QUIZ: Understanding Income Statements

Which of the following is least likely to be considered a core operation?

Company BIG owns 70% of company SMALL.

Company SMALL had a net income of $10,000 last year.

How much of  minority interest should BIG report in its income statement for last year?

A customer prepays $10,000 in cash to an aesthetic clinic for a set of facials. What is the most appropriate treatment for this $10,000?

Wendi Corp recently got warned by its auditor that it should not have fully recognised the revenue for a performance obligation which has been delivered to the customer. Which of the following is the MOST likely reason?

Under a long-term contract, a shipbuilder is required to build a ship priced at $500,000 over 3 years.  The cost of building the ship was estimated at $300,000 at the start of the contract.

In the first year, $180,000 cost was incurred.  How much profit can the shipbuilder book for the contract in the first year? Progress of the project is measured based on seller’s cost.

What kind of expense is interest expense most likely classified as for a non-financial firm?

A retailer had the following income statement information for the last year.

Revenue ~ $200,000

Tax expense ~ $30,000

Depreciation expense ~ $15,000

Interest expense ~ $18,000

Cost of goods sold ~ $112,000

What is the company’s operating profit?

The following inventory transactions were reported for XYZ Corp in chronological order for the year (earliest transactions first).

1 Jan. Beginning inventory + 10 units @ $3 each

1 Feb. Purchase + 6 units @ $4 each

1 Mar. Sale – 7 units @ $7 each

1 Jun. Purchase + 3 units @ $5 each

1 Oct. Sale – 6 units @ $8 each

What is the ending inventory using FIFO?

The following inventory transactions were reported for XYZ Corp in chronological order for the year (earliest transactions first).

1 Jan. Beginning inventory + 10 units @ $3 each

1 Feb. Purchase + 6 units @ $4 each

1 Mar. Sale – 7 units @ $7 each

1 Jun. Purchase + 3 units @ $5 each

1 Oct. Sale – 6 units @ $8 each

What is the ending inventory using LIFO?

A dealer purchased a computer in 2016 for $500.

The computer was sold in 2017 for $1200 with 3 years of warranty.

The dealer usually recognises a 10% warranty expense of the selling price for every computer sold.

What is the revenue, COGS, and warranty expense recognised in 2017 for this computer?

OnTime Airlines purchased a new plane for $100 million in the beginning of 2016. The plane has an estimated useful life of 15 years, and a residual value of $40 million.

Under the straight-line method, how much depreciation expense would the airline take for the second year, 2017?

OnTime Airlines purchased a new plane for $100 million in the beginning of 2016. The plane has an estimated useful life of 15 years, and a residual value of $40 million.

Under the double declining balance method, how much depreciation expense would the airline take for the second year, 2017?

In 2016, Binn Corp had a net income of $100,000.

On 1 Jan 2016, there were 1,000 common shares outstanding.

On 1 Apr 2016, the company issued 200 common shares.

The company paid $30,000 dividends to common shareholders. There are no preferred shareholders.

What is Binn Corp’s basic EPS for 2016?

A manufacturer had a net income of $1 million last year.

The firm has 100,000 common shares outstanding.

It also has 5,000 options outstanding. Each option is convertible into 1 common share at $20 exercise price.

The firm’s average stock price for last year was $15.

Compute the diluted EPS for the firm.

Which of the following items is least likely to be included under ‘other comprehensive income’?

Which of the following would most likely result in higher gross profit margin?