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 Horizontal analysis focuses on : Industry averages Trends over time Ratios Percentages 2 / 30 A steady increase in net income suggests : Lower revenue Poor management Higher liabilities Improving performance Assuming earnings quality is good. 3 / 30 Vertical analysis helps compare : Cash flows Assets and liabilities Different companies of different sizes One company over time 4 / 30 Recurring income is : Unpredictable One-time Non-cash Regular and ongoing It comes from normal business activities. 5 / 30 A company with high fixed costs will have : Low break-even point Low operating leverage High operating leverage No risk Fixed costs increase sensitivity to sales changes. 6 / 30 Net profit margin equals : Net income ÷ Assets Gross profit ÷ Revenue Net income ÷ Revenue Revenue ÷ Expenses 7 / 30 Which item is usually excluded from EBITDA ? Utilities Depreciation Rent Salaries EBITDA excludes depreciation and amortization. 8 / 30 Which ratio uses income statement data only ? Debt-to-equity Return on assets Current ratio Gross margin It uses revenue and COGS. 9 / 30 Income smoothing refers to : Accurate reporting Increasing cash flow Eliminating expenses Stabilizing reported income over time Sometimes done to appear less risky. 10 / 30 Contribution margin ratio equals: Gross profit ÷ Assets Fixed costs ÷ Revenue Contribution margin ÷ Revenue Net income ÷ Revenue Shows how much revenue covers fixed costs. 11 / 30 Pro-forma income statements are used to : Report past performance Hide losses Calculate taxes Show expected future results They project financial performance. 12 / 30 Extraordinary items must be : Frequent Operating Unusual and infrequent Predictable 13 / 30 Operating margin equals : Gross profit ÷ Revenue Operating income ÷ Revenue Net income ÷ Revenue EBIT ÷ Assets It shows operating efficiency. 14 / 30 Which income statement item affects EPS directly ? Net income Expenses Assets Revenue EPS is based on net income. 15 / 30 Diluted EPS considers : Assets Potential shares Only current shares Preferred stock only Includes options and convertible securities. 16 / 30 A common-size income statement expresses items as a % of : Revenue Total assets Net income Equity 17 / 30 EBITDA excludes : Gross profit Depreciation and amortization Revenue Operating income 18 / 30 Which improves net income without improving operations ? Increasing sales Selling land at a gain Reducing COGS Improving efficiency It’s non-operating and not sustainable. 19 / 30 A declining gross margin may indicate : Lower operating expenses Higher sales prices Rising COGS Lower production costs Production costs may be increasing. 20 / 30 A common-size income statement shows : Cash flows Percentages only Dollar values only Assets and liabilities Each item is a percentage of revenue. 21 / 30 Amortization applies to : Intangible assets Buildings Inventory Cash 22 / 30 Gross profit increases when : Revenue decreases COGS decreases COGS increases Expenses increase 23 / 30 High operating leverage means : High fixed costs Low risk Low sales High variable costs 24 / 30 Discontinued operations are reported : Before operating income After operating income In assets In equity 25 / 30 Earnings per share (EPS) equals : Gross profit ÷ Shares Net income ÷ Shares outstanding Net income ÷ Assets Revenue ÷ Shares Operating costs reduce operating profit. 26 / 30 Higher operating expenses will : Increase assets Increase net income Decrease operating income Increase gross profit 27 / 30 Contribution margin equals : Net income + tax Revenue − variable costs Revenue − fixed costs Gross profit − expenses 28 / 30 Which statement is most useful for profitability analysis ? Balance sheet Notes only Cash flow statement Income statement It focuses on revenues and expenses. 29 / 30 Quality of earnings refers to : Gross profit Cash balance Size of net income Sustainability of income High-quality earnings are repeatable and from core operations. 30 / 30 Break-even point is when : Revenue equals expenses Revenue exceeds expenses Cash flow is positive Net income is maximized Profit is zero at break-even. Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback Income Statement quiz level 2
