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1 | |
The income statement, statement of retained earnings, and balance sheet can be prepared directly from the amounts shown in an adjusted trial balance. |
| | A) | True |
| | B) | False |
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2 | |
Dividends paid to stockholders are reported in the income statement. |
| | A) | True |
| | B) | False |
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3 | |
The format of the statement of retained earnings is: Retained Earnings at the beginning of the period + Net Income - Dividends = Retained Earnings at the end of the period. |
| | A) | True |
| | B) | False |
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4 | |
When the balance sheet is presented vertically (the asset section followed by liabilities and owners' equity sections), it is called a report form balance sheet. |
| | A) | True |
| | B) | False |
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5 | |
Adequate disclosure is the generally accepted accounting principle of providing with financial statements any information that users need to interpret those statements properly. |
| | A) | True |
| | B) | False |
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6 | |
There are specific items of information that must be disclosed as notes to the financial statements. |
| | A) | True |
| | B) | False |
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7 | |
Entries made at the end of the period for the purpose of closing temporary accounts are called closing entries. |
| | A) | True |
| | B) | False |
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8 | |
Only temporary accounts are closed at the end of the accounting period. |
| | A) | True |
| | B) | False |
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9 | |
The account in the ledger to which revenue and expense accounts are closed at the end of the period is called the Revenue Summary account. |
| | A) | True |
| | B) | False |
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10 | |
Closing revenue accounts requires a debit to the Income Summary account. |
| | A) | True |
| | B) | False |
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11 | |
Closing expense accounts requires a debit to the Income Summary account. |
| | A) | True |
| | B) | False |
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12 | |
If the Income Summary account has a debit balance of $45,500 after revenue and expense accounts are closed, the balance of the Income Summary account should be debited to Retained Earnings. |
| | A) | True |
| | B) | False |
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13 | |
Closing the Dividends account requires an offsetting entry to the Income Summary account. |
| | A) | True |
| | B) | False |
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14 | |
The last step in the accounting cycle is the preparation of an after-closing trial balance. |
| | A) | True |
| | B) | False |
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15 | |
Solvency refers to a company's ability to meet is cash obligations as they become due. |
| | A) | True |
| | B) | False |
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16 | |
Solvency is directly related to profitability. |
| | A) | True |
| | B) | False |
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17 | |
The significance of the measure of working capital is the measurement of income generated per average dollar of stockholders' equity. |
| | A) | True |
| | B) | False |
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18 | |
The significance of the measure of net income percentage is its use as an indicator of management's ability to control costs. |
| | A) | True |
| | B) | False |
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19 | |
Financial statements prepared for periods of less than one year are called interim financial statements. |
| | A) | True |
| | B) | False |
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20 | |
Which of the following is true about the financial statements? |
| | A) | The ending balance of Retained Earnings must appear on the Balance Sheet. |
| | B) | The ending balance of Retained Earnings must appear on the Income Statement. |
| | C) | The net income must appear on the Income Statement and the Balance Sheet. |
| | D) | The net income must appear on the Income Statement and the Statement of Retained Earnings. |
| | E) | (A) and (D) |
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21 | |
Alternative titles for the statement showing the results of operations over a specific time period include which of the following? |
| | A) | Earnings statement |
| | B) | Statement of operations |
| | C) | Profit and loss statement |
| | D) | Income statement |
| | E) | All of the above |
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22 | |
In which order are the financial statements prepared? |
| | A) | Income Statement, Balance Sheet, Statement of Retained Earnings. |
