Financial Statements QuizIncome Statement quiz level 2 07/06/2026 1 min read 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 income statement item affects EPS directly ? Net income Revenue Assets Expenses EPS is based on net income. 2 / 30 Which ratio uses income statement data only ? Gross margin Return on assets Debt-to-equity Current ratio It uses revenue and COGS. 3 / 30 High operating leverage means : Low sales High fixed costs Low risk High variable costs 4 / 30 A declining gross margin may indicate : Rising COGS Higher sales prices Lower operating expenses Lower production costs Production costs may be increasing. 5 / 30 Diluted EPS considers : Assets Only current shares Potential shares Preferred stock only Includes options and convertible securities. 6 / 30 A common-size income statement expresses items as a % of : Revenue Total assets Net income Equity 7 / 30 A steady increase in net income suggests : Lower revenue Improving performance Higher liabilities Poor management Assuming earnings quality is good. 8 / 30 Break-even point is when : Cash flow is positive Revenue exceeds expenses Revenue equals expenses Net income is maximized Profit is zero at break-even. 9 / 30 Return on sales equals : Gross profit ÷ Assets Net income ÷ Equity Net income ÷ Revenue Revenue ÷ Assets Another name for net profit margin. 10 / 30 Which item is usually excluded from EBITDA ? Depreciation Utilities Rent Salaries EBITDA excludes depreciation and amortization. 11 / 30 Vertical analysis helps compare : One company over time Cash flows Assets and liabilities Different companies of different sizes 12 / 30 Extraordinary items must be : Operating Frequent Unusual and infrequent Predictable 13 / 30 Income smoothing refers to : Increasing cash flow Accurate reporting Eliminating expenses Stabilizing reported income over time Sometimes done to appear less risky. 14 / 30 Gross profit increases when : COGS increases Revenue decreases COGS decreases Expenses increase 15 / 30 Contribution margin equals : Revenue − fixed costs Gross profit − expenses Net income + tax Revenue − variable costs 16 / 30 Which best indicates efficiency in controlling costs ? Gross margin trend Asset turnover Current ratio Revenue growth Shows cost control over time. 17 / 30 Which improves net income without improving operations ? Improving efficiency Reducing COGS Increasing sales Selling land at a gain It’s non-operating and not sustainable. 18 / 30 A common-size income statement shows : Dollar values only Percentages only Cash flows Assets and liabilities Each item is a percentage of revenue. 19 / 30 Recurring income is : Regular and ongoing Non-cash One-time Unpredictable It comes from normal business activities. 20 / 30 A company with high fixed costs will have : Low operating leverage No risk Low break-even point High operating leverage Fixed costs increase sensitivity to sales changes. 21 / 30 EBITDA excludes : Gross profit Depreciation and amortization Operating income Revenue 22 / 30 Pro-forma income statements are used to : Calculate taxes Hide losses Report past performance Show expected future results They project financial performance. 23 / 30 Segment reporting helps users : Record transactions Calculate tax Compare departments or product lines Measure cash flow It shows performance by business segment. 24 / 30 The income statement helps investors mainly to : Measure liquidity Calculate dividends directly Determine asset values Assess profitability Profitability drives investment decisions. 25 / 30 Quality of earnings refers to : Size of net income Gross profit Sustainability of income Cash balance High-quality earnings are repeatable and from core operations. 26 / 30 A loss from discontinued operations is reported : After operating income In operating expenses Before gross profit In equity Shown separately for clarity. 27 / 30 Which income is considered low quality ? Subscription revenue Gain on asset sale Service income Sales revenue Gains from asset sales are non-recurring. Operating costs reduce operating profit.28 / 30 Higher operating expenses will : Increase assets Increase gross profit Decrease operating income Increase net income 29 / 30 Which best helps compare companies of different sizes ? Common-size statements Total net income Cash balance Revenue Percentages allow better comparison. 30 / 30 Amortization applies to : Intangible assets Cash Inventory Buildings Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback 🚀 Join Telegram Group 📢 Telegram Channel 📘 Facebook Group 👍 Facebook Page 📌 Pinterest
