Reading 32: Understanding the Income Statement - LOS a ～ Q

答案和详解如下：

1.During 2007, Topeka Corporation entered into the following transactions:

Transaction #1 – Interest on a certificate of deposit owned by Topeka was credited to Topeka’s investment account.

Transaction #2 – Topeka sold 10,000 shares of common stock at $30 that had been repurchased by Topeka last year for $20.

Should Topeka recognize the results of these transactions as income on the income statement for the year ended December 31, 2007?

A)                        Yes             No

B)                        Yes             Yes

C)                        No            No

D)                        No            Yes

The correct answer was A)

Interest earned on the CD is recognized as interest income. The gain on the sale of treasury stock is not reported on the income statement but is relected on the statement of changes in stockholders’ equity and on the balance sheet. The sale proceeds simply increase equity and increase cash.

2.Do gains and losses, and do expenses appear on the income statement?

A)   Yes                                    No

B)   No                                     Yes

C)   No                                      No

D)   Yes                                   Yes

The correct answer was D)

Gains and losses result from, transactions that are not a part of the firm’s normal business operations. Expenses are amounts that are incurred to generate revenue; thus, expenses result from the firm’s ongoing operations. Both are included on the income statement.

3.Would an increase in the cost of raw materials used in the production of inventory and would an increase in marketing expenses result in lower gross profit?

A)                              Yes           Yes

B)                              No             No

C)                              No             Yes

D)                              Yes           No

The correct answer was D)

Gross profit is equal to sales minus cost of goods sold. Cost of goods sold includes the direct costs of producing a product or service such as raw materials, direct labor, and overhead (fixed costs). Thus, an increase in raw materials costs will result in higher cost of goods sold and lower gross profit. Marketing expenses are considered operating expenses (SG&A), not in cost of goods sold.