Question

1. Which of the following describes how a merchandise income statement is different from a service income statement?

1. The revenue from a merchandise business is reported as fees earned.
2. The program and production expenses are subtracted from gross profit to arrive at operating income.
3. Depreciation and amortization expenses are added to the cost of goods sold.
4. A merchandise business shows a gross profit line.

2) Which of the following statements is false?

1. The accounting equation is reflected in the balance sheet.
2. The balance sheet is classified to categorize the various items within the statement.
3. Classifying items help the user see where a company gets its resources.
4. Classifying items on a balance sheet helps show the company's earnings potential.

3)Which of the following statements is true?

1. The sale of goods and services results in expenses.
2. The costs of operating a company are called revenue.
3. A company must generate net income in order to be sustainable.
4. The income statement reports the financial position of a company at a specific point in time.

4) Which statement summarizes and explains the changes in retained earnings during the accounting period?

1. Balance Sheet
2. Income Statement
3. Retained Earnings Statement
4. Trial Balance

Answer 1

Answer 1

The merchandise income statement shows a gross profit whereas service income statement does not show gross profit line, it directly shows an operating profit line.

Therefore Option D that is A merchandising business shows a gross profit line is the correct.

Answer 2

Classifying items on a balance sheet does not help in showing the company's earnings potential. For this purpose, the income statement is prepared.

Therefore Statement mentioned in option D is not true

Answer 3

It is true that a company must generate net income in order to be sustainable, as the ultimate goal of every company is to earn income.

Therefore Option C is the correct answer

Answer 4

Retained Earnings Statement summarizes and explains the changes in retained earnings during the accounting period, It reconciles the opening retained earnings, balance retained during the year and closing retained earning.

Therefore Option C is the correct answer