Question

1) On the income statement, sales revenue minus cost of goods sold equals?

A) Net Income

B) Total Operating Expense

C) Income Tax

D) Gross Profit

2) The statement of shareholders equity reports changes over for common stock, additional paid in capital (or contributed in excess of par) and

A) Retained earnings

B) Cash

C) Cash flows from operating activities

D) accounts payable

3) A firm reports $20 of income before tax expenses and $6 of income tax expense had an income tax rate of

A) 20%

B) 30 %

C) 40%

D) 50%

4) The section of the statement of cash flows that report the amount of cash paid for the purchase of equipment is cash flows from

A) operating activities

B) investing activities

C) financing activities

D) business activities

5) identify one of the following accounts as a current asset

A) account payable

B) land

C) inventory

D) equipment

Answer 1

1) D) Gross Profit

Explanation: Gross profit is associated with the profit after deducting the costs for making and selling products. Therefore, Gross profit equals revenues (i.e. the money earned from selling products) minus cost of goods sold (i.e.making and selling costs).

2) A) Retained Earnings

Explanation: Statement of shareholders' equity shows the information about ownership in a corporation. Since, retained earnings are the accumulated earnings retained by a corporation, they will be a part of ownership and hence a part of the statement of shareholders' equity.

3) B) 30%

Explanation: Income before tax= $20

Tax expense= $6

Therefore, Tax rate= (6/20)*100= 30%

4) B) Investing Activities

Explanation: Investing activities in a cash flow statement reports the aggregate changes in a company's cash position from investment gains or losses and changes from investments in capital assets. Since, equipment is a capital asset, it will be reported in investment activities.

5) C) Inventory

Explanation: Current assets are the assets that are expected to be converted into cash within a year. Out of the options, only inventory is there which fulfills this criteria.