Income Statement Practice Quiz

Topics: Revenues, Expenses, and Net Income

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Income Statement Practice Quiz

What is the primary purpose of an income statement?

A) To show the financial position of a company at a point in time.
B) To summarize the revenues and expenses over a period to determine net income.
C) To list all the company’s assets and liabilities.
D) To track the cash flows of a business.

Which of the following items is found on an income statement?

A) Cash balance
B) Total liabilities
C) Net income
D) Inventory count

Revenue recognition on an income statement should occur when:

A) The company receives payment.
B) The service is performed or the goods are delivered.
C) The invoice is sent to the customer.
D) The customer expresses interest in the product.

Which of the following is considered an operating expense?

A) Interest paid on a loan
B) Depreciation expense
C) Investment gains
D) Sales of assets

What is the formula to calculate net income?

A) Total assets – Total liabilities
B) Revenue – Operating expenses – Taxes
C) Total revenue – Total expenses
D) Revenue – Cost of goods sold

Gross profit is calculated as:

A) Total revenue – Total operating expenses
B) Total revenue – Cost of goods sold
C) Operating income – Taxes
D) Sales revenue – Sales returns and allowances

Which of the following is NOT a typical item listed under “expenses” on an income statement?

A) Salaries and wages
B) Cost of goods sold
C) Bonds payable
D) Rent expense

If a company has total revenue of $500,000 and total expenses of $350,000, what is its net income?

A) $150,000
B) $350,000
C) $500,000
D) $850,000

Which section of an income statement includes “interest income”?

A) Operating section
B) Non-operating section
C) Revenue section
D) Cost of goods sold section

What does the term “earnings before interest and taxes” (EBIT) represent?

A) Total revenue minus all expenses, including taxes and interest
B) Total revenue minus cost of goods sold
C) Operating income before deducting interest and income tax expenses
D) Net income after interest and taxes

Operating income is calculated by subtracting which of the following from total revenue?

A) Interest expense and taxes
B) Cost of goods sold and operating expenses
C) Sales revenue and net income
D) Non-operating expenses

“Income from continuing operations” on an income statement refers to:

A) Income from discontinued operations.
B) Net income from ongoing activities that are expected to continue.
C) Non-recurring income from sales of assets.
D) Total income before tax adjustments.

Which of the following is an example of a non-operating expense?

A) Cost of goods sold
B) Advertising expense
C) Loss on sale of equipment
D) Rent expense

A company that has an increase in net income over a year is said to have:

A) A decreasing gross margin.
B) Improved financial performance.
C) An increase in liabilities.
D) A higher cost of sales.

“Sales discounts” would be subtracted from:

A) Gross profit
B) Total expenses
C) Sales revenue
D) Operating income

What is the impact of recognizing a large one-time expense on an income statement?

A) It decreases revenue.
B) It reduces net income for the period.
C) It increases net income for the period.
D) It has no impact on net income.

Which of the following is true about net income?

A) It is the same as gross profit.
B) It can be affected by non-operating items.
C) It includes only direct costs of production.
D) It is reported before taxes.

Operating expenses include:

A) Interest expense
B) Cost of raw materials
C) Utilities and rent
D) Investment income

Income tax expense is reported:

A) Before operating income
B) Before gross profit
C) After operating income but before net income
D) After net income

If a company reports “loss on sale of asset,” it is recorded under:

A) Operating revenue
B) Non-operating expense
C) Cost of goods sold
D) Other income

Which of the following will increase the gross profit?

A) Decrease in cost of goods sold
B) Increase in operating expenses
C) Increase in sales discounts
D) Increase in taxes

“Earnings per share” (EPS) is calculated by:

A) Dividing net income by the total number of shares outstanding.
B) Multiplying net income by the number of shares.
C) Dividing gross profit by the number of shares.
D) Dividing total revenue by the number of shares outstanding.

