statement?

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Problem 2

After the necessary definitions and assumptions that support the determination of income have been made, what are the two methods of income measurement that may be used to determine income? How do they differ?

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Problem 3

What different measurement methods may be applied to net assets in arriving at income under the capital maintenance approach?

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05:45

Problem 4

Income as determined by income tax regulations is not necessarily the same as income reported to external users. Why might there be differences?

Crystal Wang
Crystal Wang
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02:17

Problem 5

What is the difference between a code law country and a common law country?

Eric Ferrara
Eric Ferrara
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00:37

Problem 6

How are revenues and expenses different from gains and losses?

Luke P
Luke P
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Problem 7

What two factors must be considered in deciding the point at which revenues and gains should be recognized? At what point in the rev enue cycle are these conditions usually met?

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Problem 8

Name three exceptions to the general rule that assumes revenue is recognized at the point of sale. What is the justification for these exceptions?

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01:43

Problem 9

What guidelines are used to match costs with revenues in determining income?

Narayan Hari
Narayan Hari
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Problem 10

What are some possible disadvantages of a multiple-step income statement?

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Problem 11

Identify the major sections (components of income) that are included in a multiple-step income statement.

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01:48

Problem 12

What are restructuring charges, and why do they generate controversy?

Daniel Cisneros
Daniel Cisneros
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Problem 13

What is the meaning of "intraperiod" income tax allocation?

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Problem 14

Pop-Up Company has decided to sell its lid manufacturing division even though the division is expected to show a small profit this year. The division's assets will be sold to another company at a loss of $$\$ 10,000$$. What information (if any) should Pop-Up disclose in its financial reports with respect to this division?

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Problem 15

Which of the following would not normally qualify as an extraordinary item?
(a) The write-down or write-off of receivables.
(b) Major devaluation of foreign currency.
(c) Loss on sale of plant and equipment.
(d) Gain from early extinguishment of debt.
(e) Loss due to extensive flood damage to an asphalt company in Las Vegas, Nevada.
(f) Loss due to extensive earthquake damage to a furniture company in Los Angeles, California.
(g) Farming loss due to heavy spring rains in the Northwest.

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Problem 16

Explain briefly the difference in accounting treatment of (a) a change in accounting principle and (b) a change in accounting estimate.

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Problem 17

Under IASB standards, how is a change in accounting principle reported?

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Problem 18

What is the general practice in reporting earnings per share?

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Problem 19

Define comprehensive income. How does it differ from net income?

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Problem 20

What is the starting point for the preparation of forecasted financial statements?

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Problem 21

Describe the process one should use in forecasting depreciation expense.

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