Income Statement
Medium Test
Medium Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
a. selling a major part of the business
b. other use of assets
c. a loss that is unusual
d. gross profit
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a. an operating expense
b. a loss from discontinued operations
c. a loss that is unusual
d. an “other” loss below operating income
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a. income from discontinued operations
b. operating expenses
c. other revenues or expenses
d. gross profit
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a. income from discontinued operations
b. operating expenses
c. other revenues or expenses
d. gross profit
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a. an unusual loss
b. operating expenses
c. other revenues or expenses
d. gross profit
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a. below income tax expense
b. as an operating expenses
c. in other revenues or expenses
d. as a discontinued operations
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a. an increase to depreciation expense
b. operating expenses
c. other revenues or expenses
d. an extraordinary item
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a. recording the cost of inventory sold in the period of the sale
b. recording bad debt expense in the period of the sale
c. recording salary expense when paid
d. recording depreciation expense in the period the asset is used
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a. operating income
b. income from continuing operations
c. income before taxes
d. income from discontinuing operations
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a. gross profit, income from continuing operations, income from operations
b. income from operations, income from discontinued operations, income before income taxes
c. gross profit, income from operations, income from continuing operations
d. sales, income from operations, gross profit
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Revenues and Gains:
Sales
Dividend income
Gain on sale of equipment
Rent income
Expenses and Losses:
Salaries
Loss from fire
Depreciation expense
Cost of goods sold
Income tax expense
Administrative expense
Restructuring expense
Loss from selling major part of the business
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Sales
- Cost of goods sold
= Gross profit
- Operating expenses:
Salaries expense
Depreciation expense
Administrative expense
Restructuring expense
= Income from operations
- + Other revenues and expenses
Loss from fire
Rent income
Dividend income
Gain on sale of equipment
=Income before tax
- Income tax expense
= income from continuing operations
- Discontinued operation - Loss from selling major part of the business
= Net income
A. Included in Gross Profit
B. Included in Operating expenses
C. Included in Other Revenues and Expenses
D. Included in Discontinued Operations
E. Is not reported on the Income Statement
______ 1. Rent revenue collected in advance
______ 2. Reorganizing the company’s operations
______ 3. Loss from selling a major product line
______ 4. Interest income
______ 5. Provide goods to customers
______ 6. Loss from a hurricane in Florida
______ 7. Research and development expenses
______ 8. Marketing expenses
______ 9. Executive salaries
______ 10. Depreciation on manufacturing equipment
______ 11. Rent income
______ 12. The cost of inventory sold to customers
______ 13. Loss on the sale of an investment
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E 1. Rent revenue collected in advance (unearned revenue – liability)
B 2. Reorganizing the company’s operations (restructuring expense)
D 3. Loss from selling a major product line
C 4. Interest income
A 5. Provide goods to customers (sales)
C 6. Loss from a hurricane in Florida
B 7. Research and development expenses
B 8. Marketing expenses
B 9. Executive salaries
A 10. Depreciation on manufacturing equipment (cost of making product)
C 11. Rent income
A 12. The cost of inventory sold to customers (cost of goods sold)
C 13. Loss on the sale of an investment
1) The cost of inventory sold to customer | $220,000 |
2) Advertising expenses | $ 25,000 |
3) Administrative salary expenses | $ 80,000 |
4) Issued common stock | $ 75,000 |
5) Interest income | $ 10,000 |
6) Insurance expense | $ 4,000 |
7) Research and development costs | $ 22,000 |
8) Dividends paid | $ 15,000 |
9) Tax expense | 35% |
10) Rent expense | $ 12,000 |
11) Loss from closing 1 out of 6 shops | $ 8,000 |
12) Accrued expenses | $ 11,000 |
13) Sales price of goods provided | |
to customers | $450,000 |
14) Loss on the sale of a building | $ 26,000 |
Check Your Answer
Sales | $450,000 |
– Cost of goods sold | ( 220,000) |
= Gross profit | 230,000 |
– Operating expenses: | |
Advertising expense | 25,000 |
Insurance expense | 4,000 |
Administrative salary expense | 80,000 |
Rent expense | 12,000 |
Research & Development expense | 22,000 |
Restructuring expense | 8,000 |
= Income from operations | 79,000 |
– + Other revenues and expenses | |
Loss on sale of a building | (26,000) |
Interest income | 10,000 |
=Income before tax | 63,000 |
– income tax expense | (22,050) |
= Net Income | 40,950 |
Important to Note:
Issuing common stock is an increase in cash and an increase in owner’s equity.
It is not a revenue or an expense and is not reported on the income statement.
Dividends paid is a direct reduction to retained earnings on the balance sheet.
It is not an expense and is not reported on the income statement.
Accrued expense is a liability that is reported only on the balance sheet.
Closing 1 of 6 shops is not selling of a major part of the business. The company continues in this business and is closing one to change operations to make the company more profitable.