A positive “net income” indicates:

A) The company has more liabilities than assets.
B) The company earned more revenue than its expenses.
C) The company spent more on interest than it made in sales.
D) The company had higher costs than its revenue.

An income statement typically covers which of the following time periods?

A) One day
B) One week
C) One month or one fiscal year
D) One hour

Which item is NOT included in “operating income”?
A) Sales revenue
B) Cost of goods sold
C) Interest expense
D) Rent expense

What does “revenue” refer to on an income statement?

A) The cost of producing goods sold
B) The total earnings a company generates from its main business activities
C) The total liabilities of a company
D) The net profit after taxes

Which of the following is considered an “expense” on the income statement?

A) Sales revenue
B) Dividend income
C) Advertising costs
D) Asset purchase

Net income is calculated as:

A) Total revenue – Total liabilities
B) Total expenses – Total revenue
C) Total revenue – Total expenses
D) Operating income – Taxes

Which of the following would increase a company’s revenue?

A) Payment of rent
B) Sale of products or services
C) Depreciation expense
D) Interest expense

If a company incurs rent expense, it is classified under:

A) Revenue
B) Operating expense
C) Net income
D) Cost of goods sold

Which of the following is NOT considered an operating expense?

A) Salaries paid to employees
B) Cost of raw materials
C) Interest paid on loans
D) Utilities expense

What happens to net income if a company experiences an increase in operating expenses?

A) Net income increases.
B) Net income remains unchanged.
C) Net income decreases.
D) Net income cannot be affected by operating expenses.

Which of the following would be included in a company’s total expenses?

A) Sales revenue
B) Employee salaries
C) Cash from asset sales
D) Dividend income

How is “gross profit” different from “net income”?

A) Gross profit includes all expenses, while net income does not.
B) Gross profit is revenue minus operating expenses, while net income is revenue minus all expenses, including taxes and interest.
C) Gross profit is net income before taxes.
D) Net income is calculated before gross profit.

Which of the following is an example of a non-operating revenue?

A) Sale of inventory
B) Interest earned on bank deposits
C) Sales of services
D) Sales of goods

If a company has total revenue of $1,000,000 and total expenses of $850,000, what is the net income?

A) $150,000
B) $850,000
C) $1,000,000
D) $850,000

Which of the following statements about net income is true?

A) It represents the total revenue a company makes.
B) It is the same as operating income.
C) It is the total profit or loss after all expenses, including taxes and interest, are deducted.
D) It is calculated before interest and taxes are subtracted.

Which of the following expenses is usually considered part of operating expenses?

A) Interest on bonds payable
B) Cost of goods sold
C) Investment losses
D) Income tax expense

A company’s net income can be affected by:

A) Only its revenues
B) Only its expenses
C) Both revenues and expenses
D) Only its operating activities

Which of the following items would NOT be classified as an expense on an income statement?

A) Rent expense
B) Depreciation expense
C) Dividend distribution
D) Cost of raw materials

A company that sells a product for $500 incurs a production cost of $300. The gross profit from this sale would be:

A) $500
B) $300
C) $200
D) $100

What type of expense is interest on a loan?

A) Operating expense
B) Non-operating expense
C) Cost of goods sold
D) Gross profit

In which section of an income statement would “sales discounts” be recorded?

A) Revenue section
B) Operating expense section
C) Cost of goods sold section
D) Non-operating income section

A company reports total revenue of $500,000 and operating expenses of $450,000. What is its operating income?

A) $500,000
B) $450,000
C) $50,000
D) $0

Which of the following would NOT affect net income?

A) Increase in sales revenue
B) Decrease in rent expense
C) Loss from the sale of equipment
D) Increase in retained earnings

If a company reports an increase in net income for the year, what does this indicate?

A) The company has more liabilities than assets.
B) The company spent more than it earned.
C) The company generated more revenue than its expenses.
D) The company is in financial trouble.

Which of the following would decrease net income?

