Ch 4
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Questions and Answers

What is one of the primary motivations for executives when reporting earnings?

  • To maximize shareholder dividends
  • To avoid reporting losses at all costs
  • To show earnings that follow a smooth, regular, upward path (correct)
  • To reflect the most accurate financial position

    • What is income smoothing?

  • Manipulating reported income to seem more stable (correct)
  • Adjusting stock prices based on earnings forecasts
  • A method of budgeting for unexpected expenses
  • The practice of accurately reporting financial outcomes

    • Which of the following is NOT typically excluded from non-GAAP earnings?

  • Acquisition costs
  • Restructuring costs
  • Losses on asset write-downs
  • Marketing expenses (correct)

    • What key requirement does the Sarbanes-Oxley Act impose relating to non-GAAP earnings?

    <p>Reconciliation of non-GAAP earnings with GAAP earnings is mandatory</p> Signup and view all the answers

    What was the total sales revenue for McAllister's Manufacturing in 2021?

    <p>$1,450.6 million</p> Signup and view all the answers

    What does diluted EPS reflect?

    <p>Potential dilution from convertible securities or stock options</p> Signup and view all the answers

    How much did McAllister's Manufacturing spend on research and development in 2020?

    <p>$65.0 million</p> Signup and view all the answers

    How is basic EPS calculated?

    <p>Net income less preferred dividends divided by weighted-average common shares outstanding</p> Signup and view all the answers

    What was the operating income for McAllister's Manufacturing in 2021?

    <p>$171.2 million</p> Signup and view all the answers

    What does income statement classification shifting involve?

    <p>Changing the classification of revenues and expenses to mislead stakeholders</p> Signup and view all the answers

    What were the total operating expenses for McAllister's Manufacturing in 2020?

    <p>$314.6 million</p> Signup and view all the answers

    Which of the following represents a common criticism of non-GAAP earnings?

    <p>Management discretion in excluding expenses can lead to misleading reports</p> Signup and view all the answers

    Which of the following expenses increased from 2020 to 2021?

    <p>Cost of goods sold</p> Signup and view all the answers

    What was the loss on discontinued operations for the year?

    <p>$5.6</p> Signup and view all the answers

    Which of the following lines reflects the income tax expense for McAllister's Manufacturing in 2020?

    <p>$94.6 million</p> Signup and view all the answers

    What was the diluted earnings per common share from continuing operations?

    <p>$2.06</p> Signup and view all the answers

    What was the income from continuing operations for McAllister's Manufacturing in 2021?

    <p>$111.3 million</p> Signup and view all the answers

    Which of the following correctly describes the income tax benefit amount?

    <p>$2.0</p> Signup and view all the answers

    How much did interest expense amount to in 2021?

    <p>$25.9 million</p> Signup and view all the answers

    What component contributes to earnings per share from discontinued operations?

    <p>Loss from operations of discontinued component</p> Signup and view all the answers

    Which of the following is included in Other Comprehensive Income?

    <p>Gains and losses not included in net income</p> Signup and view all the answers

    How does comprehensive income differ from net income?

    <p>Comprehensive income encompasses gains and losses affecting equity beyond normal operations.</p> Signup and view all the answers

    Which reporting format can be used for comprehensive income?

    <p>Either a single continuous statement or two consecutive statements</p> Signup and view all the answers

    What is the primary purpose of reporting comprehensive income?

    <p>To provide a complete view of changes in equity not from transactions with owners</p> Signup and view all the answers

    How must most voluntary accounting changes be accounted for according to GAAP?

    <p>Accounted for retrospectively by revising prior years' financial statements</p> Signup and view all the answers

    What is a change in accounting principle?

    <p>A shift from one GAAP method to another GAAP method</p> Signup and view all the answers

    Which statement is true regarding changes in accounting estimates?

    <p>They use the new estimate in current and future periods</p> Signup and view all the answers

    What is required when the effect of a change in accounting estimate is material?

    <p>A disclosure note is needed to describe the change</p> Signup and view all the answers

    How are changes in depreciation, amortization, or depletion method treated?

    <p>The same as a change in accounting estimate</p> Signup and view all the answers

    What happens when errors are discovered in the same year?

    <p>The original erroneous journal entry is reversed and corrected</p> Signup and view all the answers

    What is an additional item under IFRS that is not present in U.S. GAAP concerning other comprehensive income?

    <p>Revaluation surplus</p> Signup and view all the answers

    What distinguishes a change in reporting entity from other types of accounting changes?

    <p>It involves preparing statements for a new or different entity</p> Signup and view all the answers

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