CPA Financial Accounting and Reporting (FAR) : Income Statement
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #21 : Cpa Financial Accounting And Reporting (Far)
The metal division of a company generates an operating profit of $10,000 per month. On the final day of year 1, the company officials decide to sell the division which has a book value of $540,000. These officials believe they can sell the division for $570,000 but only after spending $70,000 needed to make the sale. The metal division meets the qualifications to be classified as an asset held for sale. In addition, the division qualifies as a discontinued operation. It is sold for the anticipated amount in February of year 2. Ignoring income taxes, what does the company report at the bottom of its year 1 income statement for the discontinued operation?
$80,000 profit
$0
$50,000 profit
$120,000 profit
$80,000 profit
The metal division generation $120K in operating profits throughout the year ($10K per month x 12 months). As part of the sale of the metal division, the company anticipates a loss of $40K ($570K sale price - $540K book value - $70K necessary expenses). Combined this creates a profit of $80K for the entire year.
Example Question #22 : Cpa Financial Accounting And Reporting (Far)
Barr Company had the following account balances at the end of Year 1: sales of $250,000; cost of goods sold of $90,000; salaries and wages of $30,000; rent expense of $15,000; advertising costs of $25,000; fixed assets purchased $50,000. What was Barr's net income for Year 1?
$115,000
$90,000
$65,000
$160,000
$90,000
Net income is calculated by taking sales of $250K - COGS of $90K - salaries of $30K - rent of $15K - advertising of $25K.
Example Question #23 : Cpa Financial Accounting And Reporting (Far)
Colt, Inc had the following account balances at the end of Year 3: consulting revenue of $60,000; rent expense of $15,000; software licensing fees of $5,000; dividends paid of $12,000; and advertising expenses of $25,000. What was Colt's net income in Year ?
$3,000
$15,000
$20,000
$8,000
$15,000
Net income is calculated by taking revenue of $60K - rent of $15K - licensing fees of $5K - advertising of $25K.
Example Question #24 : Cpa Financial Accounting And Reporting (Far)
Which of the following items would not be included in operating income?
Sales revenue
Repair and maintenance expense
Cost of goods sold
Gain on available-for-sale securities
Gain on available-for-sale securities
Operating income only includes revenues and expenses directly related to the company's primary operations.
Example Question #4 : Income Statement
Which of the following items would not be included in income from continuing operations?
Both
Gain on disposal of a business component
Gain on retirement of bonds
Neither
Gain on disposal of a business component
Disposal of a business component would be included in discontinued operations, where as gain on retirement of bonds is a normal part of continuing operations.
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