Question 1

In volatile industries, such as high technology, gross profit margin may increase or decrease significantly each year.

Accepted Answer

Volatile industries are characterized by rapid and unpredictable changes, which can lead to fluctuations in gross profit margin. Therefore, it is true that gross profit margin may increase or decrease significantly each year in high technology and other volatile industries.

Question 2

Stock------and stock------result in the issuance of additional shares of stock to existing shareholders.

Accepted Answer

dividends, splits

Question 3

________and________represent the cost of assets other than land that will benefit a business enterprise for more than a year.

Accepted Answer

Depreciation, amortization

Question 4

Gross profit is the difference between sales and all operating expenses.

Accepted Answer

Gross profit is the difference between sales and the cost of goods sold, not all operating expenses.

Question 5

If the cost of goods sold percentage increases or decreases, this does not necessarily mean that costs have increased or decreased.

Accepted Answer

The cost of goods sold percentage is calculated by dividing the cost of goods sold by the total sales revenue. Therefore, if the cost of goods sold percentage increases or decreases, it could be due to changes in sales revenue or changes in the cost of goods sold. It does not necessarily mean that costs have increased or decreased.

Question 6

Users of financial statements need to distinguish between earnings increasing due to core operations versus items such as tax rate deductions.

Accepted Answer

It is important for users of financial statements to differentiate between earnings that increase due to core operations, such as growth in revenue or cost-cutting measures, versus one-time items such as tax rate deductions that may not be sustainable. This distinction can help investors make informed decisions about a company's long-term financial health.

Question 7

________charges are the expenses recognized to record a decline in value of a long-term asset.

Accepted Answer

The answer of ________charges are the expenses recognized to record...

Question 8

Operating profit margin is impacted by sales and all operating expenses except cost of goods sold.

Accepted Answer

Operating profit margin is impacted by sales and all operating expenses, including cost of goods sold, as it measures the proportion of revenue that remains after paying for variable costs of production like wages, raw materials, etc.

Question 9

The________ method of accounting for investments should be used when the investor can exercise significant influence over the investee's operating and financing policies.

Accepted Answer

The answer of The________ method of accounting for investments should...

Question 10

Two special items, discontinued operations and extraordinary items, must be disclosed separately on the income statement.

Accepted Answer

Discontinued operations and extraordinary items are both items that are considered to be nonrecurring, and therefore, they must be separately disclosed on the income statement. Discontinued operations refer to the disposal of a segment of a business, while extraordinary items refer to events that are both unusual in nature and infrequent in occurrence. Separately disclosing these items allows investors and financial statement users to better understand the company's financial performance and the impact of these nonrecurring items.

Question 11

________costs are or should be a major expense in the budgets of companies for which marketing is an important element of success.

Accepted Answer

The answer of ________costs are or should be a major...

Question 12

Two other terms used interchangeably with income are ________and ________.

Accepted Answer

The answer of Two other terms used interchangeably with income...

Question 13

The income statement comes in two basic formats, the multiple-step and the single-step versions; however, for analysis purposes the single-step version should be used.

Accepted Answer

For analysis purposes, both the multiple-step and single-step versions of the income statement can be used. It depends on the specific needs of the analyst. However, the single-step format is simpler and easier to understand, which may make it more practical for some users.

Question 14

Foreign currency translation effects, unrealized gains and losses, additional pension liabilities and cash flow hedges are items that may comprise a company's other________income.

Accepted Answer

The answer of Foreign currency translation effects, unrealized gains and...

Question 15

The statement of stockholders' equity is an important link between the balance sheet and the income statement.

Accepted Answer

The statement of stockholders' equity shows the changes in equity from the beginning of the accounting period to the end of the accounting period, including net income, dividends, and other comprehensive income. This information is a link between the balance sheet (which shows the company's financial position at a specific point in time) and the income statement (which shows the company's performance during a specific period of time).

Question 16

The ________method of inventory generally results in the matching of current costs with current revenues and therefore produces higher-quality earnings.

Accepted Answer

The answer of The ________method of inventory generally results in...

Question 17

________income is the change in equity of a company during a period from transactions, other events, and circumstances relating to nonowner sources.

Accepted Answer

The answer of ________income is the change in equity of...

Question 18

The gross profit margin and________ are complements of each other and the two percentages always add up to 100%.

Accepted Answer

The answer of The gross profit margin and________ are complements...

Question 19

The common size income statement expresses each income statement item as a percentage of total assets.

Accepted Answer

The common size income statement expresses each income statement item as a percentage of total revenue or sales, not total assets.

Question 20

The income statement presents cash revenues, cash expenses, net income, and earnings per share for an accounting period.

Accepted Answer

The income statement presents revenues and expenses, which may or may not be cash transactions. Net income and earnings per share are also included, but the statement does not necessarily report on cash flow directly.

Quiz 3: Income Statement and Statement of Stockholders Equity