Reading 17: Understanding Income Statements

Which equation correctly represents the fundamental relationship of the income statement?

In a multi-step income statement, what is the subtotal derived by subtracting the cost of goods sold from revenue?

According to the converged accounting standards, which of the following is the first step in the revenue recognition process?

If a firm acts as an agent in a transaction rather than a principal, how should it report revenue?

Under the matching principle, when should the cost of goods sold be recognized as an expense?

Which inventory cost flow method is prohibited under IFRS?

In an inflationary environment, which inventory method results in the highest Cost of Goods Sold (COGS)?

A company purchases a machine for 100,000 with a 5-year useful life and 0 residual value. Using the double-declining balance (DDB) method, what is the depreciation expense in Year 1?

Which intangible asset is NOT amortized?

Where are discontinued operations reported on the income statement?

How is a change in accounting estimate, such as useful life of an asset, handled?

For a non-financial firm, which of the following is typically considered a non-operating transaction?

A firm has Net Income of 500,000 and Preferred Dividends of 50,000. It had 100,000 weighted average common shares outstanding. What is the Basic EPS?

When calculating weighted average shares for Basic EPS, how is a stock dividend treated?

What defines a simple capital structure?

When calculating Diluted EPS using the if-converted method for convertible bonds, what adjustment is made to the numerator (Net Income)?

A security is considered antidilutive if its inclusion in the EPS calculation results in:

Under the treasury stock method for stock options, the number of shares repurchased is calculated using:

What is the formula for Net Profit Margin?

Which of the following is a component of Other Comprehensive Income (OCI)?

Under US GAAP, unrealized gains and losses on 'available-for-sale' debt securities are reported in:

A vertical common-size income statement expresses each category as a percentage of:

Gross profit is calculated as:

Which accounting principle requires expenses to be recognized in the same period as the revenue they generate?

For a construction contract, if the outcome can be estimated reliably, revenue should be recognized based on:

If a company has 10,000 shares outstanding at the start of the year and issues 2,000 shares on July 1st, what are the weighted average shares for the full year?

Under IFRS, which classification corresponds to 'Trading Securities' under US GAAP?

A firm has 1,000 options outstanding with an exercise price of 20. The average market price is 25. Using the treasury stock method, how many incremental shares are added for Diluted EPS?

Unusual or infrequent items are reported:

Which depreciation method results in higher depreciation expense in the early years of an asset's life?

In a 2-for-1 stock split, what happens to the number of shares outstanding for EPS calculation?

Comprehensive income is defined as:

Which of the following is treated as a retrospective application?

If a convertible bond is dilutive, what happens to the EPS numerator?

In a sale of goods where the goods are exchanged for cash, when is revenue recognized?

Costs to secure a contract, such as sales commissions, must be:

Using the straight-line method, what is the annual depreciation for an asset costing 10,000 with a 2,000 residual value and 4-year life?

Which ratio measures the profit generated after considering all expenses?

Under US GAAP, dividends received are considered:

What happens to Basic EPS if a firm pays a cash dividend on common stock?

If a firm has a complex capital structure but all dilutive securities are antidilutive, which EPS must be reported?

A firm purchases inventory for 100. It sells it for 150. What is the Gross Profit?

Unearned revenue creates which type of account on the balance sheet?

Which cost is expensed in the period incurred (Period Cost)?

If an asset is expected to have no residual value, the Double Declining Balance method will:

Income available to common shareholders is calculated as:

A quick way to check if convertible preferred stock is dilutive is to compare Basic EPS to:

Which ratio measures the effective tax rate?

Under US GAAP, debt securities held to maturity are reported at:

When forecasting future earnings, analysts typically exclude: