Question 1

Which items below would be classified as operating expenses?

Accepted Answer

A)  Depreciation, capital leases, operating profit. 
B)  Interest expense, interest income, rent expense. 
C)  Accounts payable, lease payments, depreciation. 
D)  Advertising, selling and administrative, repairs and maintenance. 
A)  Depreciation, capital leases, operating profit. 
B)  Interest expense, interest income, rent expense. 
C)  Accounts payable, lease payments, depreciation. 
D)  Advertising, selling and administrative, repairs and maintenance.

Question 2

The amount and trend of each operating expense should be evaluated as well as its relationship to the volume of activity that is relevant to the expense.

Accepted Answer

A) True 
 B)False

Question 3

How is a firm's average income tax rate calculated?

Accepted Answer

A)  Income taxes divided by earnings before income taxes. 
B)  Income taxes divided by net income. 
C)  Income taxes divided by sales. 
D)  Income taxes divided by gross profit. 
A)  Income taxes divided by earnings before income taxes. 
B)  Income taxes divided by net income. 
C)  Income taxes divided by sales. 
D)  Income taxes divided by gross profit.

Question 4

The common size income statement expresses each income statement item as a percentage of net sales.

Accepted Answer

A) True 
 B)False

Question 5

The gross profit margin and cost of goods sold percentage are complements of each other and always add to 100%.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not an acceptable method to report total comprehensive income?

Accepted Answer

A)  On the face of the income statement. 
B)  In a separate statement of comprehensive income. 
C)  In the equity section of the balance sheet. 
D)  In the statement of stockholders' equity. 
A)  On the face of the income statement. 
B)  In a separate statement of comprehensive income. 
C)  In the equity section of the balance sheet. 
D)  In the statement of stockholders' equity.

Question 7

How should gross profit margin be analyzed for firms having more than one revenue source?

Accepted Answer

A)  The overall gross profit margin should be calculated for all revenue sources. 
B)  Gross profit margin cannot be analyzed if a firm has multiple revenue sources. 
C)  A separate gross profit margin for each revenue source should be calculated. 
D)  The gross profit margins from each revenue source should be calculated and then averaged. 
A)  The overall gross profit margin should be calculated for all revenue sources. 
B)  Gross profit margin cannot be analyzed if a firm has multiple revenue sources. 
C)  A separate gross profit margin for each revenue source should be calculated. 
D)  The gross profit margins from each revenue source should be calculated and then averaged.

Question 8

When will volume changes cause volatility in the gross profit margin?

Accepted Answer

A)  If cost of goods sold includes fixed costs which do not vary proportionately with volume changes. 
B)  In industries with little capital. 
C)  In industries having no fixed costs. 
D)  If cost of goods sold includes costs that vary proportionately with volume changes. 
A)  If cost of goods sold includes fixed costs which do not vary proportionately with volume changes. 
B)  In industries with little capital. 
C)  In industries having no fixed costs. 
D)  If cost of goods sold includes costs that vary proportionately with volume changes.

Question 9

Which of the following statements is false?

Accepted Answer

A)  It is important to analyze operating expenses over which management exercises discretion and that have considerable impact on the firm's profitability. 
B)  Impairment charges do not need to be analyzed since they are generally a non-recurring expense. 
C)  Operating expenses should be tracked in terms of trends, absolute amounts, relationship to sales, and relationship to industry competitors. 
D)  Operating expenses can be easily analyzed by preparing a common-size income statement. 
A)  It is important to analyze operating expenses over which management exercises discretion and that have considerable impact on the firm's profitability. 
B)  Impairment charges do not need to be analyzed since they are generally a non-recurring expense. 
C)  Operating expenses should be tracked in terms of trends, absolute amounts, relationship to sales, and relationship to industry competitors. 
D)  Operating expenses can be easily analyzed by preparing a common-size income statement.

Question 10

Earnings reported on the income statement is the same as cash generated during the accounting period.

Accepted Answer

A) True 
 B)False

Question 11

How is it possible for a U.S. firm to have an effective tax rate that is less than the U.S. federal statutory tax rate?

Accepted Answer

A)  The firm has expenses that are not deductible for tax purposes. 
B)  Tax rates in foreign countries where the firm operates are higher. 
C)  Tax rates in foreign countries where the firm operates are lower. 
D)  It is not possible for a firm to have an effective tax rate different from the U.S. federal statutory tax rate. 
A)  The firm has expenses that are not deductible for tax purposes. 
B)  Tax rates in foreign countries where the firm operates are higher. 
C)  Tax rates in foreign countries where the firm operates are lower. 
D)  It is not possible for a firm to have an effective tax rate different from the U.S. federal statutory tax rate.

Question 12

The FIFO method of inventory valuation generally results in the matching of current costs and current revenues, especially during inflation.

Accepted Answer

A) True 
 B)False

Question 13

Operating profit measures the overall performance of the company's operations separate from items that are not directly related to operations.

Accepted Answer

A) True 
 B)False

Question 14

Of what value is the calculation of gross profit margin?

