Ch 5 Income Statement 6 questions
1. Assume that sales revenue are $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. How much are gross profit and operating expenses, respectively?
A. $130,000 and $95,000
B. $120,000 and $95,000
C. $130,000 and $85,000
D. $120,000 and $85,000 Gross Profit = Net Sales – COGS
Net Income = Gross Profit – operating Expenses
2. Which of the following would appear on both a single-step and a multiple-step income statement?
A. Gross profit
B. Income from operations
C. Cost of goods sold
D. Other expenses and losses
3. Which one of the following will result in gross profit?
A. Operating expenses less net income
B. Sales revenue less operating expenses
C. Sales revenue less cost of goods sold
D. Operating expenses less cost of goods sold
4. If sales revenues totals $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, how much is the gross profit?
A. $30,000
B. $90,000
C. $340,000 Gross Profit = Net Sales – COGS
D. $400,000
Net Income = Gross Profit – operating Expenses
5. Which of the following will be shown on the income statement for a merchandising company?
A. Gross profit
B. Cost of goods sold
C. A sales revenue section
D. All of the answer choices are correct.
6. If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?
A. $390,000 Beginning Inventory + Purchases – Ending Inventory = COGS
B. $410,000
C. $420,000
D. $440,000
7. Arbor Corporation had reported the following amounts at December 31, 2014: Sales revenue $184,000; ending inventory $11,600; beginning inventory $17,200; purchases $60,400; purchases discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900. Calculate the cost of goods available for sale.
A. $69,400
B. $74,100
C. $56,900
D. $197,700
EXPLANATION: COG available for sale=
Beginning Inventory + Purchases – Discounts – Returns + Freight
8. Under what system is cost of goods sold determined at the end of an accounting period?
A. Single entry inventory system
B. Periodic inventory system
C. Double entry inventory system
D. Perpetual inventory system
EXPLANATION: Cost of goods sold is calculated at the end of the fiscal period if the company has not kept records to track the changes in each inventory item as it is sold or purchased.
9. Beginning inventory is $12,000; purchases are $34,000; sales revenue are $60,000; and cost of goods sold is $31,000. How much is ending inventory?
A. $15,000 Beginning Inventory + Purchases – Ending Inventory = COGS
B. $31,000
C. $46,000
D. $14,000
10. Ending inventory is $10,000, beginning inventory is $20,000, and the cost of goods purchased is $25,000. How much is cost of goods sold?
A. $45,000
B.. $35,000
C. $25,000
D. $15,000
11. If the profit margin is 5% and total expenses are $1,330,000, the net sales are $1,400,000.
A. True
B. False
EXPLAIN: This statement is true. Net income divided by net sales equals profit margin ($1,400,000 ‒ $1,330,000)/$1,400,000 = 5%.
12. A company has the following accounts balances: Sales revenue $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; and Cost of Goods Sold $1,275,000. How much is the gross profit rate?
A. 25% GROSS PROFIT RATE = GROSS PROFIT / NET SALES
B. 36%
C. 51%
D. 64%
13. Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is the gross profit rate?
A. 20.0%
B. 26.7%
C. 46.7%
D. 75.0%
EXPLAINT: GROSS PROFIT = NET SALES – COGS
NET INCOME = GROSS PROFIT – OPERATING EXPENSES
PROFIT RATE = GROSS PROFIT / NET SALES
14. Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?
A. 20%
B. 16%
C. 75%
D. 79%
EXPLAIN: NET INCOME / NET SALES = PROFIT MARGIN
15. A company has the following balances: Sales revenue $312,000; Sales Returns and Allowances $2,000; Sales Discounts $4,000; Cost of Goods Sold $184,000; Operating Expenses $84,000. How much is the profit margin?
A. 12.2% B. 16.0% C. 41.0% D. 12.4%
16. Which of the following would affect the gross profit rate if sales remain constant?
A. An increase in advertising expense
B. A decrease in depreciation expense
C. An increase in cost of goods sold
D. A decrease in insurance expense
17. To what is the gross profit rate equal?
A. Net income divided by net sales
B. Cost of goods sold divided by net sales
C. Net sales minus cost of goods sold, divided by net sales
D. Sales minus cost of goods sold, divided by cost of goods sold
18. Which factor would not affect the gross profit rate?
A. An increase in the cost of heating the store
B. An increase in the sale of luxury items
C. An increase in the use of “discount pricing” to sell merchandise
D. An increase in the price of inventory items
EXPLAIN: HEAT IS AN OPERATING EXPENSE SO NO EFFECT ON GROSS PROFIT
19. During the year ended December 31, 2014, State Street Corporation had the following results: Sales revenue $267,000; cost of goods sold $107,000; net income $92,400; operating expenses $55,400; net cash provided by operating activities $108,950. How much is the company's profit margin?
