solution

1) When reporting comprehensive income, which method is unacceptable?

a) On the face of the income statement.

b) In a separate statement of comprehensive income.

c) In the equity section of the balance sheet.

d) In the statement of stockholders’ equity.

2) Which of the following is a benefit of analyzing a common-size income statement?

a) It shows the relative magnitude of revenues and expenses to total assets.

b) It allows comparison of the firm to itself from year-to-year, but not to its competitors.

c) It shows the relative magnitude of revenues and expenses relative to profits.

d) It shows the relative magnitude of expenses relative to net sales.

2) Which of the following is an advantage of calculating gross profit margin?

a) It helps the analyst asses the capital structure of the firm.

b) It allows the analyst to determine if the firm has been affected by inflation.

c) It indicates the profitability of a firm after considering all operating expenses.

d) It indicates how much profit the firm generates after deducting cost of goods sold.

3) Volume changes cause volatility in the gross profit margin when _____________.

a) cost of goods sold includes fixed costs which do not vary proportionately with volume changes.

b) calculated in a company with little capital.

c) calculated in a company having no fixed costs.

d) cost of goods sold includes costs that vary proportionately with volume changes.