Chapter 004 the income statement and statement of cash flows

1.  Income from continuing operations sometimes includes gains from non-operating activities.  
 

2. Intraperiod tax allocation is the process of associating income tax effects with the income statement components that create those effects. 

3. Material restructuring costs are reported as an element of income from continuing operations. 

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

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

6. An item must meet the subjective criteria of being either unusual or infrequent to be reported as extraordinary. 
 

7. The definition of what constitutes an extraordinary item should be independent of the operating environment. 
 

8. Income statements prepared according to both U.S. GAAP and International Accounting Standards require the separate reporting, as an extraordinary item, of material gains and losses from events that are both unusual and infrequent. 

9. A change in depreciation method is accounted for by retrospectively revising prior years’ financial statements. 

 

 

 

10. Changes in accounting estimates require disclosure of their effects, if material, on current year net income and EPS but do not require restatement of prior years’ financial statements. 

11. The income effect of a change in reporting entity is shown separately in the income statement in the year of the change. 

12. EPS disclosure is required only for income from continuing operations.  

13. Comprehensive income reports an expanded version of income to include four types of gains and losses not included in traditional income statements. 
 

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

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

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