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

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Question 51

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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%. - Suppose that the Footwear Division's assets had not been sold by December 31, 2018, but were considered held for sale. Assume that the fair value of these assets was $40 million at December 31, 2018. In the income statement for the year ended December 31, 2018, Foxtrot Co. would report discontinued operations of a:

A) $3 million loss.
B) $10 million loss.
C) $10.8 million loss.
D) $18 million loss.

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

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Question 52

Multiple Choice

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Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:

A) Operating cash inflows of $18,000.
B) Operating cash inflows of $8,000.
C) Financing cash inflows of $18,000.
D) Investing cash inflows of $18,000.

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

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Question 53

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Missoula Inc. reported the following selected financial statement data: -Required: Compute the return on assets for 2018.

Listed below are ten terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. A) Other comprehensive income item. B) Component of the entity has been sold or will be sold. C) Reports a series of intermediate subtotals. D) Required disclosure for publicly traded corporations. E) Total nonowner change in equity. F) Accounted for prospectively. G) Costs generally associated with downsizing. H) Ability of reported income to predict future earnings. I) Tangentially related to normal operations. J) Accounted for retrospectively by revising prior years' statements. -152) Earnings per share 153) Comprehensive income 154) Restructuring costs 155) Multiple-step income statement 156) Foreign currency translation adjustment 157) Change in estimate 158) Nonoperating income 159) Change in accounting principle 160) Discontinued operations 161) Earnings quality

Excerpts from Dowling Company's December 31, 2018 and 2017, financial statements and key ratios are presented below (all numbers are in millions) : - Dowling's 2018 profit margin is (rounded) :

Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2018. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000, respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:

Presented below is an excerpt ($ in millions) from the 2016 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 2016.

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

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 multiple-step income statement with earnings per share disclosure.

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

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:

Excerpts from Dowling Company's December 31, 2018 and 2017, financial statements and key ratios are presented below (all numbers are in millions) : - Dowling's return on equity for 2018 is (rounded) :

What limitations exist in drawing meaningful comparisons about the performance of Uncle Joe's from the data above?

Excerpts from Dowling Company's December 31, 2018 and 2017, financial statements and key ratios are presented below (all numbers are in millions) : - Dowling's average total assets for 2018 is (rounded) :

The multiple-step format of the income statement reports a series of intermediate subtotals such as gross profit, operating income, and income before taxes.

Howard Inc. had prepaid rent of $75,000 and $80,000 at the end of 2017 and 2018, respectively. During 2018, Howard recorded $240,000 in rent expense in its income statement. Cash outflows for rent in 2018 were:

The following information (in $ millions) comes from the Annual Report of Saratoga Springs Co. for the year ending 12/31/2018: Required: Compute the following amounts for Saratoga Springs Co. -Its profit margin on sales for 2018. Round your answer to one decimal place, e.g., 0.1234 as 12.3%.

Restructuring costs most often refer to costs associated with management's plans to materially change the scope of business operations or the manner in which they are conducted.

Each of the following would be reported as items of other comprehensive income except:

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%. - Suppose that the Footwear Division's assets had not been sold by December 31, 2018, but were considered held for sale. Assume that the fair value of these assets was $80 million at December 31, 2018. In the income statement for the year ended December 31, 2018, Foxtrot Co., would report discontinued operations of a: