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Chapter 4: Q4-2ISTQ (page 198)

Which of the following statements is correct regarding income reporting under IFRS?

(a) IFRS does not permit revaluation of property, plant, equipment, and intangible assets.

(b) IFRS provides the same options for reporting comprehensive income as GAAP.

(c) Companies must classify expenses by nature.

(d) IFRS provides a definition for all items presented in the income statement.

Short Answer

Expert verified

Option b is the correct answer.

Step by step solution

01

Meaning of GAAP

GAAP is the Generally Accepted Accounting Principles that facilitate the accounting professionals to maintain the financial information of a business concern. It contains basic rules, guidelines, and principles issued by FASB.

02

The explanation for the correct option

The comprehensive income is treated in the same manner under IFRS as it is treated under the GAAP. It is computed by adding/subtracting the unrealized gains/losses in the net income generated by a business entity.

03

The explanation for the incorrect options

IFRS allows the business concerns to revalue their tangible and intangible assets. Also, the companies are not required to classify the expenses under the IFRS. In addition, IFRS facilitates the business entities tocompute income and losses and does not necessarily provide the definition of all the items.

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Most popular questions from this chapter

Lebron Co. owns most but not all of the shares of its subsidiary Bryant Inc. Lebron reported net income of \(124,700. The amount to be attributed to the noncontrolling interest in Bryant is \)30,000. Indicate how Lebron will report the noncontrolling interest in its income statement.

Question: O’Malley Corporation was incorporated and began business on January 1, 2017. It has been successful and now requires a bank loan for additional working capital to finance expansion. The bank has requested an audited income statement for the year 2017. The accountant for O’Malley Corporation provides you with the following income statement which O’Malley plans to submit to the bank.

O’MALLEY CORPORATION

INCOME STATEMENT

Sales revenue \(850,000

Dividends 32,300

Gain on recovery of insurance proceeds from

earthquake loss 38,500

920,800

Less:

Selling expenses \)101,100

Cost of goods sold 510,000

Advertising expense 13,700

Loss on obsolescence of inventories 34,000

Loss on discontinued operations 48,600

Administrative expense 73,400 780,800

Income before income tax 140,000

Income tax 56,000

Net income $84,000

Instructions

Indicate the deficiencies in the income statement presented above. Assume that the corporation desires a single-step income statement.

The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2017. Fortunately, the controller had kept certain statistical data related to the income statement as follows.XXX

  1. The beginning merchandise inventory was \(92,000 and decreased 20% during the current year.
  2. Sales discounts amount to \)17,000.
  3. 20,000 shares of common stock were outstanding for the entire year.
  4. Interest expense was \(20,000.
  5. The income tax rate is 30%.
  6. The cost of goods sold amounts to \)500,000.
  7. Administrative expenses are 20% of the cost of goods sold but only 8% of gross sales.
  8. Four-fifths of the operating expenses relate to sales activities.

Instructions

From the foregoing information prepare an income statement for the year 2017 in single-step form.

How can earnings management affect the quality of earnings?

During 2017, Williamson Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2016 and 2015 (Williamson’s first year of operations) under FIFO was \(160,000 and \)180,000, respectively. Pretax income using weighted-average pricing in the prior years would have been \(145,000 in 2016 and \)170,000 in 2015. In 2017, Williamson reported a pretax income (using weighted-average pricing) of $180,000. Show comparative income statements for Williamson, beginning with “Income before income tax,” as presented on the 2017 income statement. (The tax rate in all years is 30%.)

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