Chapter 4 Kieso 13th Selected Answers

Chapter 4 Kieso 13th Selected Answers - 8. Caution should...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
8. Caution should be exercised because many assumptions and estimates are made in accounting and the net income figure is a reflection of these assumptions. If for any reason the assumptions are not well-founded, distortions will appear in the income reported. The objectives of the application of generally accepted accounting principles to the income statement are to measure and report the results of operations as they occur for a specified period without recognizing any artificial exclusions or modifications. 10. The major distinction between revenues and gains (or expenses and losses) depends on the typical activities of the enterprise. Revenues can occur from a variety of different sources, but these sources constitute the entity’s ongoing major or central operations. Gains also can arise from many different sources, but these sources occur from peripheral or incidental transactions of an entity. The same type of distinction is made between an expense and a loss. 12. Operating items are the expenses and revenues which relate directly to the principal activity of the concern; they are revenues realized from, or expenses which contribute to, the sale of goods or services for which the company was organized. The nonoperating items result from secondary activities of the company. They are not directly related to the principal activity of the company but arise from incidental activities. 14. Items considered corrections of errors should be charged or credited to the opening balance of retained earnings. 17. (a)Other expenses or losses section or in a separate section, appropriately labeled as an unusual item, if unusual or infrequent but not both. (b) Operating expense section or other expenses and losses section or in a separate section, appropriately labeled as an unusual item, if unusual or infrequent but not both. FASB ASC 225-20 (predecessor literature: APB Opinion No. 30) specifically states that the effect of a strike does not constitute an extraordinary item. (c)Operating expense section, as a selling expense, but sometimes reflected as an administrative expense. (d) Separate section after income from continuing operations, entitled discontinued operations. 19. You should tell Greg that a company’s reported net income is the same whether the single-step or multiple-step format is used. Either way, the company has the same revenues, gains, expenses, and losses; they are simply organized in a different format. EXERCISE 4-4 (a) Multiple-Step Form WEBSTER COMPANY Income Statement For the Year Ended December 31, 2010 (In thousands, except earnings per share) Sales $96,500 Cost of goods sold. ......................................................................... 63,570 Gross profit. .................................................................................... 32,930 Operating Expenses Selling expenses Sales commissions. ............................................................. $7,980 Depr. of sales equipment. .................................................... 6,480
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Transportation-out. ............................................................. 2,690
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 15

Chapter 4 Kieso 13th Selected Answers - 8. Caution should...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online