Multiple Choice Answers

The _____ accounting convention uses the acquisition cost minus depreciation in valuing an asset on the balance sheet.
A. continuity
B. conservatism
C. cost-benefit
D. materiality

Nonoperating items on the income statement _____.
A. are revenues and expenses arising from adjusting entries
B. include interest income and expense
C. appear only on corporate income statements
D. appear on the income statement immediately after gross profit

The difference between a single-step and multiple-step income statement is that a single-step income statement _____.
A. groups all revenues together and all expenses together, whereas a multiple-step income statement separates certain revenues and expenses from each other and presents subtotals
B. calculates net income using one method, whereas a multiple-step income statement calculates net income using two or more methods
C. calculates gross profit and operating income, whereas a multiple-step income statement does not
D. shows only 1 year’s net income, whereas a multiple-step income statement shows multiple years’ net income

Which one of the following statements is true?
A. The statement of cash flows reports the cash receipts but not cash payments of an entity over a period of time.
B. Both the statement of cash flows and the income statement determine the net income for a company.
C. Transactions affecting the sale and the purchase or production of goods and services are reported in the financing activities section of the statement of cash flows.
D. Investing activities in the statement of cash flows include acquiring and selling long-term assets.

A new corporation issuing a common, no-par value stock for cash would include a journal entry a debit to _____.
A. paid-in capital and a credit to retained earnings.
B. cash and a credit to common stock.
C. retained earnings and a credit to cash.
D. cash and a credit to retained income.

Which type of organization would most likely have work-in-process inventory?
A. A retail store
B. A manufacturing company
C. A service organization
D. A real-estate investment trust

_____ is a measure of income or profit divided by the investment required to obtain that income or profit.
A. Return on sales
B. Capital turnover
C. Return on investment
D. Residual income

The following information is available for the Peter Company:
Sales: $150,000
Invested capital: $156,250
ROI: 10%
The return on sales is _____.
A. 10.00%
B. 10.42%
C. 62.50%
D. 9.60%

The following information is available for the Peter Company:
Sales: $500,000
Invested capital: $312,500
ROI: 10%
The return on sales is _____.
A. 10.00%
B. 6.250%
C. 1.000%
D. 62.50%