Ch 4

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?

Reconciliation of non-GAAP earnings with GAAP earnings is mandatory (D) Signup and view all the answers

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

$1,450.6 million (B) Signup and view all the answers

What does diluted EPS reflect?

Potential dilution from convertible securities or stock options (D) Signup and view all the answers

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

$65.0 million (D) Signup and view all the answers

How is basic EPS calculated?

Net income less preferred dividends divided by weighted-average common shares outstanding (C) Signup and view all the answers

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

$171.2 million (B) Signup and view all the answers

What does income statement classification shifting involve?

Changing the classification of revenues and expenses to mislead stakeholders (A) Signup and view all the answers

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

$314.6 million (B) Signup and view all the answers

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

Management discretion in excluding expenses can lead to misleading reports (A) Signup and view all the answers

Which of the following expenses increased from 2020 to 2021?

Cost of goods sold (B) Signup and view all the answers

What was the loss on discontinued operations for the year?

$5.6 (D) Signup and view all the answers

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

$94.6 million (D) Signup and view all the answers

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

$2.06 (B) Signup and view all the answers

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

$111.3 million (B) Signup and view all the answers

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

$2.0 (C) Signup and view all the answers

How much did interest expense amount to in 2021?

$25.9 million (C) Signup and view all the answers

What component contributes to earnings per share from discontinued operations?

Loss from operations of discontinued component (C) Signup and view all the answers

Which of the following is included in Other Comprehensive Income?

Gains and losses not included in net income (C) Signup and view all the answers

How does comprehensive income differ from net income?

Comprehensive income encompasses gains and losses affecting equity beyond normal operations. (B) Signup and view all the answers

Which reporting format can be used for comprehensive income?

Either a single continuous statement or two consecutive statements (C) Signup and view all the answers

What is the primary purpose of reporting comprehensive income?

To provide a complete view of changes in equity not from transactions with owners (D) Signup and view all the answers

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

Accounted for retrospectively by revising prior years' financial statements (B) Signup and view all the answers

What is a change in accounting principle?

A shift from one GAAP method to another GAAP method (B) Signup and view all the answers

Which statement is true regarding changes in accounting estimates?

They use the new estimate in current and future periods (B) Signup and view all the answers

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

A disclosure note is needed to describe the change (C) Signup and view all the answers

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

The same as a change in accounting estimate (A) Signup and view all the answers

What happens when errors are discovered in the same year?

The original erroneous journal entry is reversed and corrected (D) 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?

Revaluation surplus (A) Signup and view all the answers

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

It involves preparing statements for a new or different entity (C) Signup and view all the answers