The Income Statement Quiz

 QUESTIONS

1. The income statement shows a company's revenues and expenses...

        A) at a specific point in time

        B) over a specific period of time

 

2. The subject of accounting reports, and the way in which the information is presented depends upon...

        A) the accountant putting the information together

        B) the needs of the audience, or users, of the information

 

3. Businesses are created in order to...

        A) generate sales

        B) generate a return on investment

 

4. The best accountants are able to...

        A) crunch numbers quickly and accurately

        B) explain the why, or "story," behind the numbers

 

5. A company with proper internal control and accurate accounting records would receive...

        A) an unqualified opinion

        B) a qualified opinion

 

6. The following term is a synonym for revenues...

        A) sales

        B) profits

 

7. Gross profit is equal to revenues minus...

        A) the cost of goods sold

        B) all costs

 

8. The positive or negative results of the business ultimately fall to...

        A) management

        B) the shareholders

 

9. SG&A costs are...

        A) selling, general and administrative costs

        B) selling, general and advertising costs

 

10. Auditors are concerned with...

        A) how well the business is doing

        B) how accurate the accounting records are

 

ANSWER KEY:

1B, 2B, 3B, 4B, 5A, 6A, 7A, 8B, 9A, 10B

 

PRACTICE PROBLEMS

1. A company has $500,000 in revenues (sales) and $300,000 in expenses. What is its net profit?

2. A company has $500,000 in revenues (sales,) $200,000 in cost of goods sold, and $100,000 in selling, general, and administrative costs. What is its gross profit? What is its net profit?

3. A company sells hats for $10 each. It sells 49 hats in January, 32 hats in February, 48 hats in March, and 50 hats in April. How much revenue did the company make in the first quarter?

4. A company has a president with a salary of $100,000 a year, an accountant with a salary of $90,000 per year, and a salesperson who makes a commission of 5% on each unit sold. The company sells 150,000 units in the first quarter for $10 each. How much is it going to recognize in personnel costs in the first quarter?

5. A company has a president with a salary of $100,000 a year, an accountant with a salary of $90,000 per year, and a salesperson who makes a commission of 5% on each unit sold. The company sells 150,000 units in the first quarter for $10 each and the units cost $5 each to produce. What is the company's gross profit in the first quarter? What is the company's net profit in the first quarter?

 

ANSWER KEY:

1: Revenues - All Expenses = Net Profit

$500,000 - $300,000 = $200,000

 

2. Revenues - Cost of Goods Sold = Gross Profit

$500,000 - $200,000 = $300,000

Revenues - All Expenses = Net Profit

$500,000 - $200,000 - $100,000 = $200,000

 

3. $10(49) + $10(32) + $10(48) = $1,290

 

4. One quarter of the president's salary = $100,000/4 = $25,000

One quarter of the accountant's salary = $90,000/4 = $22,500

Commission Cost = (150,000 units x $10 sales price) x .05 = $75,000

Total Personnel Cost = $25,000 + $22,500 + $75,000 = $122,500

 

5. Revenues = 150,000 x $10 = $1,500,000

Cost of Goods Sold = 150,000 x $5 = $750,000

Selling, General & Administrative Costs = $122,500 (see problem #4)

Gross Profit = $1,500,000 - $750,000 = $750,000

Net Profit = $1,500,000 - $750,000 - $122,500 = $627,500