Reference no: EM132155151

1. What can be found on an income statement?

a. Assets, revenues and expenses.

b. Revenues, expenses and net profit (loss).

c .Revenues, expenses, and stockholders' equity.

d. Assets, liabilities and stockholders' equity.

2. What are the two basic formats of the income statement?

a. Multiple-step and single-step.

b. Cash basis and single-step.

c. Accrual basis and single-step.

d. Accrual basis and multiple-step.

3. Of what value is the calculation of gross profit margin?

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.

4. Which items below would be classified as operating expenses?

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.

5. Which of the following statements is false?

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.

6. What is another term frequently used when referring to operating profit?

a. Earnings before interest and taxes (EBIT).

b. Earnings before interest, taxes, depreciation and amortization (EBITDA).

c Net profit.

d. Earnings before interest (EBI).

7. 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?

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.

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

a. Income taxes divided by earnings before income tax.

b. Income taxes divided by net income.

c. Income taxes divided by sales.

d. Income taxes divided by gross profit

9. What is the required reporting for discontinued operations?

a.The results of discontinued operations should be reported as an extraordinary item.

b. The gain or loss on the disposal should be reported in comprehensive income.

c. The operating results of discontinued operations should be reported as part of continuing operations and any gain or loss on disposal should be disclosed separately from continuing operations.

d. The operating results of discontinued operations should be reported separately from continuing operations and any gain or loss on disposal should be also be disclosed separately from continuing operations.

10. What information can be found on a statement of shareholders' equity?

a Details of assets and liabilities.

b.A reconciliation of beginning to ending cash.

c. Detail of changes in equity accounts.

d. Assets = Liabilities + Stockholders' Equity.

11. The definition of Amortization is:

a.Expense allocation applied to cost of intangible assets.

b. Allocation of costs of intangible assets.

c Allocation of costs of acquiring and developing natural resources.

d Difference between net sales and cost of goods sold.

12. The definition of Depreciation is:

a. Allocating the costs of long-lived assets

b. Allocation of costs of intangible assets.

c. Allocation of costs of acquiring and developing natural resources.

d. Difference between net sales and cost of goods sold.

13. What are three profit measures calculated from the income statement?

a. Operating profit margin, net profit margin, repairs and maintenance to fixed assets.

b.Gross profit margin, cost of goods sold percentage, EBIT.

c.Gross profit margin, operating profit margin, net profit margin.

d. None of the above.

14.Which of the following cause (s) a change in the retained earnings account balance?

A. Prior period adjustment

B. Payment of dividends

C. Net profit or loss

D. All of the above.