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| 1 | |
Gross profit on sales is calculated by subtracting |
| | A) | sales returns and allowances from sales. |
| | B) | cost of goods sold from net sales. |
| | C) | ending inventory from the total merchandise available for sale. |
| | D) | total expenses from sales. |
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| 2 | |
An income statement that lists all revenues in one section and all expenses in another section is known as a |
| | A) | classified income statement. |
| | B) | multiple-step income statement. |
| | C) | single-step income statement. |
| | D) | categorized income statement. |
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| 3 | |
Which of the following statements is correct? |
| | A) | The term single-step income statement is sometimes used to describe a classified income statement. |
| | B) | If a business is to earn a net income, the gross profit on sales must be great enough to more than cover operating expenses. |
| | C) | Salaries of office employees would be grouped with the selling expenses in the Operating Expenses section of the income statement. |
| | D) | All of the above statements are correct. |
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| 4 | |
The beginning capital balance shown on a statement of owner's equity is $43,000. Net income for the period is $18,000. The owner withdrew $22,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is |
| | A) | $39,000. |
| | B) | $47,000. |
| | C) | $61,000. |
| | D) | $83,000. |
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| 5 | |
The beginning capital balance shown on a statement of owner's equity is $86,000. Net income for the period is $36,000. The owner withdrew $44,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is |
| | A) | $78,000. |
| | B) | $94,000. |
| | C) | $122,000. |
| | D) | $166,000. |
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| 6 | |
The beginning capital balance shown on a statement of owner's equity is $100,000. Net income for the period is $50,000. The owner withdrew $25,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is |
| | A) | $175,000. |
| | B) | $150,000. |
| | C) | $125,000. |
| | D) | $100,000. |
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| 7 | |
The balance of the owner's drawing account is |
| | A) | listed in the Other Expenses section of the income statement. |
| | B) | listed in the Current Assets section of the balance sheet. |
| | C) | used in the calculation of ending capital on a statement of owner's equity. |
| | D) | listed in the Operating Expenses section of the income statement. |
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| 8 | |
Which of the following is not a current asset? |
| | A) | Accounts Receivable |
| | B) | Prepaid Insurance |
| | C) | Merchandise Inventory |
| | D) | Equipment |
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| 9 | |
Prepaid expenses appear in the |
| | A) | Operating Expenses section of the income statement. |
| | B) | Other Expenses section of the income statement. |
| | C) | Current Assets section of the balance sheet. |
| | D) | Current Liabilities section of the balance sheet. |
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| 10 | |
Which of the following statements is not correct? |
| | A) | The gross profit percentage is calculated by dividing the gross profit for the year by the net sales for the year. |
| | B) | The average inventory is calculated by adding the beginning inventory to the ending inventory and dividing the sum by 2. |
| | C) | A current ratio of 3.5 to 1 means that a firm has $3.50 in current liabilities for every $1 of current assets. |
| | D) | All of the above statements are correct. |
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