Unit 4 of 5
Study guide for CLEP CLEP Financial Accounting — Unit 4: Income Statement. Practice questions, key concepts, and exam tips.
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Mason Corporation had net sales of $100,000, cost of goods sold of $60,000, and operating expenses of $20,000. What is the amount of gross profit that Mason Corporation would report on its income statement?
Answer: A — Gross profit is calculated by subtracting the cost of goods sold from net sales. In this case, gross profit would be $100,000 - $60,000 = $40,000. Option A is incorrect because it is the amount of net income, not gross profit. Option C is incorrect because it is the amount of net sales minus operating expenses, not the correct calculation for gross profit. Option D is incorrect because it is the amount of net sales plus operating expenses, which is not a valid calculation for gross profit.
Mega Corp. has revenues of $100,000, cost of goods sold of $60,000, and operating expenses of $20,000. What is the amount of Mega Corp.'s gross profit?
Answer: A — Gross profit is calculated by subtracting the cost of goods sold from revenues. In this case, $100,000 - $60,000 = $40,000. The other options are incorrect because they do not accurately reflect the calculation of gross profit. Option B is the amount of revenue, option C is the amount of operating expenses, and option D is the amount of cost of goods sold.
Larkin Inc. has two operating segments: North and South. The North segment has revenues of $100,000, cost of goods sold of $60,000, and operating expenses of $20,000. The South segment has revenues of $80,000, cost of goods sold of $50,000, and operating expenses of $15,000. The company also has $10,000 in corporate overhead that is not allocable to either segment. If Larkin Inc. chooses to report its operating segments in a single income statement, what is the total amount of operating expenses that will be reported in the income statement?
Answer: D — The correct answer is C because the total operating expenses for the two segments are $20,000 + $15,000 = $35,000, and the $10,000 in corporate overhead is also an operating expense for the company. The company is presenting a single income statement so the $10,000 is an operating expense. A and B are incorrect because they do not include the corporate overhead or include incorrect amounts. D is incorrect because $60,000 is the total cost of goods sold for both segments, not the total operating expenses.
Mason Corporation has revenues of $100,000, cost of goods sold of $60,000, and operating expenses of $20,000. What is the correct order of these items on the income statement?
Answer: A — The correct answer is A because the income statement typically presents revenues first, followed by the cost of goods sold (to calculate gross profit), and then operating expenses. This order makes it easy to calculate important metrics like gross profit and net income. The other options are incorrect because they do not follow the standard income statement presentation format.
A company has net sales of $100,000, cost of goods sold of $60,000, and operating expenses of $20,000. If the company also has a gain on the sale of equipment of $10,000, what is the correct order of these items on the income statement?
Answer: B — The correct answer is B because the income statement typically starts with net sales, followed by the cost of goods sold to calculate gross profit, then operating expenses to calculate operating income, and finally non-operating items such as the gain on the sale of equipment. This order makes sense because it allows users to see the company's revenues and expenses from its primary operations before considering non-operating items. The other options are incorrect because they do not follow this logical order.
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