Question 1

Subtraction of total operating expenses from sales yields:

Accepted Answer

A) net income. 
B) gross margin. 
C) operating profit. 
D) all of the above. 
E) none of the above. 
A) net income. 
B) gross margin. 
C) operating profit. 
D) all of the above. 
E) none of the above.

Question 2

On November 1, Year 1, Dorian Collections Agency accepted a $100,000, 3-month note from a customer.The note earns 9% interest per year.What is the amount of interest receivable recorded by Dorian Collections Agency at December 31, Year 1? (Assume no other entries to record interest have been made.)

Accepted Answer

A) $9,000 
B) $1,500 
C) $750 
D) $0, because interest is not due until February 1 of Year 2 
E) $900 
A) $9,000 
B) $1,500 
C) $750 
D) $0, because interest is not due until February 1 of Year 2 
E) $900

Question 3

A seller of goods can easily associate (or match) the consumption of the benefits of the asset sold with revenues from its sale.At the time of sale and revenue recognition, the seller

Accepted Answer

A) removes the asset (inventory) from the seller's balance sheet. 
B) recognizes revenue. 
C) recognizes a reduction in an asset (inventory). 
D) records the cost of goods sold expense in the same amount by which inventory decreases. 
E) All of the answer choices are correct. 
A) removes the asset (inventory) from the seller's balance sheet. 
B) recognizes revenue. 
C) recognizes a reduction in an asset (inventory). 
D) records the cost of goods sold expense in the same amount by which inventory decreases. 
E) All of the answer choices are correct.

Question 4

On April 1, Year 1, Seaside Bookstore bought an insurance policy costing $48,000 that would insure the retail building for two years against fire loss.What asset account and what amount are recorded on the balance sheet at December 31, Year 1?

Accepted Answer

A) Prepaid Insurance, $30,000 
B) Insurance Expense, $30,000 
C) Prepaid Insurance, $18,000 
D) Insurance Expense, $18,000 
E) Insurance Expense, $9,000 
A) Prepaid Insurance, $30,000 
B) Insurance Expense, $30,000 
C) Prepaid Insurance, $18,000 
D) Insurance Expense, $18,000 
E) Insurance Expense, $9,000

Question 5

At the end of the third year of operation, Forgione Corporation has total assets equal to $100,000, liabilities totaling $90,000, and contributed capital of $30,000.What is the balance in retained earnings?

Accepted Answer

A) $40,000 (Dr) 
B) $40,000 (Cr) 
C) $20,000 (Dr) 
D) $20,000 (Cr) 
E) $10,000 (Cr) 
A) $40,000 (Dr) 
B) $40,000 (Cr) 
C) $20,000 (Dr) 
D) $20,000 (Cr) 
E) $10,000 (Cr)

Question 6

Gains/Losses arise from relatively infrequent transactions, and there can be no assurance that they will recur in any future period.

Accepted Answer

A) True 
 B)False

Question 7

Prepaid assets are valued on the balance sheet at

Accepted Answer

A) cost paid to acquire the asset. 
B) acquisition cost less accumulated depreciation. 
C) cost less expired portion. 
D) replacement cost. 
E) present value of future cash flows. 
A) cost paid to acquire the asset. 
B) acquisition cost less accumulated depreciation. 
C) cost less expired portion. 
D) replacement cost. 
E) present value of future cash flows.

Question 8

All transactions that increase net assets affect income.

Accepted Answer

A) True 
 B)False

Question 9

To record the purchase of equipment that is fully financed by the seller, you would

Accepted Answer

A) debit a liability and credit an asset. 
B) debit an asset and credit cash. 
C) debit an asset and credit a liability. 
D) debit an asset and credit shareholders' equity. 
E) debit a liability and credit shareholders' equity. 
A) debit a liability and credit an asset. 
B) debit an asset and credit cash. 
C) debit an asset and credit a liability. 
D) debit an asset and credit shareholders' equity. 
E) debit a liability and credit shareholders' equity.

Question 10

Which of the following is not a period expense?

Accepted Answer

A) salaries and commissions of the sales staff 
B) costs to produce catalogs 
C) marketing costs, such as advertising 
D) costs to produce sales literature 
E) direct labor 
A) salaries and commissions of the sales staff 
B) costs to produce catalogs 
C) marketing costs, such as advertising 
D) costs to produce sales literature 
E) direct labor

Question 11

A firms decision to sell its headquarters building at a gain

Accepted Answer

A) would increase income in the year of sale. 
B) is not part of the core business. 
C) would be aggregated with other noncore, nonoperating items. 
D) reported below operating income, probably as Other Income. 
E) All of the above would result. 
A) would increase income in the year of sale. 
B) is not part of the core business. 
C) would be aggregated with other noncore, nonoperating items. 
D) reported below operating income, probably as Other Income. 
E) All of the above would result.

Question 12

Which of the following is/are true?

