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True or False
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1
Before financial statements of a publicly owned company can be issued to external users, the statements must be audited by a firm of certified public accountants.
A)True
B)False
2
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
3
The first financial statement to be prepared is usually the balance sheet.
A)True
B)False
4
From an adjusted trial balance, the preparation of the income statement for a corporation involves summarizing the accounts and the respective balances of the accounts that follow the balance shown for Retained Earnings.
A)True
B)False
5
The most common term to describe the summary of revenues and expenses (operating results) is statement of operations.
A)True
B)False
6
If total revenues were $120,000, income taxes are $5,000, and net income is $15,000, then operating expenses were $100,000.
A)True
B)False
7
If total income taxes are $6,000, calculated at 20% of income before income taxes, and represent 8% of total revenues, total expenses were $45,000.
A)True
B)False
8
The income statement is made up of the precise measurement of revenues and expenses.
A)True
B)False
9
Dividends paid to stockholders are reported in the income statement.
A)True
B)False
10
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
11
For large corporations, the declaration of dividends requires the establishment of a liability account.
A)True
B)False
12
Using the adjusted trial balance as the basis for preparing the balance sheet, you would use the accounts and respective totals from Cash to Capital Stock, and add the balance of the Retained Earnings as reported on the statement of retained earnings.
A)True
B)False
13
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
14
A liability incurred on November 10 and payable on March 10 would be reported on the December 31 balance sheet as a long-term liability.
A)True
B)False
15
An insurance policy purchased on October 1 that will expire on September 30 would be reported on the December 31 balance sheet as a current asset.
A)True
B)False
16
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
17
There are specific items of information that must be disclosed as notes to the financial statements.
A)True
B)False
18
While there is no list of specific items that must be disclosed as notes to the financial statements, there are items that must always be disclosed to aid the users in their interpretation of the financial statements.
A)True
B)False
19
If the disclosure to the financial statements is one that will prove to be embarrassing to the executive officers of the company, the disclosure should not be made.
A)True
B)False
20
It is acceptable to disclose optimistic speculation in the disclosure statements accompanying financial statements.
A)True
B)False
21
Journal entries made at the end of the period for the purpose of closing temporary accounts are called closing entries.
A)True
B)False
22
Only temporary accounts are closed at the end of the accounting period.
A)True
B)False
23
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
24
Closing revenue accounts requires a debit to the Income Summary account.
A)True
B)False
25
Closing expense accounts requires a debit to the Income Summary account.
A)True
B)False
26
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
27
Closing the Dividends account requires an offsetting entry to the Income Summary account.
A)True
B)False
28
The journal entry in which expense accounts are closed may be referred to as a compound journal entry.
A)True
B)False
29
The second step in the sequence of closing entries is to close the Dividends account.
A)True
B)False
30
The first step in the sequence of closing entries is to close the revenue accounts.
A)True
B)False
31
The last step in the accounting cycle is the preparation of an after-closing trial balance.
A)True
B)False
32
The last account shown on the after-closing trial balance is the Capital Stock account.
A)True
B)False
33
Liquidity refers to a company's ability to meet is cash obligations as they become due.
A)True
B)False
34
If net income is $45,000 and total revenue is $450,000, the net income percentage is 10%.
A)True
B)False
35
The significance of the measure, net income percentage, is its use as an indicator of management's ability to control costs.
A)True
B)False
36
If current assets are $450,000 and working capital is $45,000, the current liabilities are $485,000.
A)True
B)False
37
The significance of the measure of working capital is the measurement of income generated per average dollar of stockholders' equity.
A)True
B)False
38
If current liabilities are $52,000 and the current ratio is 2.5, the current assets must be $20,800.
A)True
B)False
39
The current ratio is simply working capital expressed as a ratio.
A)True
B)False
40
Financial statements prepared for periods of less than one year are called interim financial statements.
A)True
B)False
41
On a worksheet used to prepare adjusting entries and financial statements, the debit column total of the Adjusted Trial Balance section will equal the debit column total of the Trial Balance section plus the debit column total of the Adjustments section.
A)True
B)False
42
The worksheet can be used to prepare interim statements.
A)True
B)False





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