Chapter 4

Question 1

Multi Step Income Statement (6)

Answer 1

1) operating section
a. Sales/revenue - COGS - selling exp - admin/general exp
2) non operating section
3) income tax
4) discontinued operations (NoT)
5) non controlling interest
6) earnings per share

Question 2

Operating section

Answer 2

1) Sales/revenue
2) COGS
3) Selling expenses
4) Admin and general expenses

Question 3

Income Statement Purpose:

Answer 3

Help users predict the amounts, timing, and uncertainty of future cash flows.

Question 4

3 Limitations of the income statement:

Answer 4

1) items that cannot be reliably measured are omitted
2) accounting methods impact measured performance
3) measurement of income has inherent bias

Question 5

Shares outstanding =

Answer 5

Common stock - treasury stock

Question 6

Earnings Per Share =

Answer 6

(Net Income - preferred dividends) / Weighted avg common shares outstanding (or # of shares outstanding)

Question 7

Gross Profit =

Answer 7

Net sales - COGS