MCQs

1- Which of the following will specify the income statement heading?

a. A Point in Time
b. A Period of Time
2- Amounts earned by a company in its main operating activities are known as
__________.
a. Revenues
b. Gains
3- Is it acceptable that some of the expenses reported on the income statement be
estimates?
a. Yes
b. No
4- Which of the following is not one of the three forms of business organization?
c. Corporations
d. Partnerships
e. Proprietorships
f. Investors
5- A business organized as a separate legal entity is a
a. corporation.
b. proprietor.
c. government unit.
d. partnership.
6- An income statement
a. summarizes the changes in retained earnings for a specific period of time.
b. reports the changes in assets, liabilities, and stockholders’ equity over a period of time.
c. reports the assets, liabilities, and stockholders’ equity at a specific date.
d. presents the revenues and expenses for a specific period of time.
7- Which financial statement reports the revenues and expenses for a period of time such as a year or a
month?
a. Balance sheet
b. Income statement
c. Statement of cash flows
8- Gross profit is the difference between:
a. Net income and operating income
b. Revenues and expenses
c. Sales and cost of goods sold
d. Income from continuing operations and discontinued operations
9- Revenues minus expenses equals:
a. Net Revenue
b. Net Income
c. COGS
d. ETBT
10- An annual estimated costs of assets uses up every year are included
a. depreciation
b. net sales
c. net profit
d. net income
11- Which one of the following tangible fixed assets would not normally be depreciated?
a. Buildings
b. Machinery
c. Land
d. Equipment
12- Gross Profit minus Operating Expenses is best defined as __________.
a. Net Income
b. Net Sales
 c. Operating Income

13- The intangible assets such as copyrights, trademarks and patents are applicable for….
a. Depreciation
b. Amortization
c. Operating expenses
14- If the Gross profit is 5,000 SAR and the net profit is 25% of the Gross profit. The expenses must be?
a. 3,750 SAR
b. 1,250 SAR
c. 4,150 SAR
d. 6,250 SAR
15- Under the accrual method of accounting, which of the following are revenues?
a. Receiving $100,000 cash from issuing common stock
b. Receiving $100,000 cash from a bank loan
c. Providing $100,000 of services on credit (with the cash to be received later)
16- A business has $250,000 income and $60,000 expenses. What is the net profit?*
a. $310,000
b. $250,000
c. $160,000
d. $190,000
e. None of the above.
17- Which of the following statements are true?
a. The first section of the income statement for a trading business shows the buying and selling
of goods.
b. The first section of the income statement for a trading business shows net profit.
c. The first section of the income statement for a trading business shows the tax expense.
d. All the above.
e. None of the above.

18- Which of the following statements are true?

a. Cost of goods sold is also known as cost of sales.
b. Cost of goods sold is the direct costs of the inventory that we have sold during the year.
c. Cost of goods sold is an expense charged against sales to work out a gross profit.
d. None of the above.
e. All of the above

XYZ Inc. had the following figures in its income statement:

Sales $920,000
Cost of Goods Sold $320,000
Other Income $50,000
Salaries $220,000
Advertising $100,000
Rent $80,000
Other Expenses and Taxes $50,000
19- The gross profit figure is:
a. $920,000
b. $970,000
c. $600,000
d. $500,000

20- The net profit figure is:

a. $650,000
b. $150,000
c. $600,000
d. $200,000
 21- Ashley’s Accessory Shop started the year with total assets of $210,000 and total liabilities of
$120,000. During the year the business recorded $330,000 in revenues, $165,000 in expenses, and
dividends of $60,000. The net income reported by Ashley’s Accessory Shop for the year was
a. $120,000.
b. $150,000.
c. $195,000.
d. $165,000.
22- As of January 1, 20XX, Elena’s Store had a balance in its retained earnings account of $100,000.
During the year Elena’s Store had revenues of $80,000 and expenses of $45,000. In addition, the
business paid cash dividends of $20,000. What is the balance in Retained Earnings at December 31,
20XX for Elena’s Store?
a. $100,000
b. $115,000
c. $135,000
d. $155,000
23- Company ABC Ltd. has Inventory at the beginning of the calendar year: $11,000, and the Inventory
at the end of the calendar year: $3,000. During the calendar year, the company makes purchases of
$6,000. Calculate the cost of goods sold during the calendar year.
a. 11000
b. 12000
c. 14000
d. 16000
Suppose a business has bought a machine for $ 10,000. They have estimated the machine’s useful life to be
eight years, with a salvage value of $ 2,000.
24- Total depreciation cost by using the straight-line method.
a. 1000
b. 4000
c. 8000
d. 12000
25- Depreciation cost per year by using the straight-line method
a. 1000
b. 4000
c. 8000
d. 12000
Walker Corp. is a merchandising company that uses the periodic inventory system. Selected account
balances are listed below:
Sales $500,000
Purchases 225,000
Inventory (beginning) 16,000
Inventory (ending) 30,000
Operating Expenses 148,000
Income Tax Expense 10,000
26- Gross Margin=
a. 241000
b. 211000
c. 289000
d. 141000
e. 131000
27- ETBT=
a. 241000
b. 211000
c. 289000
d. 141000
 e. 131000
28- Net Income=
a. 241000
b. 211000
c. 289000
d. 141000
e. 131000
29- Cost of goods sold=
a. 241000
b. 211000
c. 289000
d. 141000
e. 131000
30- Cost of goods available for sale =
a. 241000
b. 211000
c. 289000
d. 141000
e. 131000

Exercises 1.
Indicate in the space provided by each item whether it would appear on the income statement (IS), balance
sheet (BS), or retained earnings statement (RE):
a. IS Service Revenue
b. IS Utilities Expense
c. IS Advertising Expense
d. RE Dividends
e. IS Salaries and Wages Expense
f. IS Income Taxes

Exercises 2.
Western World is a merchandising store. Complete the Blanks

Western World Inc. Income Statement December 31, 2012

Sales: $800.00
Less: Sales returns and allowances: $10.00
Net Sales: $ 790…
Cost of Goods sold $395.00
Gross Margin: $ 395…
Operating Expenses:
Advertising: $60.00
Delivery: $40.00
Depreciation: $59.00
Insurance: $36.00
Office Supplies: $14.00
Telephone: $50.00
Utilities: $36.00
Total Expenses: $..295
Net Income before taxes: $.100.