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 A company with high fixed costs will have : High operating leverage Low operating leverage Low break-even point No risk Fixed costs increase sensitivity to sales changes. 2 / 30 Earnings per share (EPS) equals : Net income ÷ Shares outstanding Revenue ÷ Shares Gross profit ÷ Shares Net income ÷ Assets 3 / 30 Which income is considered low quality ? Service income Gain on asset sale Subscription revenue Sales revenue Gains from asset sales are non-recurring. 4 / 30 Income smoothing refers to : Increasing cash flow Accurate reporting Eliminating expenses Stabilizing reported income over time Sometimes done to appear less risky. 5 / 30 Which item is usually excluded from EBITDA ? Rent Depreciation Utilities Salaries EBITDA excludes depreciation and amortization. 6 / 30 Net profit margin equals : Net income ÷ Revenue Gross profit ÷ Revenue Revenue ÷ Expenses Net income ÷ Assets 7 / 30 Discontinued operations are reported : Before operating income After operating income In equity In assets 8 / 30 Which best indicates efficiency in controlling costs ? Asset turnover Revenue growth Gross margin trend Current ratio Shows cost control over time. 9 / 30 A steady increase in net income suggests : Poor management Lower revenue Higher liabilities Improving performance Assuming earnings quality is good. 10 / 30 Which best helps compare companies of different sizes ? Common-size statements Total net income Revenue Cash balance Percentages allow better comparison. 11 / 30 Which income statement item affects EPS directly ? Expenses Assets Revenue Net income EPS is based on net income. 12 / 30 Segment reporting helps users : Record transactions Compare departments or product lines Calculate tax Measure cash flow It shows performance by business segment. 13 / 30 Pro-forma income statements are used to : Report past performance Calculate taxes Hide losses Show expected future results They project financial performance. 14 / 30 A common-size income statement expresses items as a % of : Net income Revenue Equity Total assets 15 / 30 Income statement manipulation often involves : Reducing equity Timing of revenue recognition Overstating expenses Increasing depreciation 16 / 30 Which ratio uses income statement data only ? Gross margin Return on assets Debt-to-equity Current ratio It uses revenue and COGS. 17 / 30 Recurring income is : One-time Non-cash Regular and ongoing Unpredictable It comes from normal business activities. 18 / 30 High operating leverage means : Low sales High fixed costs High variable costs Low risk 19 / 30 Operating margin equals : Operating income ÷ Revenue EBIT ÷ Assets Net income ÷ Revenue Gross profit ÷ Revenue It shows operating efficiency. 20 / 30 Extraordinary items must be : Operating Predictable Frequent Unusual and infrequent 21 / 30 Contribution margin equals : Gross profit − expenses Net income + tax Revenue − variable costs Revenue − fixed costs 22 / 30 Diluted EPS considers : Preferred stock only Only current shares Potential shares Assets Includes options and convertible securities. 23 / 30 A declining gross margin may indicate : Higher sales prices Lower production costs Lower operating expenses Rising COGS Production costs may be increasing. 24 / 30 Gross profit increases when : COGS increases Expenses increase Revenue decreases COGS decreases 25 / 30 A common-size income statement shows : Percentages only Cash flows Dollar values only Assets and liabilities Each item is a percentage of revenue. 26 / 30 A loss from discontinued operations is reported : Before gross profit In operating expenses After operating income In equity Shown separately for clarity. 27 / 30 Quality of earnings refers to : Size of net income Sustainability of income Cash balance Gross profit High-quality earnings are repeatable and from core operations. 28 / 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. 29 / 30 Which margin best reflects overall profitability ? Gross margin Operating margin Contribution margin Net profit margin It includes all expenses. 30 / 30 The income statement helps investors mainly to : Measure liquidity Determine asset values Assess profitability Calculate dividends directly Profitability drives investment decisions. Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback 🚀 Join Telegram Group 📢 Telegram Channel 📘 Facebook Group 👍 Facebook Page 📌 Pinterest
