Income Statement quiz level 2 Financial Statements Quiz Share Income Statement quiz level 1 Income Statement quiz level 2 Income Statement level 2 Pass Score 70% The questions change when you repeat the exam 1 / 30 The income statement helps investors mainly to : Assess profitability Calculate dividends directly Determine asset values Measure liquidity Profitability drives investment decisions. 2 / 30 Return on sales equals : Net income ÷ Revenue Net income ÷ Equity Gross profit ÷ Assets Revenue ÷ Assets Another name for net profit margin. 3 / 30 Recurring income is : Unpredictable Regular and ongoing Non-cash One-time It comes from normal business activities. 4 / 30 Contribution margin equals : Gross profit − expenses Revenue − variable costs Revenue − fixed costs Net income + tax 5 / 30 Which improves net income without improving operations ? Increasing sales Improving efficiency Selling land at a gain Reducing COGS It’s non-operating and not sustainable. 6 / 30 Income smoothing refers to : Eliminating expenses Stabilizing reported income over time Accurate reporting Increasing cash flow Sometimes done to appear less risky. 7 / 30 Segment reporting helps users : Record transactions Compare departments or product lines Measure cash flow Calculate tax It shows performance by business segment. 8 / 30 Income statement manipulation often involves : Reducing equity Overstating expenses Timing of revenue recognition Increasing depreciation 9 / 30 Which statement is most useful for profitability analysis ? Cash flow statement Balance sheet Notes only Income statement It focuses on revenues and expenses. 10 / 30 Which margin best reflects overall profitability ? Contribution margin Net profit margin Gross margin Operating margin It includes all expenses. 11 / 30 Extraordinary items must be : Predictable Unusual and infrequent Operating Frequent 12 / 30 A company with high fixed costs will have : Low break-even point High operating leverage No risk Low operating leverage Fixed costs increase sensitivity to sales changes. 13 / 30 A common-size income statement shows : Dollar values only Assets and liabilities Percentages only Cash flows Each item is a percentage of revenue. 14 / 30 Which item is usually excluded from EBITDA ? Utilities Salaries Rent Depreciation EBITDA excludes depreciation and amortization. 15 / 30 Quality of earnings refers to : Gross profit Sustainability of income Cash balance Size of net income High-quality earnings are repeatable and from core operations. Operating costs reduce operating profit.16 / 30 Higher operating expenses will : Increase gross profit Increase net income Increase assets Decrease operating income 17 / 30 Operating margin equals : Gross profit ÷ Revenue Operating income ÷ Revenue Net income ÷ Revenue EBIT ÷ Assets It shows operating efficiency. 18 / 30 Gross profit increases when : Revenue decreases Expenses increase COGS decreases COGS increases 19 / 30 Vertical analysis helps compare : Different companies of different sizes Cash flows Assets and liabilities One company over time 20 / 30 Which income is considered low quality ? Sales revenue Gain on asset sale Subscription revenue Service income Gains from asset sales are non-recurring. 21 / 30 A steady increase in net income suggests : Higher liabilities Improving performance Lower revenue Poor management Assuming earnings quality is good. 22 / 30 Which best helps compare companies of different sizes ? Revenue Total net income Cash balance Common-size statements Percentages allow better comparison. 23 / 30 Discontinued operations are reported : After operating income In equity Before operating income In assets 24 / 30 A loss from discontinued operations is reported : In equity Before gross profit After operating income In operating expenses Shown separately for clarity. 25 / 30 Which best indicates efficiency in controlling costs ? Asset turnover Gross margin trend Revenue growth Current ratio Shows cost control over time. 26 / 30 Contribution margin ratio equals: Contribution margin ÷ Revenue Gross profit ÷ Assets Net income ÷ Revenue Fixed costs ÷ Revenue Shows how much revenue covers fixed costs. 27 / 30 Pro-forma income statements are used to : Calculate taxes Show expected future results Hide losses Report past performance They project financial performance. 28 / 30 Break-even point is when : Cash flow is positive Revenue equals expenses Revenue exceeds expenses Net income is maximized Profit is zero at break-even. 29 / 30 A common-size income statement expresses items as a % of : Total assets Equity Revenue Net income 30 / 30 Amortization applies to : Inventory Cash Intangible assets Buildings Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback Income Statement quiz level 2
