Chapter 4

Question 1

Given the following information, compute net income:
Extraordinary loss -80
Income taxes 150
Interest expense 100
Operating income 1,500
Unrealized gain not included in net income 120

• $1,170
• $1,250
• $1,500
• $1,290

Answer 1

$1,170 ($1,500 - $100 - $80 = $1.170)

Question 2

Operating income is equal to
- Gross profit plus cost of sold
- sales less cost of good sold
- Comprehensive income plus and unrealized gains and losses not included in net income
- Income from continuing operations plus income tax, expense, and interest expense plus or minus other miscellaneous revenues, expenses gains, and losses

Answer 2

Income from continuing operations plus income tax, expenses, and interest expense plus or minus other miscellaneous revenues, expenses gains and losses

Question 3

The concept that income is defined as the excess of net assets at the end of an accounting. Over the net assets at the beginning of the accounting., Excluding effect of transactions with owners is called
- Economic capital maintenance
- component capital maintenance
- financial capital maintenance
- Physical capital maintenance

Answer 3

Financial capital maintenance

Question 4

Given the following information, compute net income:
Cost of sold $2000
Extraordinary item -170
Income taxes, 350
Interest expense 200
Operating expenses 1500
Sales 5500

• $3500
• $1450
• $1280
• $2000

Answer 4

$1280 ($5500 -$2000 -$1500 -$350 -$200 -$170 equals $1280)

Question 5

Given the following information, compute operating income:
Cost of Goods sold $2000
Extraordinary item -170
Income taxes, 350
Interest expense 200
Operating expense 1500
Sales 5500

• $2000
• $1280
• $3500
• $1450

Answer 5

$2000 ($5500 -$2000 -$1500 equals $2000)

Question 6

Which of the following is the correct way to date an income statement?
- As of December 31, 2012
- for the year ended December 31, 2012
- At December 31, 2012
- December 31, 2012

Answer 6

For the year ended December 31, 2012

Question 7

Earning per share is equal to
- total revenues divided by the number of shares of stock sold during the year
- net income divided by total number of shares of stock outstanding
- total revenues divided by total number of shares of stock outstanding
- net income divided by the number of shares of stock during the year

Answer 7

Net income divided by total number of shares of stock outstanding

Question 8

The following information was taken from the records for the month ended December 31, 2012:
Advertising expense $20,625
Income tax expense $13,095
Accounts payable $13,450
Dividends paid $14,125
Retained earnings $57,860
Consulting fees revenue $93,550
Rent expense $11,728
Supplies expense $16,917

If they have 2100 shares of stock outstanding earnings per share is approximately :
- $14.85
- $16.81
- $4.67
- $46.51

Answer 8

Net income: consulting fees revenue ($93,550) minus advertising expense ($20,625) minus income tax expense ($13,095) minus rent expense ($11,728) minus supplies expense ($16,917) = $31,185

$31,185/2,100 = $14.85

Question 9

Which of the following is a revenue generating activity?
- borrowing money from a bank
- selling capital stock
- Pay rent
- selling a product

Answer 9

Selling a product

Question 10

If a company has $528,000 of sales revenue, pays $26,400 in dividends, and has net income of $158,400, how much were the expenses for the year?
- $369,600
- $396,000
- $422,400
- $343,200

Answer 10

Expenses: $528,000 - $158,400 = $369,600