A) Increase in revenue
B) Increase in operating expenses
C) Sale of long-term assets
D) Increase in gross profit

The “cost of goods sold” is subtracted from revenue to determine:

A) Net income
B) Operating income
C) Gross profit
D) Total expenses

A company with $2 million in revenue and $1.8 million in total expenses will have:

A) A net loss of $200,000
B) A net income of $200,000
C) No net income or loss
D) Gross profit of $1.8 million

If a company has $100,000 in revenue and $40,000 in expenses, what is its net income?
A) $60,000
B) $140,000
C) $40,000
D) $100,000

Which of the following is true about operating income?

A) It includes interest and tax expenses.
B) It is calculated before deducting interest and taxes.
C) It is the same as net income.
D) It only considers revenue from non-core business activities.

What is included in “other income” on an income statement?

A) Sales of products
B) Dividend income from investments
C) Cost of raw materials
D) Salaries of employees

Which of the following is an example of an expense that would be classified as “selling and administrative expenses”?

A) Cost of raw materials
B) Sales commissions
C) Utility costs for manufacturing
D) Interest on bonds payable

What is the result when total revenue equals total expenses?

A) A net profit of zero
B) Net income is equal to total revenue
C) A net loss of zero
D) Net income is undefined

If a company reports a net income of $50,000, what does that indicate?

A) Total revenue was $50,000.
B) Total expenses were $50,000.
C) Revenue exceeded expenses by $50,000.
D) The company broke even.

Which of the following items would be reported as an expense on the income statement?

A) Cash sales revenue
B) Rent payment for office space
C) Proceeds from selling an asset
D) Equity contributions from investors

Which of the following best describes “net revenue”?

A) Total revenue minus discounts and returns
B) Total revenue without deductions
C) Total revenue minus all expenses
D) Revenue from non-operating activities

Which expense would be classified as a “non-operating expense”?

A) Wages paid to factory workers
B) Depreciation of machinery
C) Interest on a loan
D) Cost of goods sold

What is the relationship between revenue and gross profit?

A) Gross profit is calculated after deducting operating expenses from revenue.
B) Gross profit is the same as total revenue.
C) Gross profit is calculated by subtracting cost of goods sold from revenue.
D) Revenue is derived from subtracting gross profit from net income.

Which of the following is a direct cost associated with the production of goods?

A) Advertising expense
B) Office rent
C) Cost of raw materials
D) Insurance expense

If a company has revenue of $1,000,000 and operating expenses of $700,000, what is its operating income?

A) $1,000,000
B) $700,000
C) $300,000
D) $1,700,000

Which of the following would be included in the “cost of goods sold”?

A) Rent for administrative offices
B) Salaries of marketing employees
C) Raw materials used in production
D) Interest on bonds

When a company experiences a decrease in net income, what could be a possible reason?

A) Increase in revenue
B) Increase in operating expenses
C) Increase in gross profit
D) Increase in sales discounts

Which of the following would typically be excluded from the operating income calculation?

A) Revenue from sales
B) Cost of goods sold
C) Interest paid on loans
D) Wages of factory workers

What effect does an increase in revenue, without a corresponding increase in expenses, have on net income?

A) Decreases net income
B) Increases net income
C) Has no effect on net income
D) Results in zero net income

Which of the following would be classified as a revenue item?

A) Interest paid on a loan
B) Sale of merchandise
C) Depreciation expense
D) Insurance premium

If a company reports net income after taxes of $50,000 and paid taxes of $10,000, what was its income before taxes?

A) $50,000
B) $40,000
C) $60,000
D) $100,000

Which of the following would NOT be subtracted from revenue to calculate net income?

A) Operating expenses
B) Cost of goods sold
C) Depreciation of fixed assets
D) Dividends paid to shareholders

What is typically included in “operating expenses”?

A) Sale of fixed assets
B) Advertising and promotional expenses
C) Interest on long-term debt
D) Gain from selling investments

Which statement about revenue recognition is correct?

