Income Statement (Practice Quiz)

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If you have difficulty answering the following questions, learn more about this topic by reading our Income Statement (Explanation).


  1. 1.

    Which of the following names is NOT associated with the income statement?

    P & L
    Wrong.
    P&L is often used when referring to the income statement.
    Statement Of Financial Position
    Right!
    The statement of financial position is NOT associated with the income statement. It is associated with the balance sheet.
    Statement Of Operations
    Wrong.
    This name is used instead of income statement.
  2. 2.

    The income statement heading will specify which of the following?

    A POINT In Time
    Wrong.
    A balance sheet's heading is a point in time.
    A PERIOD Of Time
    Right!
    An income statement covers the period of time shown in its heading.
  3. 3.

    Amounts earned by a company in its main operating activities are known as __________.

    Revenues
    Right!
    This is the correct answer.
    Gains
    Wrong.
    Gains pertain to items outside of the main operations.
  4. 4.

    A company disposes of equipment that it no longer uses in its business. The amount received by the company is more than the amount the asset is carried at in the accounting records. The company will report a(n) __________.

    Expense
    Wrong.
    Expenses are associated with the main operations of a company... not with the disposal of long-term assets.
    Gain
    Right!
    Because the sale of equipment is outside of the main business activity and the amount received was greater than the amount at which the asset was carried in the company books, it is reported as a gain. The amount of the gain is the amount by which the proceeds exceeds the carrying amount.
    Loss
    Wrong.
    To have a loss the proceeds would have to be less than the carrying amount.
    Revenue
    Wrong.
    Revenues involve the main operations of the company... not with the disposal of long-term assets.
  5. 5.

    On December 1, a company borrowed $100,000 at 12% per year. The interest will be paid quarterly, with the first payment due on March 1. What should the company report on its income statement for December?

    Nothing
    Wrong.
    The company is incurring (having) interest expense every day that the loan is outstanding. The December income statement must report one month's interest expense.
    Interest Expense Of $1,000
    Right!
    The income statement must report the interest incurred regardless of the date the interest is paid. $100,000 X .12 X 1/12 = $1,000.
  6. 6.

    Is a retailer's Interest Expense an operating expense or a non-operating expense?

    Operating Expense
    Wrong.
    Interest is associated with the finance function, not the main activity of buying/producing and selling.
    Non-operating Expense
    Right!
    Interest is associated with the finance function, which is not the main operations of the company.
  7. 7.

    The income statement line gross profit will appear on which income statement format?

    Single-step
    Wrong.
    There is no subtotal in the single-step income statement.
    Multiple-step
    Right!
    It will appear as the result of subtracting the cost of goods sold from net sales.
  8. 8.

    Which income statement format segregates the operating revenues and expenses from the non-operating revenues and expenses?

    Single-step
    Wrong.
    The single-step statement shows operating and non-operating revenues in one group, and it shows operating and non-operating expenses as another group.
    Multiple-step
    Right!
    Multiple-step shows operating revenues and expenses separate from the non-operating revenues and expenses.
  9. 9.

    Interest earned on investments would appear in which section of a retailer's multiple-step income statement?

    Non-operating
    Right!
    Interest revenue is outside of a company's main operations.
    Operating
    Wrong.
    Interest earned is a non-operating revenue.
    Would Not Appear
    Wrong.
    Interest earned would appear in the non-operating section.
  10. 10.

    Under the accrual basis of accounting, revenues are recognized in the accounting period in which __________.

    Cash Is Received
    Wrong.
    Under the accrual basis of accounting, revenues are recognized when the revenues are earned, not when the cash is received.
    Revenues Are Earned
    Right!
    Under the accrual basis of accounting, revenues are recognized when earned.
  11. 11.

    Net Sales minus the Cost of Goods Sold is __________.

    Gross Profit
    Right!
    Income From Operations
    Wrong.
    Operating Income is Gross Profit minus Operating Expenses.
    Net Income
    Wrong.
  12. 12.

    The combination of net income + other comprehensive income is known as __________ income.

    Comprehensive
    Right!
    Net
    Wrong.
    Total
    Wrong.
  13. 13.

    Which basis of accounting best measures profitability during a short time interval?

    Accrual Basis
    Right!
    Cash Basis
    Wrong.
    When cash is collected does not determine when sales and service revenues have been earned. When payments are made does not determine when expenses are incurred.
  14. 14.

    Gross Profit minus Operating Expenses is best defined as __________.

    Net Income
    This is not the best answer.
    This could be true if there were no non-operating revenues and expenses.
    Net Sales
    Wrong.
    Net Sales is Gross Sales minus Sales Discounts and Sales Returns and Allowances.
    Operating Income
    Right!
  15. 15.

    What is defined as sales minus all variable expenses?

    Contribution Margin
    Right!
    Gross Profit
    Wrong.
    Net Income
    Wrong.
  16. 16.

    Are the draws of a sole proprietor reported as an expense on the company's income statement?

    Yes
    Wrong.
    No
    Right!
  17. 17.

    A corporation's net income will cause an increase to which of the following?

    Accumulated Other Comprehensive Income
    Wrong.
    Common Stock
    Wrong.
    Retained Earnings
    Right!
  18. 18.

    If a company's stock is publicly traded, is it a requirement that the earnings per share appear on the income statement?

    Yes
    Right!
    The earnings per share must appear on the income statement if a corporation's stock is publicly traded.
    No
    Wrong.
    The earnings per share must appear on the income statement if a corporation's stock is publicly traded.
  19. 19.

    Are the notes to the financial statements considered to be an integral part of the financial statements?

    Yes
    Right!
    The notes are an integral part of the statements.
    No
    Wrong.
    The notes are an integral part of the statements.
  20. 20.

    Is it acceptable that some of the expenses reported on the income statement be estimates?

    Yes
    Right!
    Depreciation Expense is an example of a significant expense that is an estimate.
    No
    Wrong.
    Depreciation Expense and Bad Debts Expense are examples of expenses that are estimates.

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Income Statement Outline

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