| | B) | Income Statement, Statement of Retained Earnings, Balance Sheet. |
| | C) | Balance Sheet, Statement of Retained Earnings, Income Statement. |
| | D) | Statement of Retained Earnings, Income Statement, Balance Sheet. |
| | E) | Balance Sheet, Income Statement, Statement of Retained Earnings. |
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23 | |
Which of the following will most likely not be disclosed in notes that accompany the financial statements? |
| | A) | Pending lawsuit |
| | B) | Significant events after the balance sheet date |
| | C) | Conflicts of interest between the company and its officers |
| | D) | Firing, death, or resignation of a key executive |
| | E) | Governmental investigations into the pricing practices of the company |
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24 | |
After closing entries are posted, which accounts will most likely have balances? |
| | A) | Salary Expense account |
| | B) | Retained Earnings account |
| | C) | Income Summary account |
| | D) | Revenue accounts |
| | E) | Dividends account |
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25 | |
Which of the following is not a normal closing entry? |
| | A) | A debit to Income Summary and a credit to Salary Expense |
| | B) | A debit to Income Summary and a credit to Sales Revenue |
| | C) | A debit to Interest Revenue and a credit to Income Summary |
| | D) | A debit to Income Summary and a credit to Interest Expense |
| | E) | A debit to Retained Earnings and a credit to Dividends |
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26 | |
Dividends of $36,000 were distributed to stockholders during the year. The dividends account is closed at the end of the accounting period through which of the following entries? |
| | A) | A debit to Retained Earnings and a credit to Dividends |
| | B) | A debit to Dividends and a credit to Retained Earnings |
| | C) | A debit to Income Summary and a credit to Dividends |
| | D) | A debit to Retained Earnings and a credit to Income Summary |
| | E) | A debit to Dividends and a credit to Income Summary |
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27 | |
Which of the following is the correct order for closing accounts? |
| | A) | Close revenue accounts, expense accounts, Income Summary account, and the Dividends account. |
| | B) | Close expense accounts, Income Summary account, revenue accounts, and the Dividends account. |
| | C) | Close Dividends account, revenue accounts, expense accounts, and the Income Summary account. |
| | D) | Close revenue accounts, expense accounts, Dividends account, and the Income Summary account. |
| | E) | None of the above is the correct order. |
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28 | |
A company with owners' equity of $2,400,000 had net income, after taxes, of $288,000, liabilities of $80,000 due in the near future, and an ending cash balance of $15,000. Which of the following is true? |
| | A) | The company is solvent. |
| | B) | The company's rate of return on equity was 12%. |
| | C) | The company is not solvent. |
| | D) | A and B |
| | E) | B and C |
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29 | |
Which of the following is significant as an indicator of management's ability to control costs? |
| | A) | Net Income Percentage |
| | B) | Return on Equity |
| | C) | Working capital |
| | D) | Current ratio |
| | E) | Solvency |
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30 | |
Which of the following is significant as a measure of short-term debt paying ability expressed as a ratio? |
| | A) | Net Income Percentage |
| | B) | Return on Equity |
| | C) | Working capital |
| | D) | Current ratio |
| | E) | Solvency |
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31 | |
Which of the following is significant as a measure of short-term debt paying ability expressed in dollars? |
| | A) | Net Income Percentage |
| | B) | Return on Equity |
| | C) | Working capital |
| | D) | Current ratio |
| | E) | Solvency |
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32 | |
Which of the following is significant as a measure of income generated per average dollar of stockholders' equity? |
| | A) | Net Income Percentage |
| | B) | Return on Equity |
| | C) | Working capital |
| | D) | Current ratio |
| | E) | Solvency |
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33 | |
In no particular order, the accounting cycle is composed of the following activities. (A) Posting, (B) Adjusting entries (C) Preparing financial statements, (D) Journalizing transactions, (E) Preparing a trial balance, (F) Journalizing and posting closing entries, (G) Preparing after-closing trial balance, and (H) Preparing an adjusted trial balance. What is the correct order of activities comprising the accounting cycle? |
| | A) | B, C, D, A, E, F, G, H |
| | B) | D, A, E, B, H, C, F, G |
| | C) | D, A, E, B, C, H, F, G |
| | D) | D, A, E, B, F, G, H, C |
| | E) | D, B, A, E, F, C, H, G |
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2002 McGraw-Hill Higher Education