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Financial Statements Demystified

Bonita Kramer, Christie Johnson

Chapter 3

The Income Statement - all with Video Answers

Educators

Chapter Questions

Problem 1

Which of the following items belong on the income statement?
a. Assets and liabilities
b. Revenues and expenses
c. Assets and equity
d. Unearned revenues and prepaid expenses

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Problem 2

Net income is computed as:
a. Gross margin minus cost of goods sold
b. Cost of goods sold minus operating expenses
c. Revenues minus expenses
d. Assets minus liabilities

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Problem 3

Gross profit:
a. Is the same as net income
b. Represents the excess of net sales revenue over cost of goods sold
c. Is the excess of the cash received on sales over the cash paid for goods sold
d. Equals revenues minus operating expenses

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03:40

Problem 4

When a company provides a service to a customer, the revenue is recorded when:
a. The cash is received
b. The company performs the service
c. The company bills the customer
d. It is certain the customer is not going to complain about the quality of the service

Puneet Prajapati
Puneet Prajapati
Numerade Educator

Problem 5

Which of the following is not an example of an expense?
a. Dividends
b. Utilities
c. Rent
d. Depreciation

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Problem 6

Which of the following forms of business will report income tax expense on its income statement?
a. Sole proprietorship
b. Partnership
c. Corporation
d. All of the above

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Problem 7

Cost of goods sold equals the cost of merchandise:
a. Purchased this year, whether with cash or by credit
b. Purchased with cash this year
c. Sold to the customers this year for which cash payment has been received
d. Sold to the customers this year

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02:01

Problem 8

An accrued expense:
a. Is one that has been incurred but not yet paid
b. Is not recorded unless it has been paid in cash
c. Is paid in advance but not yet incurred
d. Occurs only with the cash basis of accounting

Jennifer Stoner
Jennifer Stoner
Numerade Educator

Problem 9

Which of the following is not one of the inventory classifications that a manufacturing business will have on its manufacturing statement?
a. Overhead
b. Raw materials
c. Work in process
d. Finished goods

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Problem 10

Earnings per share:
a. Is calculated for all forms of business (sole proprietorships, partnerships, and corporations)
b. Is computed for both common stock and preferred stock
c. Is always presented in two forms: basic and diluted
d. Is a profitability measure that shows the earnings associated with a single share of common stock

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