1.3 Income Statement and Statement of Comprehensive Income

Question 1

Income equation

Answer 1

Income (loss) = revenues + gains - expenses - losses

Question 2

Limitations of income statement

Answer 2

• Items of income and expense may be omitted from the income statement and reported on the statement of other comprehensive income
• Financial statements report accrual-basis results for the period
• Preparing the income statement requires estimates and management judgement

Question 3

Which one of the following would be shown on a multiple-step income statement but not on a single-step income statement?

A. Gross Profit
B. Loss from discontinued operations
C. Cost of goods sold
D. Net income from continuing operations

Answer 3

A. Gross profit

A single-step income statement combines all revenues and gains, combines all expenses and losses, and subtracts the latter from the former in a “single step” to arrive at net income. Gross profit, being the difference between sales revenue and cost of goods sold, does not appear on a single-step income statement.

Question 4

Equation to calculate COGS, for retailer

Answer 4

Beginning inventory + Net purchases + Freight-in = Goods available for sales

Goods available for sale - Ending inventory = COGS

Question 5

Equation to calculate COGM

Answer 5

Beginning direct materials inventory + purchase during the period - ending direct materials inventory = direct materials used in production

Direct materials used in production + direct labor costs + manufacturing overhead costs = total manufacturing costs

Total manufacturing costs + beginning WIP inventory - ending WIP inventory = COGM

Question 6

Equation to calculate COGS, with COGM

Answer 6

COGM + Beginning finished goods inventory - ending finished goods inventory = COGS

Question 7

COGS is recognized at the time of goods are sold, which follows the

Answer 7

matching principle

Question 8

Gross profit margin equation

Answer 8

Gross profit / sales

Question 9

The ________ income statement provides one grouping for revenue items and one for expense items

Answer 9

Single-step income statement

Question 10

The ________ income statement presents operating revenues and expenses in a section separate from nonoperating items

Answer 10

multiple-step income statement

Question 11

When an entity reports a discontinued operation, it must be presented in a separate section between

Answer 11

income from continuing operations and net income

Question 12

The profit and loss statement of an entity includes the following information for the current fiscal year:

*Sales: $160,000
*Gross profit: 48,000
*Year-end finished goods inventory: 58,300
*Opening finished goods inventory: 60,190

The cost of goods manufactured by the entity for the current fiscal year is

Answer 12

$110,110

The entity’s cost of goods manufactured can be calculated as follows:
Sales - Gross Profit + Ending finished goods - Beginning finished goods

Question 13

Given the following data for a company, what is the cost of goods sold?

• Beginning inventory of finished goods: $100,000
• Cost of goods manufactured: 700,000
• Ending inventory of finished goods: 200,000
• Beginning work-in-process inventory: 300,000
• Ending work-in-process inventory: 50,000

A. $500,000
B. $600,000
C. $800,000
D. $950,000

Answer 13

B. $600,000