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Question 1 (True/False Worth 2.5 points)
A business organized as a separate legal entity owned by stockholders is a partnership
True
False
Question 2 (True/False Worth 2.5 points)
Cash and supplies are both classified as current assets.
True
False
Question 3 (True/False Worth 2.5 points)
Economic events that require recording in the financial statements are called accounting transactions.
True
False
Question 4 (True/False Worth 2.5 points)
The time period assumption states that the economic life of a business entity can be divided into artificial time periods.
True
False
Question 5 (True/False Worth 2.5 points)
Retailers and wholesalers are both considered merchandising enterprises
True
False
Question 6 (Multiple Choice Worth 2.5 points)
An income statement shows
revenues, liabilities, and stockholders’ equity.
expenses, dividends, and stockholders’ equity.
revenues, expenses, and net income.
assets, liabilities, and stockholders’ equity.
Question 7 (Multiple Choice Worth 2.5 points)
Ashton Company began the year with retained earnings of $210,000. During the year, the company recorded revenues of $300,000, expenses of $228,000, and paid dividends of $24,000. What was Ashton’s retained earnings at the end of the year?
$306,000
$258,000
$486,000
$282,000
Question 8 (Multiple Choice Worth 2.5 points)
If the retained earnings account increases from the beginning of the year to the end of the year, then
net income is less than dividends.
a net loss is less than dividends
additional investments are less than net losses.
net income is greater than dividends.
Question 9 (Multiple Choice Worth 2.5 points)
A liquidity ratio measures the
income or operating success of a company over a period of time
ability of a company to survive over a long period of time.
short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash.
percentage of total financing provided by creditors.
Question 10 (Multiple Choice Worth 2.5 points)
Working capital is
calculated by dividing current assets by current liabilities.
used to evaluate a company’s liquidity and short-term debt paying ability.
used to evaluate a company’s solvency and long-term debt paying ability.
calculated by subtracting current assets from current liabilities
Question 11 (Multiple Choice Worth 2.5 points)
The normal balance of any account is the
left side.
right side.
side which increases that account
side which decreases that account.
Question 12 (Multiple Choice Worth 2.5 points)
A revenue account
is increased by debits.
decreased by credits.
has a normal balance of a debit.
is increased by credits.
Question 13 (Multiple Choice Worth 2.5 points)
An accountant has debited an asset account for $1,000 and credited a liability account for $500. What can be done to complete the recording of the transaction?
Nothing further must be done.
Debit a stockholders’ equity account for $500.
Debit another asset account for $500.
Credit a different asset account for $500.
Question 14 (Multiple Choice Worth 2.5 points)
An adjusting entry can include a
debit to an asset and a credit to a revenue.
debit to a revenue and a credit to an asset.
credit to an expense and a debit to a revenue.
debit to an expense and a credit to a revenue.
Question 15 (Multiple Choice Worth 2.5 points)
Accrued expenses are
paid and recorded in an asset account before they are used or consumed.
paid and recorded in an asset account after they are used or consumed.
incurred but not yet paid or recorded.
incurred and already paid or recorded.
Question 16 (Multiple Choice Worth 2.5 points)
Unearned revenue is classified as a(n)
asset account
revenue account.
contra revenue account.
liability.
Question 17 (Multiple Choice Worth 2.5 points)
Which statement is incorrect?
Periodic inventory systems provide better control over inventories than perpetual inventory systems.
Computers and electronic scanners allow more companies to use a perpetual inventory system
Freight in is debited to merchandise inventory when a perpetual inventory system is used.
Regardless of the inventory system that is used, companies should take a physical inventory count.
Question 18 (Multiple Choice Worth 2.5 points)
In the credit terms of 1/10, n/30, the “1” represents the
number of days in the discount period.
full amount of the invoice.
number of days when the entire amount is due.
percent of the cash discount.
Question 19 (Multiple Choice Worth 2.5 points)
The selection of an appropriate inventory cost flow assumption for an individual company is made by
the external auditors.
the SEC.
the internal auditors.
management.
Question 20 (Multiple Choice Worth 2.5 points)
Which of the following statements is correct with respect to inventories?
The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
It is generally good business management to sell the most recently acquired goods first.
Under FIFO, the ending inventory is based on the latest units purchased.
FIFO seldom coincides with the actual physical flow of inventory.
Question 21 (Essay Worth 10 points)
Relevance and reliability are two characteristics of useful accounting information.
Briefly define each term.
Why are these characteristics important to users of financial statements?
Question 22 (Essay Worth 10 points)
Why is the dividends account increased by a debit? Explain in terms of its relationship to stockholders’ equity.
Question 23 (Essay Worth 10 points)
Briefly distinguish between a prepayment and an accrual
Question 24 (Essay Worth 10 points)
Distinguish between cost of goods sold and operating expenses, describe the nature of these two items and their placement on the income statement.
Question 25 (Essay Worth 10 points)
The periodic and the perpetual inventory systems are two methods that companies use to account for inventories. Briefly describe the major features of each system and explain why a physical inventory is necessary under both systems