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