Income Statement quiz level 2 Financial Accounting Quiz On Feb 3, 2026 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 Which margin best reflects overall profitability ? Gross margin Operating margin Contribution margin Net profit margin It includes all expenses. 2 / 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. 3 / 30 Extraordinary items must be : Predictable Operating Unusual and infrequent Frequent 4 / 30 The income statement helps investors mainly to : Calculate dividends directly Determine asset values Measure liquidity Assess profitability Profitability drives investment decisions. 5 / 30 A declining gross margin may indicate : Lower operating expenses Rising COGS Higher sales prices Lower production costs Production costs may be increasing. 6 / 30 Which best indicates efficiency in controlling costs ? Revenue growth Current ratio Asset turnover Gross margin trend Shows cost control over time. Operating costs reduce operating profit. 7 / 30 Higher operating expenses will : Increase gross profit Decrease operating income Increase net income Increase assets 8 / 30 Gross profit increases when : Revenue decreases COGS increases Expenses increase COGS decreases 9 / 30 EBITDA excludes : Gross profit Operating income Revenue Depreciation and amortization 10 / 30 A steady increase in net income suggests : Improving performance Lower revenue Higher liabilities Poor management Assuming earnings quality is good. 11 / 30 Contribution margin ratio equals: Fixed costs ÷ Revenue Gross profit ÷ Assets Contribution margin ÷ Revenue Net income ÷ Revenue Shows how much revenue covers fixed costs. 12 / 30 Net profit margin equals : Revenue ÷ Expenses Net income ÷ Assets Net income ÷ Revenue Gross profit ÷ Revenue 13 / 30 A common-size income statement expresses items as a % of : Revenue Equity Total assets Net income 14 / 30 Pro-forma income statements are used to : Report past performance Calculate taxes Hide losses Show expected future results They project financial performance. 15 / 30 Recurring income is : One-time Non-cash Unpredictable Regular and ongoing It comes from normal business activities. 16 / 30 Operating margin equals : Gross profit ÷ Revenue Operating income ÷ Revenue Net income ÷ Revenue EBIT ÷ Assets It shows operating efficiency. 17 / 30 Which income statement item affects EPS directly ? Revenue Expenses Net income Assets EPS is based on net income. 18 / 30 High operating leverage means : Low risk High fixed costs Low sales High variable costs 19 / 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. 20 / 30 A company with high fixed costs will have : No risk Low operating leverage Low break-even point High operating leverage Fixed costs increase sensitivity to sales changes. 21 / 30 Which statement is most useful for profitability analysis ? Balance sheet Income statement Notes only Cash flow statement It focuses on revenues and expenses. 22 / 30 Which best helps compare companies of different sizes ? Revenue Total net income Common-size statements Cash balance Percentages allow better comparison. 23 / 30 Income smoothing refers to : Increasing cash flow Accurate reporting Stabilizing reported income over time Eliminating expenses Sometimes done to appear less risky. 24 / 30 Which ratio uses income statement data only ? Return on assets Gross margin Current ratio Debt-to-equity It uses revenue and COGS. 25 / 30 Diluted EPS considers : Preferred stock only Potential shares Assets Only current shares Includes options and convertible securities. 26 / 30 Earnings per share (EPS) equals : Gross profit ÷ Shares Net income ÷ Shares outstanding Revenue ÷ Shares Net income ÷ Assets 27 / 30 A loss from discontinued operations is reported : Before gross profit In equity After operating income In operating expenses Shown separately for clarity. 28 / 30 Which income is considered low quality ? Service income Sales revenue Subscription revenue Gain on asset sale Gains from asset sales are non-recurring. 29 / 30 Return on sales equals : Net income ÷ Equity Revenue ÷ Assets Gross profit ÷ Assets Net income ÷ Revenue Another name for net profit margin. 30 / 30 Amortization applies to : Intangible assets Buildings Inventory Cash Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback Income Statement quiz level 2
