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1. (4 Points) Which of the following is false about an income statement? ltems that cannot be measured reliably are not reported in the income statement. a. b. It is used to measure the solvency of a company c. Income measurement involves judgment. d. Income numbers are affected by the accounting methods employed 2. (4 Points) Which of the following is an example of managing earnings down? a. Changing estimated bad debts from 3 percent to 2.5 percent of sales. b. Revising the estimated life of equipment from 10 years to 8 years C. d. Not writing off obsolete inventory Reducing research and development expenditures. 3. (5 Points) For Mortenson Company, the following information is available: Cost of goods sold Dividend revenue Income tax expense Operating expenses Sales revenue $390,000 15,000 36,000 138,000 600,000 In Mortenson's multiple-step income statement, gross profit should be reported as a. should not be reported. b. should be reported at $51,000. c. should be reported at $210,000 d. should be reported at $225,000. (5 Points) At Ruth Company, events and transactions during 2017 included the following. The rate for all items is 30%. (1) Depreciation for 2015 was found to be understated by $120,000 (2) A strike by the employees of a supplier resulted in a loss of $100,000. (3) The inventory at December 31, 2015 was overstated by $160,000 A disposal of a component of the business resulted in a $2,000,000 loss. (4) The effect of these events and transactions on 2017 net income net of tax would be a. ($70,500) b. ($1,470,000). c. ($1,554,000). d. ($1,666,000)

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