A) Revenue is recognized only when cash is received.
B) Revenue should be recognized when it is earned and realizable.
C) Revenue can be recognized before goods or services are delivered.
D) Revenue must be recognized only after the payment is made.

Which of the following is an example of an operating revenue?

A) Earnings from an investment portfolio
B) Proceeds from the sale of old equipment
C) Sales revenue from selling goods
D) Interest earned on cash balances

How does an increase in cost of goods sold affect gross profit?

A) It increases gross profit.
B) It decreases gross profit.
C) It has no effect on gross profit.
D) It increases net income.

Which of the following statements is true about a net loss?

A) Net loss occurs when total revenue exceeds total expenses.
B) Net loss occurs when total expenses exceed total revenue.
C) Net loss means the company has no revenue.
D) Net loss is recorded when total revenue and expenses are the same.

A company has total expenses of $120,000 and net income of $30,000. What is its total revenue?

A) $90,000
B) $150,000
C) $120,000
D) $30,000

What would be considered a non-recurring expense?
A) Monthly rent payment
B) Cost of raw materials used in production
C) Loss on the sale of a building
D) Salaries of administrative employees

What is the purpose of the income statement?

A) To show the company’s financial position at a specific point in time
B) To summarize a company’s revenues and expenses over a period of time
C) To display cash flows from operating activities
D) To report on a company’s assets and liabilities

Which of the following would not be considered an expense on the income statement?

A) Rent for office space
B) Dividends paid to shareholders
C) Cost of goods sold
D) Salaries paid to employees

A company’s income before taxes is $100,000, and it has a tax rate of 30%. What is the income tax expense?

A) $30,000
B) $70,000
C) $100,000
D) $130,000

If a company’s revenue for the year is $500,000 and its cost of goods sold is $300,000, what is its gross profit?

A) $300,000
B) $200,000
C) $500,000
D) $800,000

Which of the following is included in calculating net income?

A) Interest income
B) Income tax expense
C) Only operating expenses
D) Depreciation expense on buildings

Which of the following would be considered a non-operating revenue?

A) Sales from products
B) Interest earned on a savings account
C) Revenue from primary business activities
D) Rental income from office space

Which of the following best describes “expenses” in the context of an income statement?

A) The total revenue generated by a company
B) The cost of generating revenue during a given period
C) The profit earned after deducting taxes
D) The total assets of a company

Which of the following would typically be included in “general and administrative expenses”?

A) Cost of raw materials
B) Factory worker salaries
C) Office supplies
D) Depreciation of manufacturing equipment

What type of expense is “amortization of intangible assets”?

A) Operating expense
B) Non-operating expense
C) Revenue expense
D) Direct cost of goods sold

A company has a revenue of $1,200,000 and operating expenses of $750,000. If the company has interest income of $10,000 and pays $20,000 in interest, what is the operating income?

A) $440,000
B) $460,000
C) $480,000
D) $470,000

Which of the following would be classified as an expense in the income statement?

A) Sale of equipment
B) Income tax paid
C) Gain from investment
D) Equity raised from stock issuance

If a company has total revenue of $800,000 and a cost of goods sold of $500,000, what is its gross margin?

A) $500,000
B) $300,000
C) $800,000
D) $700,000

Which of the following statements about net income is correct?

A) Net income is the same as gross profit.
B) Net income is calculated after deducting all expenses, including taxes, from total revenue.
C) Net income is the total revenue before subtracting expenses.
D) Net income is the difference between operating income and total revenue.

Which of the following would be classified as “operating revenue”?

A) Revenue from investments
B) Income from selling goods or services
C) Gains from the sale of property
D) Interest earned on savings

Which of the following is true about the matching principle?

A) It ensures revenue is recognized when cash is received.
B) It requires expenses to be recorded when they are incurred, regardless of when cash is paid.
C) It dictates that all revenue must be recognized at the end of the fiscal year.
D) It only applies to non-operating activities.

Which of the following items would be classified as an “operating expense”?

