1. What is the difference between a multiple-step and a single-step format of the earnings statement? Which format is the most useful for analysis?
2. How is a common-size income statement created?
3. What are the two causes of an increasing or decreasing sales number?
4. Discuss all reasons that could explain an increase or decrease in gross profit margin.
5. Explain how a company could have a decreasing gross profit margin but an increasing operating profit margin.
6. What is an example of an industry that would need to spend a minimum amount on advertising to be competitive? On research and development?
7. Alpha Company purchased 30% of the voting common stock of Beta Company on January 1 and paid $500,000 for the investment. Beta Company reported $100,000 of earnings for the year and paid $40,000 in cash dividends. Calculate investment income and the balance sheet investment account for Alpha Company under the cost method and under the equity method.
8. Discuss the four items that are included in a company's comprehensive income.
9. Explain what can be found on a statement of stockholders' equity.
10. Why is the bottom line figure, net income, not necessarily a good indicator of a firm's financial success?