Accepted Answer

A)  The gross profit margin helps the analyst assess the capital structure of the firm. 
B)  The gross profit margin allows the analyst to determine if the firm has been affected by inflation. 
C)  The gross profit margin indicates the profitability of a firm after considering all operating expenses. 
D)  The gross profit margin is the first step of profit measurement indicating how much profit the firm generates after deducting cost of goods sold. 
A)  The gross profit margin helps the analyst assess the capital structure of the firm. 
B)  The gross profit margin allows the analyst to determine if the firm has been affected by inflation. 
C)  The gross profit margin indicates the profitability of a firm after considering all operating expenses. 
D)  The gross profit margin is the first step of profit measurement indicating how much profit the firm generates after deducting cost of goods sold.

Question 15

If the cost of goods sold percentage increases, this means that the cost to acquire products has increased.

Accepted Answer

A) True 
 B)False

Question 16

Selling and administrative expenses include such items as advertising, salaries, and interest expense.

Accepted Answer

A) True 
 B)False

Question 17

What are the two basic formats of the income statement?

Accepted Answer

A)  Multiple-step and single-step. 
B)  Cash basis and single-step. 
C)  Accrual basis and single-step. 
D)  Accrual basis and multiple-step. 
A)  Multiple-step and single-step. 
B)  Cash basis and single-step. 
C)  Accrual basis and single-step. 
D)  Accrual basis and multiple-step.

Question 18

A multiple-step income statement presents several intermediate profit measures.

Accepted Answer

A) True 
 B)False

Question 19

What can be found on an income statement?

Accepted Answer

A)  Assets, revenues and expenses. 
B)  Revenues, expenses and net profit (loss). 
C)  Revenues, expenses, and stockholders' equity. 
D)  Assets, liabilities and stockholders' equity. 
A)  Assets, revenues and expenses. 
B)  Revenues, expenses and net profit (loss). 
C)  Revenues, expenses, and stockholders' equity. 
D)  Assets, liabilities and stockholders' equity.

Question 20

Which of the following statements is true?

Accepted Answer

A)  Equity earnings is an internal source of cash. 
B)  Equity earnings are recorded when investment ownership is over 50%. 
C)  Equity earnings may never result in the actual receipt of cash. 
D)  Equity earnings are recorded when investment ownership is 100%. 
A)  Equity earnings is an internal source of cash. 
B)  Equity earnings are recorded when investment ownership is over 50%. 
C)  Equity earnings may never result in the actual receipt of cash. 
D)  Equity earnings are recorded when investment ownership is 100%.

Which items below would be classified as operating expenses?

The amount and trend of each operating expense should be evaluated as well as its relationship to the volume of activity that is relevant to the expense.

How is a firm's average income tax rate calculated?

The common size income statement expresses each income statement item as a percentage of net sales.

The gross profit margin and cost of goods sold percentage are complements of each other and always add to 100%.

Which of the following is not an acceptable method to report total comprehensive income?

How should gross profit margin be analyzed for firms having more than one revenue source?

When will volume changes cause volatility in the gross profit margin?

Which of the following statements is false?

Earnings reported on the income statement is the same as cash generated during the accounting period.

How is it possible for a U.S. firm to have an effective tax rate that is less than the U.S. federal statutory tax rate?

The FIFO method of inventory valuation generally results in the matching of current costs and current revenues, especially during inflation.

Operating profit measures the overall performance of the company's operations separate from items that are not directly related to operations.

Of what value is the calculation of gross profit margin?

If the cost of goods sold percentage increases, this means that the cost to acquire products has increased.

Selling and administrative expenses include such items as advertising, salaries, and interest expense.

What are the two basic formats of the income statement?

A multiple-step income statement presents several intermediate profit measures.

What can be found on an income statement?

Which of the following statements is true?

Financial Statements: an Overview

The Balance Sheet

Statement of Cash Flows

The Analysis of Financial Statements

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Exam 3: Income Statement and Statement of Stockholders Equity

Which items below would be classified as operating expenses?

The amount and trend of each operating expense should be evaluated as well as its relationship to the volume of activity that is relevant to the expense.

How is a firm's average income tax rate calculated?

The common size income statement expresses each income statement item as a percentage of net sales.

The gross profit margin and cost of goods sold percentage are complements of each other and always add to 100%.

Which of the following is not an acceptable method to report total comprehensive income?

How should gross profit margin be analyzed for firms having more than one revenue source?

When will volume changes cause volatility in the gross profit margin?

Which of the following statements is false?

Earnings reported on the income statement is the same as cash generated during the accounting period.

How is it possible for a U.S. firm to have an effective tax rate that is less than the U.S. federal statutory tax rate?

The FIFO method of inventory valuation generally results in the matching of current costs and current revenues, especially during inflation.

Operating profit measures the overall performance of the company's operations separate from items that are not directly related to operations.

Of what value is the calculation of gross profit margin?

If the cost of goods sold percentage increases, this means that the cost to acquire products has increased.

Selling and administrative expenses include such items as advertising, salaries, and interest expense.

What are the two basic formats of the income statement?

A multiple-step income statement presents several intermediate profit measures.

What can be found on an income statement?

Which of the following statements is true?

Financial Statements: an Overview

The Balance Sheet

Statement of Cash Flows

The Analysis of Financial Statements

Filters