A) Gain on sale of land
B) Cost of inventory sold
C) Interest income
D) Advertising costs

What would be the effect on net income if a company receives a grant that is not related to its core business activities?

A) It would be considered a non-operating item and added to net income.
B) It would not affect net income.
C) It would be subtracted from net income.
D) It would be classified as an expense.

A company has total revenues of $1,500,000 and total expenses of $1,300,000. What is the net income?

A) $200,000
B) $1,500,000
C) $1,300,000
D) $300,000

Which of the following best describes “cost of goods sold”?

A) Expenses not related to producing goods or services
B) The total revenue generated from sales
C) The direct costs of producing goods sold by a company
D) The cost of operating expenses

Which statement is true about a company’s operating income?

A) It is calculated by subtracting total revenue from total expenses.
B) It is the same as net income.
C) It represents the profit made from core business operations before interest and taxes.
D) It includes all non-operating revenues and expenses.

What is considered an “extraordinary item” in the context of an income statement?

A) Revenue from selling primary goods
B) A nonrecurring expense or gain that is not related to the core business operations
C) The cost of goods sold
D) Normal business expenses

How is net income related to retained earnings?

A) Net income is not related to retained earnings.
B) Net income is added to retained earnings.
C) Retained earnings are added to net income.
D) Net income is subtracted from retained earnings.

Which of the following is an example of a “cost of sales”?

A) Managerial salaries
B) Utilities for the production facility
C) Rent for office space
D) Employee training expenses

A company’s revenue from its main business activities is $500,000, and it incurs $350,000 in direct costs. What is its gross profit?

A) $500,000
B) $150,000
C) $350,000
D) $850,000

What is the effect on net income if a company receives $20,000 in interest income?
A) Net income would decrease by $20,000.
B) Net income would increase by $20,000.
C) Net income would remain unchanged.
D) It would be recorded as an expense.

Which of the following is true about “operating income”?

A) It includes all non-operating revenues and expenses.
B) It is calculated after deducting only the cost of goods sold from total revenue.
C) It is the profit generated from a company’s core business operations, before interest and taxes.
D) It represents the total revenue minus total expenses, including taxes.

What type of revenue is recognized when a company earns from services provided but has not yet received payment?

A) Deferred revenue
B) Unearned revenue
C) Accrued revenue
D) Operating revenue

Which expense is considered a direct cost of producing goods?

A) Rent for the corporate office
B) Advertising costs for a product
C) Cost of raw materials used in production
D) Salaries of administrative staff

A company has operating income of $250,000 and non-operating expenses of $30,000. What is the net income if the tax expense is $50,000?

A) $170,000
B) $220,000
C) $230,000
D) $250,000

What happens to net income when a company records an increase in its revenue but also incurs higher operating expenses?

A) Net income will remain unchanged.
B) Net income will definitely increase.
C) Net income may increase, decrease, or stay the same depending on the relative changes in revenue and expenses.
D) Net income will decrease by the total amount of the operating expenses.

Which of the following would not be considered a revenue item?

A) Sales of merchandise
B) Interest on investments
C) Gain on the sale of equipment
D) Depreciation expense

In the context of an income statement, what is “net profit margin”?

A) Total revenue minus total expenses
B) Operating income divided by total revenue
C) Net income divided by total revenue
D) Gross profit divided by total expenses

Which statement is true about “expenses” in the income statement?

A) Expenses are deducted before calculating gross profit.
B) Expenses include only direct costs associated with production.
C) Expenses are deducted after calculating operating income.
D) Expenses are subtracted from revenue to find net income.

What type of expense would “interest paid on a loan” be classified as on an income statement?

A) Operating expense
B) Non-operating expense
C) Cost of goods sold
D) Revenue expense

If a company’s gross profit is $400,000 and its operating expenses are $150,000, what is its operating income?

A) $550,000
B) $250,000
C) $400,000
D) $150,000

What is the main difference between “gross profit” and “net income”?

