CPA Financial Accounting and Reporting (FAR) : Income Statement
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Example Questions
Example Question #1 : Income Statement
The metal division of a company generates an operating profit of $10,000 per month. On the final day of year 1, the company officials decide to sell the division which has a book value of $540,000. These officials believe they can sell the division for $570,000 but only after spending $70,000 needed to make the sale. The metal division meets the qualifications to be classified as an asset held for sale. In addition, the division qualifies as a discontinued operation. It is sold for the anticipated amount in February of year 2. Ignoring income taxes, what does the company report at the bottom of its year 1 income statement for the discontinued operation?
$120,000 profit
$80,000 profit
$50,000 profit
$0
$80,000 profit
The metal division generation $120K in operating profits throughout the year ($10K per month x 12 months). As part of the sale of the metal division, the company anticipates a loss of $40K ($570K sale price - $540K book value - $70K necessary expenses). Combined this creates a profit of $80K for the entire year.
Example Question #2 : Income Statement
Barr Company had the following account balances at the end of Year 1: sales of $250,000; cost of goods sold of $90,000; salaries and wages of $30,000; rent expense of $15,000; advertising costs of $25,000; fixed assets purchased $50,000. What was Barr's net income for Year 1?
$65,000
$90,000
$160,000
$115,000
$90,000
Net income is calculated by taking sales of $250K - COGS of $90K - salaries of $30K - rent of $15K - advertising of $25K.
Example Question #12 : Income Statements & Analysis
Colt, Inc had the following account balances at the end of Year 3: consulting revenue of $60,000; rent expense of $15,000; software licensing fees of $5,000; dividends paid of $12,000; and advertising expenses of $25,000. What was Colt's net income in Year ?
$8,000
$15,000
$20,000
$3,000
$15,000
Net income is calculated by taking revenue of $60K - rent of $15K - licensing fees of $5K - advertising of $25K.
Example Question #3 : Income Statement
Which of the following items would not be included in operating income?
Repair and maintenance expense
Gain on available-for-sale securities
Sales revenue
Cost of goods sold
Gain on available-for-sale securities
Operating income only includes revenues and expenses directly related to the company's primary operations.
Example Question #4 : Income Statement
Which of the following items would not be included in income from continuing operations?
Gain on disposal of a business component
Neither
Gain on retirement of bonds
Both
Gain on disposal of a business component
Disposal of a business component would be included in discontinued operations, where as gain on retirement of bonds is a normal part of continuing operations.
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