Gross margin as a percentage of sales is a common analytical tool for service
companies.
a. True
b. False
Which one of the following is not a recognized method of recognizing assets as
expenses in a particular accounting period?
a. Customers’ account balances in accounts receivable are assigned to expense in the
period in which each
customer pays.
b. Prepaid insurance is assigned to expense as the insurance expires.
c. A building is depreciated and its cost is assigned to the current and future accounting
periods in which the building is expected to be used.
d. Merchandise inventory is assigned to cost of goods sold in the period the goods are
sold.
Dividends paid appears on both the income statement and the statement of retained
earnings.
a. True
b. False
Bartlett Industries Bartlett Industries began operations on January 2, 2015, with an
investment of $50,000 by each of its two stockholders. Net income for its first year of
business was $240,000. Bartlett Industries paid a total of $100,000 in dividends to its
stockholders during the year.
Read the information about Bartlett Industries. The company’s dividends for the year
a. Reduce the amount of capital stock reported by the company.
b. Are part of Bartlett Industries’ operating costs.
c. Are reported on the statement of retained earnings.
d. Are an expense of Bartlett Industries.
The process of recording an item in the financial statements is called measurement.
a. True
b. False
Which of the following statements is true regarding extraordinary items on the income
statement?
a. U.S. GAAP prohibits the presentation of extraordinary items on the income
statement.
b. IFRS prohibits the presentation of extraordinary items on the income statement.
c. U.S. GAAP allows extraordinary gains and losses on the balance sheet.
d. IFRS allows the classification of gains and losses on the income statement as
extraordinary as long as long as they are both unusual in nature and infrequent in
occurrence.
Which one of the following statements regarding internal control is true?
a. Companies can design a system of internal control that is foolproof.
b. A well-designed internal control system is a luxury that few companies can afford.
c. It is easier to implement an effective internal control system in a small company
because of the limited number of employees.
d. Large companies are able to devote a substantial amount of resources to internal
control systems because these companies have the assets to justify the cost.
When stock is issued for cash, only the par value of the stock should be reported in the
stock account.
a. True
b. False
Goldman Corp. reported the following information for 2015 and 2016.
How much cash was paid for merchandise purchases during 2016?
a. $421,000
b. $462,000
c. $467,000
d. $472,000
Sales Discounts is classified as what type of account?
a. an expense
b. a revenue
c. a contra-asset
d. a contra-revenue
Use the following codes to indicate how the cash flow effect, if any, of each transaction
or event would be reported on a statement of cash flows if the operating activities
section is prepared using the indirect method.
a. Operating activity-add to net income
b. Operating activity-deduct from net income
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
Increased the accounts payable balance.
A six-month certificate of deposit would be considered to be a cash equivalent.
a. True
b. False
The Holmes Company purchased a building for $75,000 in cash. What is the effect on
current assets?
a. Increase in current assets
b. Decrease in current assets
c. No effect on current assets
d. Unable to determine
The Loss on Sale of Asset indicates the amount by which the asset’s sales price is less
than its book value.
a. True
b. False
From the following list, select the proper section from the statement of cashflows in whi
ch it would beclassified.
a. Working capital will increase
b. Working capital will decrease
c. Working capital will not change
Purchased inventory on account
If Cable Inc. receives $23,825 from credit card collections and has an average rate of
4.7% charged by the credit card company, its credit card sales during the period were:
a. $111,978
b. $50,691
c. $25,000
d. $22,705
A gain is recognized on the disposal of plant assets when:
a. The sales price is greater than the book value and less than the residual value.
b. The sales price is greater than the book value and greater than the residual value.
c. The sales price is less than both the book value and the residual value.
d. The sales price is greater than the residual value but less than the book value.
Wang Fitness Co. purchased a patent at the beginning of 2015 for $120,000. Economic
benefits were expected for only 12 years, but the patent’s legal life is 17 years. Also
during 2015, the company incurred research and development costs of $50,000. A.
Determine the following amounts: 1> Research and development expense for 2015
2> Patent amortization expense for 2015 B. Prepare the intangible assets section of the
balance sheet at December 31, 2015.
The two groups of users that are especially interested in profitability areand
____________________.
A friend of yours says: “Its easy to look at the statement of cash flows and see that a
company has been profitable, because positive cash flows are equal to profitability.” Is
your friend right? Explain.
The gross accounts receivable less the allowance for doubtful accounts is known as the
_________________________.
Under the accrual basis of accounting, at what point in time should a fast food
restaurant recognize revenue?
_________________________
Fowler Company opened business as a sole proprietorship on January 1, 2015. The
owner contributed $525,000 cash on that date. During the year, the company had a net
income of $20,000. The company purchased equipment of $120,000 during the year.
The owner also withdrew $75,000 to pay for personal expenses during 2015.
REQUIRED: Determine the company’s owner’s equity at December 31, 2015.
The federal government agency with the ultimate authority to determine the rules in
preparing statements for companies whose stock is sold to the public is the
__________________________________________________.