A) Gross profit is revenue minus operating expenses, while net income includes all revenues and expenses.
B) Gross profit only considers sales revenue minus the cost of goods sold, while net income deducts all expenses, including taxes.
C) Gross profit includes taxes, while net income does not.
D) Gross profit is calculated after net income.

Which of the following items is considered “non-operating income”?

A) Revenue from product sales
B) Rent earned from leasing property
C) Cost of goods sold
D) Salaries paid to factory workers

Which of the following would be classified as an “expense” in the income statement?

A) Cash received from customers
B) Dividends paid to shareholders
C) Depreciation expense on equipment
D) Proceeds from the sale of assets

If a company’s total revenue is $900,000 and total expenses are $750,000, what is the net income?

A) $150,000
B) $900,000
C) $750,000
D) $0

What type of expense is “insurance expense” considered to be?

A) Cost of goods sold
B) Operating expense
C) Non-operating expense
D) Revenue expense

What is the effect on net income if a company records a write-off of a bad debt?

A) Net income increases
B) Net income decreases
C) Net income remains unchanged
D) It is added to revenue

Which of the following would be classified as “operating income”?

A) Gains from selling investment assets
B) Revenue generated from core business activities minus related operating expenses
C) Revenue from interest income
D) Total revenue from all sources

What is the term for income earned from activities not related to the main business operations?

A) Operating income
B) Gross profit
C) Non-operating income
D) Retained earnings

Which of the following would be considered a “revenue” on the income statement?

A) Dividend payment to shareholders
B) Sale of a company’s fixed assets
C) Interest earned on a savings account
D) Revenue from sales of goods or services

If a company earns $300,000 in sales revenue and has an expense ratio of 75%, what are the total expenses?
A) $225,000
B) $300,000
C) $75,000
D) $400,000

Which item is considered a “non-operating revenue” on an income statement?

A) Sales revenue from products sold
B) Interest income from a savings account
C) Cost of goods sold
D) Salaries of production workers

What is the impact on net income when a company incurs an extraordinary expense?

A) It increases net income.
B) It decreases net income.
C) It has no impact on net income.
D) It only affects gross profit, not net income.

When a company recognizes a revenue but has not yet received cash, it is called:

A) Accrued revenue
B) Deferred revenue
C) Unearned revenue
D) Earned revenue

What type of expense would be classified as a “fixed cost”?
A) Cost of raw materials used in production
B) Rent for office space
C) Sales commission
D) Direct labor cost

If a company’s operating income is $400,000 and it has non-operating expenses of $50,000, what is its income before taxes?

A) $450,000
B) $400,000
C) $350,000
D) $500,000

Which of the following would be included in the “cost of goods sold” (COGS) on the income statement?

A) Rent for the executive office
B) Direct labor costs for manufacturing products
C) Salaries of administrative staff
D) Marketing expenses

If a company has $600,000 in total revenue and $500,000 in total expenses, what would be its gross profit?

A) $600,000
B) $500,000
C) $100,000
D) $0

What type of income is derived from investments in other companies or assets not directly related to core business operations?

A) Operating income
B) Non-operating income
C) Gross income
D) Total revenue

How is “operating income” calculated?

A) Total revenue minus total expenses
B) Total revenue minus cost of goods sold and operating expenses
C) Total revenue minus non-operating expenses
D) Gross profit minus taxes

Which of the following will increase net income?

A) Increase in operating expenses
B) Increase in sales revenue without an increase in costs
C) Recording of a large one-time expense
D) Increase in interest expense

If a company’s revenue is $1,000,000 and its cost of goods sold is $400,000, what is its gross profit?

A) $400,000
B) $1,000,000
C) $600,000
D) $1,400,000

What is the primary purpose of the income statement?

A) To show the company’s assets and liabilities at a point in time
B) To report the company’s cash inflows and outflows over a period of time
C) To summarize the company’s revenues and expenses and calculate net income
D) To list all assets, liabilities, and equity of the company

When a company records an expense for utilities used in production, it affects which part of the income statement?