A. 40.0% B. 60.0% C. 20.5% D. 34.6%
EXPLAIN: PROFIT MARGIN = NET INCOME / NET SALES
92400/267000 = 34.6%
20. If a company's net cash provided by operating activities is $4,250,000 and its net income is $3,465,000 then its quality of earnings ratio is 1.23.
A. True
B. False
21. Given the following quality of earnings ratios, which suggests the company may be using the most conservative accounting techniques?
A. 0.6
B. 1.0
C. 1.8
D. 0.2
22. What quality of earnings ratio might a company have if it is using more aggressive accounting techniques in order to accelerate income recognition?
A. Significantly more than 1
B. Significantly less than 1
C. Approximately equal 1
D. Close to 0
23. Which of the following determines the quality of earnings ratio?
A. Operating income divided by the net income
B. Net cash provided by operating activities divided by operating income
C. Net cash provided by operating activities divided by net income
D. Net cash flow increase divided by the net income
24. Which of the following statements is correct?
A. A company which uses a periodic inventory system needs only one journal entry when it sells merchandise.
B. A company which uses a periodic inventory system needs two journal entries when it sells merchandise.
C. A company which uses a periodic inventory system debits Cost of Goods Sold and credits
Inventory when it sells merchandise.
D. None of the answer choices are correct.
25. When using a periodic inventory system and the purchaser directly incurs the freight costs, which account is debited?
A. Purchases
B. Freight-out
C. Inventory
D. Freight-In
26. In a periodic inventory system, when is the cost of the merchandise sold determined?
A. At the time of the sale
B. At the end of the period
C. Periodically during the period
D. Either at time of sale, end of period or periodically during the period.
27. Which statement is true when goods are purchased for resale by a company using a periodic inventory system?
A. Purchases on account are debited to the Inventory account.
B. Purchases on account are debited to the Purchases account.
C. Purchase returns are debited to the Purchase Returns and Allowances account.
D. Freight costs are debited to the Purchases account.
28. Under IFRS, a number of inventory options are available. Which one of the following is not allowed under IFRS?
A. Last in-first out
B. Periodic
C. Perpetual
D. Including amounts held-for-sale in the ordinary course of business in the inventory account
30. Under IFRS, how many years of comparative income statements must be presented for a complete set of financial statements?
A. One year B. Two years C. Three years D. Four years
31. A key difference between GAAP and IFRS would include which of the following?
A. Inventories can be maintained under either a periodic or perpetual system.
B. Income statement items can be classified under function.
C. Revaluation of land is permitted.
D. Comprehensive income is used for both GAAP and IFRS.
A. $130,000 and $95,000
B. $120,000 and $95,000
C. $130,000 and $85,000
D. $120,000 and $85,000 Gross Profit = Net Sales – COGS
Net Income = Gross Profit – operating Expenses
2. Which of the following would appear on both a single-step and a multiple-step income statement?
A. Gross profit
B. Income from operations
C. Cost of goods sold
D. Other expenses and losses
3. Which one of the following will result in gross profit?
A. Operating expenses less net income
B. Sales revenue less operating expenses
C. Sales revenue less cost of goods sold
D. Operating expenses less cost of goods sold
4. If sales revenues totals $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, how much is the gross profit?
A. $30,000
B. $90,000
C. $340,000 Gross Profit = Net Sales – COGS
D. $400,000
Net Income = Gross Profit – operating Expenses
5. Which of the following will be shown on the income statement for a merchandising company?
A. Gross profit
B. Cost of goods sold
C. A sales revenue section
D. All of the answer choices are correct.
6. If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?
A. $390,000 Beginning Inventory + Purchases – Ending Inventory = COGS
B. $410,000
C. $420,000
D. $440,000
7. Arbor Corporation had reported the following amounts at December 31, 2014: Sales revenue $184,000; ending inventory $11,600; beginning inventory $17,200; purchases $60,400; purchases discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900. Calculate the cost of goods available for sale.
A. $69,400
B. $74,100
C. $56,900
D. $197,700
EXPLANATION: COG available for sale=
Beginning Inventory + Purchases – Discounts – Returns + Freight
8. Under what system is cost of goods sold determined at the end of an accounting period?
A. Single entry inventory system
B. Periodic inventory system
C. Double entry inventory system
D. Perpetual inventory system
EXPLANATION: Cost of goods sold is calculated at the end of the fiscal period if the company has not kept records to track the changes in each inventory item as it is sold or purchased.
9. Beginning inventory is $12,000; purchases are $34,000; sales revenue are $60,000; and cost of goods sold is $31,000. How much is ending inventory?
A. $15,000 Beginning Inventory + Purchases – Ending Inventory = COGS
B. $31,000
C. $46,000
D. $14,000
10. Ending inventory is $10,000, beginning inventory is $20,000, and the cost of goods purchased is $25,000. How much is cost of goods sold?
