11) Sales revenue less cost of goods sold is called:
A) gross profit.
B) net income.
C) net profit.
D) net sales.
12) Ongoing expenses incurred by the entity, other than the direct expenses for merchandise, are called:
A) other expenses.
B) extraordinary items.
C) cost of goods sold.
D) operating expenses.
13) The operating expense section of an income statement would NOT include:
A) salaries expense.
B) utilities expense.
C) supplies expense.
D) interest expense.
14) For a retailer, there will be positive income from operations if:
A) revenues are greater than cost of goods sold.
B) revenues are greater than operating expenses.
C) gross profit is greater than operating expenses.
D) cost of goods sold is greater than operating expenses.
15) Components of increasing earnings quality include all of the following EXCEPT:
A) declining or stable operating expenses compared to sales.
B) improving gross margin compared to sales.
C) increasing cost of goods sold to sales ratio.
D) proper revenue and expense recognition.
16) A sign(s) of increasing earnings quality is(are):
A) improving gross margin to sales ratio.
B) declining operating expenses to sales ratio.
C) improving operating income to sales ratio.
D) all of the above.
17) A sign of decreasing earnings quality is:
A) declining Cost of Goods Sold to sales ratio.
B) declining Gross Margin to sales ratio.
C) declining operating expenses to sales ratio.
D) increasing operating income to sales ratio.
18) A corporation's net income receives more attention than any other financial statement item. Why?
A) An upward trend in net income usually leads to dividends in the future.
B) An upward trend in net income usually leads to higher stock prices in the future.
C) An upward trend in net income usually leads to an unqualified audit opinion.
D) A and B
19) A company with low earnings quality is more likely to report ________ than a company with high earnings quality.
A) high earnings in the future
B) low earnings in the future
C) high revenue levels in the future
D) decreasing operating expenses to sales in the future
20) Financial statement fraud involving expense recognition involves:
A) understating the amount of expenses.
B) failure to record and disclose some expenses.
C) delaying the proper recognition of expenses.
D) all of the above.