A) Operating revenue
B) Gross profit
C) Operating expense
D) Non-operating expense

If a company has a net income of $120,000 and pays a dividend of $20,000, what is the retained earnings?

A) $100,000
B) $120,000
C) $140,000
D) $20,000

Which of the following is considered a “variable cost”?

A) Rent for office space
B) Salaries of administrative staff
C) Cost of raw materials used in production
D) Depreciation expense

What does the term “depreciation expense” refer to on an income statement?

A) The increase in value of an asset over time
B) The allocation of the cost of a tangible asset over its useful life
C) The amount of cash paid for repairs and maintenance
D) The interest paid on loans for asset acquisition

Which of the following will NOT affect net income?

A) Sales revenue increase
B) Interest income from investments
C) Deferred tax liability adjustment
D) Prepaid expenses

How is “net income” defined on an income statement?

A) Total revenue minus total expenses, before interest and taxes
B) Gross profit minus operating expenses
C) Total revenue minus total expenses, after accounting for taxes
D) Operating income plus non-operating income

If a company has $200,000 in total revenue and $160,000 in operating expenses, what is the operating income?

A) $40,000
B) $200,000
C) $160,000
D) $0

Which of the following would be classified as an “operating expense”?

A) Dividends paid to shareholders
B) Rent for manufacturing facilities
C) Interest earned on investments
D) Sale of old equipment

Which of the following represents a non-cash expense on an income statement?

A) Interest paid on loans
B) Salaries paid to employees
C) Depreciation expense
D) Cost of raw materials

What type of income is generated from the sale of long-term assets?

A) Operating income
B) Non-operating income
C) Gross profit
D) Deferred revenue

If a company reports a net income of $50,000 and has declared dividends of $10,000, what is the retained earnings at the end of the period?

A) $40,000
B) $50,000
C) $60,000
D) $10,000

Which of the following items is considered an “extraordinary item” that would be reported separately on the income statement?

A) Revenue from the sale of products
B) Loss due to a natural disaster
C) Depreciation expense
D) Salaries paid to employees

A company’s net income is $150,000, but it also has an impairment loss of $30,000. What is the adjusted net income?

A) $150,000
B) $180,000
C) $120,000
D) $30,000

What type of expense is “insurance premiums” categorized as on an income statement?

A) Operating expense
B) Non-operating expense
C) Cost of goods sold
D) Extraordinary expense

If a company reports $500,000 in revenue and $300,000 in cost of goods sold, what is its gross profit margin?

A) 40%
B) 60%
C) 80%
D) 20%

Which of the following would NOT be considered a direct cost when calculating gross profit?

A) Salaries of employees directly involved in production
B) Rent for administrative offices
C) Cost of materials used in production
D) Utilities for the production facility

Which statement about net income is true?

A) Net income is only calculated after tax expenses are subtracted.
B) Net income includes only operating revenues and expenses.
C) Net income can be the same as gross profit.
D) Net income represents the total revenue before any expenses.

Which of the following is true regarding “operating income”?

A) It includes income from interest and investments.
B) It is calculated before deducting interest and taxes.
C) It is the revenue generated by core business operations.
D) It includes non-operating income and gains.

A company reports $1,000,000 in revenue and $700,000 in operating expenses. What is the operating income?

A) $300,000
B) $1,000,000
C) $700,000
D) $500,000

Which expense would be classified as “non-operating” on the income statement?

A) Wages paid to production workers
B) Cost of raw materials used in manufacturing
C) Gain from the sale of investments
D) Rent for manufacturing facilities

A company’s income statement shows total revenue of $800,000 and total expenses of $600,000. What is the company’s net income?

A) $800,000
B) $200,000
C) $600,000
D) $1,400,000

Which of the following would NOT be included in “operating expenses”?