A. $45,000
B.. $35,000
C. $25,000
D. $15,000
11. If the profit margin is 5% and total expenses are $1,330,000, the net sales are $1,400,000.
A. True
B. False
EXPLAIN: This statement is true. Net income divided by net sales equals profit margin ($1,400,000 ‒ $1,330,000)/$1,400,000 = 5%.
12. A company has the following accounts balances: Sales revenue $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; and Cost of Goods Sold $1,275,000. How much is the gross profit rate?
A. 25% GROSS PROFIT RATE = GROSS PROFIT / NET SALES
B. 36%
C. 51%
D. 64%
13. Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is the gross profit rate?
A. 20.0%
B. 26.7%
C. 46.7%
D. 75.0%
EXPLAINT: GROSS PROFIT = NET SALES – COGS
NET INCOME = GROSS PROFIT – OPERATING EXPENSES
PROFIT RATE = GROSS PROFIT / NET SALES
14. Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?
A. 20%
B. 16%
C. 75%
D. 79%
EXPLAIN: NET INCOME / NET SALES = PROFIT MARGIN
15. A company has the following balances: Sales revenue $312,000; Sales Returns and Allowances $2,000; Sales Discounts $4,000; Cost of Goods Sold $184,000; Operating Expenses $84,000. How much is the profit margin?
A. 12.2% B. 16.0% C. 41.0% D. 12.4%
16. Which of the following would affect the gross profit rate if sales remain constant?
A. An increase in advertising expense
B. A decrease in depreciation expense
C. An increase in cost of goods sold
D. A decrease in insurance expense
17. To what is the gross profit rate equal?
A. Net income divided by net sales
B. Cost of goods sold divided by net sales
C. Net sales minus cost of goods sold, divided by net sales
D. Sales minus cost of goods sold, divided by cost of goods sold
18. Which factor would not affect the gross profit rate?
A. An increase in the cost of heating the store
B. An increase in the sale of luxury items
C. An increase in the use of “discount pricing” to sell merchandise
D. An increase in the price of inventory items
EXPLAIN: HEAT IS AN OPERATING EXPENSE SO NO EFFECT ON GROSS PROFIT
19. During the year ended December 31, 2014, State Street Corporation had the following results: Sales revenue $267,000; cost of goods sold $107,000; net income $92,400; operating expenses $55,400; net cash provided by operating activities $108,950. How much is the company's profit margin?
A. 40.0% B. 60.0% C. 20.5% D. 34.6%
EXPLAIN: PROFIT MARGIN = NET INCOME / NET SALES
92400/267000 = 34.6%
20. If a company's net cash provided by operating activities is $4,250,000 and its net income is $3,465,000 then its quality of earnings ratio is 1.23.
A. True
B. False
21. Given the following quality of earnings ratios, which suggests the company may be using the most conservative accounting techniques?
A. 0.6
B. 1.0
C. 1.8
D. 0.2
22. What quality of earnings ratio might a company have if it is using more aggressive accounting techniques in order to accelerate income recognition?
A. Significantly more than 1
B. Significantly less than 1
C. Approximately equal 1
D. Close to 0
23. Which of the following determines the quality of earnings ratio?
A. Operating income divided by the net income
B. Net cash provided by operating activities divided by operating income
C. Net cash provided by operating activities divided by net income
D. Net cash flow increase divided by the net income
24. Which of the following statements is correct?
A. A company which uses a periodic inventory system needs only one journal entry when it sells merchandise.
B. A company which uses a periodic inventory system needs two journal entries when it sells merchandise.
C. A company which uses a periodic inventory system debits Cost of Goods Sold and credits
Inventory when it sells merchandise.
D. None of the answer choices are correct.
25. When using a periodic inventory system and the purchaser directly incurs the freight costs, which account is debited?
A. Purchases
B. Freight-out
C. Inventory
D. Freight-In
26. In a periodic inventory system, when is the cost of the merchandise sold determined?
A. At the time of the sale
B. At the end of the period
C. Periodically during the period
D. Either at time of sale, end of period or periodically during the period.
27. Which statement is true when goods are purchased for resale by a company using a periodic inventory system?
A. Purchases on account are debited to the Inventory account.
B. Purchases on account are debited to the Purchases account.
C. Purchase returns are debited to the Purchase Returns and Allowances account.
D. Freight costs are debited to the Purchases account.
28. Under IFRS, a number of inventory options are available. Which one of the following is not allowed under IFRS?
A. Last in-first out
B. Periodic
C. Perpetual
D. Including amounts held-for-sale in the ordinary course of business in the inventory account
30. Under IFRS, how many years of comparative income statements must be presented for a complete set of financial statements?
A. One year B. Two years C. Three years D. Four years
31. A key difference between GAAP and IFRS would include which of the following?
A. Inventories can be maintained under either a periodic or perpetual system.
B. Income statement items can be classified under function.
C. Revaluation of land is permitted.
D. Comprehensive income is used for both GAAP and IFRS.