Financial Accounting Quiz Income Statement quiz level 2 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 statement is most useful for profitability analysis ? Notes only Balance sheet Income statement Cash flow statement It focuses on revenues and expenses. 2 / 30 Recurring income is : Regular and ongoing One-time Non-cash Unpredictable It comes from normal business activities. 3 / 30 A common-size income statement shows : Dollar values only Cash flows Percentages only Assets and liabilities Each item is a percentage of revenue. 4 / 30 High operating leverage means : High fixed costs Low sales Low risk High variable costs 5 / 30 Break-even point is when : Net income is maximized Revenue equals expenses Revenue exceeds expenses Cash flow is positive Profit is zero at break-even. 6 / 30 Which best indicates efficiency in controlling costs ? Gross margin trend Asset turnover Revenue growth Current ratio 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 Horizontal analysis focuses on : Ratios Industry averages Percentages Trends over time 9 / 30 A loss from discontinued operations is reported : After operating income Before gross profit In equity In operating expenses Shown separately for clarity. 10 / 30 Contribution margin equals : Revenue − fixed costs Gross profit − expenses Net income + tax Revenue − variable costs 11 / 30 A steady increase in net income suggests : Lower revenue Higher liabilities Improving performance Poor management Assuming earnings quality is good. 12 / 30 Gross profit increases when : Expenses increase COGS increases Revenue decreases COGS decreases 13 / 30 Segment reporting helps users : Compare departments or product lines Record transactions Measure cash flow Calculate tax It shows performance by business segment. 14 / 30 Income statement manipulation often involves : Increasing depreciation Reducing equity Timing of revenue recognition Overstating expenses 15 / 30 A declining gross margin may indicate : Higher sales prices Rising COGS Lower production costs Lower operating expenses Production costs may be increasing. 16 / 30 The income statement helps investors mainly to : Determine asset values Measure liquidity Assess profitability Calculate dividends directly Profitability drives investment decisions. 17 / 30 Which margin best reflects overall profitability ? Net profit margin Operating margin Gross margin Contribution margin It includes all expenses. 18 / 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. 19 / 30 Quality of earnings refers to : Size of net income Gross profit Cash balance Sustainability of income High-quality earnings are repeatable and from core operations. 20 / 30 Earnings per share (EPS) equals : Net income ÷ Assets Revenue ÷ Shares Net income ÷ Shares outstanding Gross profit ÷ Shares 21 / 30 Extraordinary items must be : Frequent Operating Predictable Unusual and infrequent 22 / 30 Income smoothing refers to : Stabilizing reported income over time Eliminating expenses Accurate reporting Increasing cash flow Sometimes done to appear less risky. 23 / 30 Which improves net income without improving operations ? Improving efficiency Selling land at a gain Reducing COGS Increasing sales It’s non-operating and not sustainable. 24 / 30 Return on sales equals : Gross profit ÷ Assets Revenue ÷ Assets Net income ÷ Equity Net income ÷ Revenue Another name for net profit margin. 25 / 30 Contribution margin ratio equals: Fixed costs ÷ Revenue Net income ÷ Revenue Contribution margin ÷ Revenue Gross profit ÷ Assets Shows how much revenue covers fixed costs. 26 / 30 Which income statement item affects EPS directly ? Assets Revenue Net income Expenses EPS is based on net income. 27 / 30 Which ratio uses income statement data only ? Return on assets Current ratio Gross margin Debt-to-equity It uses revenue and COGS. 28 / 30 Net profit margin equals : Net income ÷ Assets Revenue ÷ Expenses Gross profit ÷ Revenue Net income ÷ Revenue 29 / 30 Amortization applies to : Buildings Intangible assets Inventory Cash 30 / 30 Which income is considered low quality ? Subscription revenue Sales revenue Gain on asset sale Service income Gains from asset sales are non-recurring. Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback Income Statement quiz level 2