A) Office supplies
B) Cost of raw materials
C) Interest on borrowed funds
D) Utilities for the office building

A company’s net income increased by $50,000. Which of the following transactions could explain this change?

A) The company purchased new equipment.
B) The company reduced its operating expenses by $50,000.
C) The company paid dividends to shareholders.
D) The company recorded a deferred revenue.

If a company’s revenue is $500,000, cost of goods sold is $200,000, and operating expenses are $150,000, what is its net income?

A) $350,000
B) $300,000
C) $500,000
D) $250,000

What happens to the net income when a company increases its revenue but does not change its expenses?

A) It decreases.
B) It remains the same.
C) It increases.
D) It becomes zero.

What type of revenue is earned from services rendered rather than the sale of products?

A) Operating revenue
B) Non-operating revenue
C) Deferred revenue
D) Extraordinary revenue

Which of the following statements is true about an expense?

A) It increases the equity of a company.
B) It is an outflow or using up of assets during the course of business.
C) It is recorded as an asset on the balance sheet.
D) It is a source of income for the company.

What is the effect on net income if operating expenses increase while revenue remains unchanged?

A) Net income will increase.
B) Net income will decrease.
C) Net income will remain the same.
D) Net income will double.

Which of the following items would be considered “non-operating income”?

A) Revenue from the sale of goods
B) Dividend income from an investment
C) Sales of products to customers
D) Salaries paid to employees

If a company has a revenue of $300,000 and a cost of goods sold of $150,000, what is its gross profit?

A) $150,000
B) $300,000
C) $450,000
D) $500,000

Which of the following is considered an indirect expense?

A) Cost of raw materials
B) Direct labor costs
C) Administrative salaries
D) Sales commissions

What is the net income if the total revenue is $750,000 and total expenses (including operating and non-operating) are $500,000?

A) $250,000
B) $500,000
C) $750,000
D) $1,250,000

Which of the following would NOT appear on an income statement?

A) Rent expense
B) Prepaid insurance
C) Depreciation expense
D) Sales revenue

What is the purpose of reporting “operating income” separately on an income statement?

A) To highlight the revenue from sales only
B) To show the income generated by the company’s core business activities
C) To indicate total profit after taxes and interest
D) To measure the profit from extraordinary events

A company’s total revenue is $1,200,000, and it reports operating expenses of $800,000. What is the operating income?

A) $400,000
B) $1,200,000
C) $800,000
D) $2,000,000

Which of the following describes a loss on an income statement?

A) Increase in total assets
B) Decrease in net income due to expenses exceeding revenue
C) Gain on the sale of a fixed asset
D) Increase in owner’s equity

What is the impact on net income if a company incurs $10,000 in additional operating expenses, assuming revenue remains constant?

A) Net income will increase by $10,000.
B) Net income will decrease by $10,000.
C) Net income will remain the same.
D) Net income will double.

A company reports revenue of $500,000 and total expenses of $450,000. What is the net income margin?

A) 10%
B) 20%
C) 50%
D) 90%

What does a negative net income indicate?

A) The company has generated a profit.
B) The company’s expenses exceed its revenue.
C) The company has more revenue than expenses.
D) The company’s revenue is zero.

If a company earns $500,000 from sales and has an income tax expense of $75,000, what is its net income after taxes?

A) $425,000
B) $500,000
C) $75,000
D) $575,000

Which of the following is NOT included in operating income?

A) Sales revenue
B) Rent income from a leased property
C) Cost of goods sold
D) Salaries of production workers

What is the main purpose of calculating gross profit?

A) To measure the profitability of the entire company
B) To assess the efficiency of the company’s core production and sales activities
C) To reflect net income after all expenses are deducted
D) To determine the amount of tax the company owes

What would be the impact on net income if a company receives a grant for $20,000?

A) Net income would decrease.
B) Net income would increase.
C) There would be no change in net income.
D) The grant would be treated as a liability.

Essay Questions and Answers For Study Guide

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