Accepted Answer

A) The seller measures revenue as the amount of cash, or the cash-equivalent value of other assets, that it receives from customers. 
B) The seller measures revenue amounts as the exchange price between buyer and seller at the time of sale. 
C) If the firm has not performed all of its obligations, it may make adjustments in the form of sales discounts and allowances. 
D) If the firm has not performed all of its obligations, it may make adjustments in the form of sales returns. 
E) all of the above are true 
A) The seller measures revenue as the amount of cash, or the cash-equivalent value of other assets, that it receives from customers. 
B) The seller measures revenue amounts as the exchange price between buyer and seller at the time of sale. 
C) If the firm has not performed all of its obligations, it may make adjustments in the form of sales discounts and allowances. 
D) If the firm has not performed all of its obligations, it may make adjustments in the form of sales returns. 
E) all of the above are true

Question 13

Gross Company purchased $50,000 worth of office supplies on January 1.Gross expects to use 60 percent of the supplies in the first year and the remainder in the second year.After adjusting entries (and before closing entries), how much should Gross show in its Supplies Expense account?

Accepted Answer

A) $50,000 
B) $30,000 
C) $25,000 
D) $20,000 
E) $0 
A) $50,000 
B) $30,000 
C) $25,000 
D) $20,000 
E) $0

Question 14

Dividends

Accepted Answer

A) are a period cost. 
B) are a distribution of assets to owners. 
C) enter into the calculation of net income. 
D) appear on both the balance sheet and income statement. 
E) none of the above. 
A) are a period cost. 
B) are a distribution of assets to owners. 
C) enter into the calculation of net income. 
D) appear on both the balance sheet and income statement. 
E) none of the above.

Question 15

Llama Company signed a new $36,000 three-year lease beginning October 1, Year 1, for a storage facility for holding merchandise inventory.On October 1, Year 1, Llama Company recorded the first year's payment of $12,000 in the Prepaid Rent account.There was no balance in the Prepaid Rent account prior to this entry.Llama Company records adjustments only at the calendar year end.At December 31, Year 1, the adjusting entry needed to accurately reflect the correct balances in the Prepaid Rent and Rent Expense accounts would be to debit:

Accepted Answer

A) Prepaid Rent for $12,000 and credit Rent Expense for $12,000 
B) Rent Expense for $12,000 and credit Prepaid Rent for $12,000 
C) Prepaid Rent for $3,000 and credit Rent Expense for $3,000 
D) Rent Expense for $3,000 and credit Prepaid Rent for $3,000 
E) Prepaid Rent for $9,000 and credit Rent Expense for $9,000 
A) Prepaid Rent for $12,000 and credit Rent Expense for $12,000 
B) Rent Expense for $12,000 and credit Prepaid Rent for $12,000 
C) Prepaid Rent for $3,000 and credit Rent Expense for $3,000 
D) Rent Expense for $3,000 and credit Prepaid Rent for $3,000 
E) Prepaid Rent for $9,000 and credit Rent Expense for $9,000

Question 16

When the accountant transfers the balance in each temporary revenue and expense account to the Retained Earnings account, this procedure is known as the closing of accounts.

Accepted Answer

A) True 
 B)False

Question 17

_____ arise from relatively infrequent transactions, and there can be no assurance that they will recur in any future period.

Accepted Answer

A) Gains/Losses 
B) Revenues 
C) Expenses 
D) Assets 
E) Liabilities 
A) Gains/Losses 
B) Revenues 
C) Expenses 
D) Assets 
E) Liabilities

Question 18

If a firm detects an error at the end of the year, where property taxes on the headquarters buildings was recorded as a debit to Cost of Goods Sold instead of Selling and Administrative Expenses, which of the following entries would they make?

Accepted Answer

A) correcting 
B) reversing 
C) closing 
D) memorandum 
E) t-account 
A) correcting 
B) reversing 
C) closing 
D) memorandum 
E) t-account

Question 19

Magic Corp.purchased new equipment during the year but neglected to record depreciation.What is the effect of this omission on each of the named accounts?
$\begin{array}{ccc}
\text { Accumulated } & \text { Retained } & \text { Depreciation } \
\text { Depreciation } & \text { Earnings } & \text { Expense }
\end{array}$

Accepted Answer

A) $\text { Understated } \quad \text { Overstated} \quad \text {  Understated }$ 
B) $\text { Understated } \quad \text { No effect } \quad \text { Overstated }$ 
C) $\text { Overstated} \quad \text { Understated } \quad \text {Understated }$ 
D) $\text { Overstated } \quad \text { No effect } \quad \text { Overstated }$ 
E) $\text { Overstated } \quad \text { Understated } \quad \text { Overstated }$ 
A) $\text { Understated } \quad \text { Overstated} \quad \text {  Understated }$ 
B) $\text { Understated } \quad \text { No effect } \quad \text { Overstated }$ 
C) $\text { Overstated} \quad \text { Understated } \quad \text {Understated }$ 
D) $\text { Overstated } \quad \text { No effect } \quad \text { Overstated }$ 
E) $\text { Overstated } \quad \text { Understated } \quad \text { Overstated }$

Question 20

Common terminology, but not definitions in U.S.GAAP and IFRS, often refers to the difference between sales and cost of sales as gross

Accepted Answer

A) margin. 
B) revenues. 
C) expenses. 
D) all of the above. 
E) none of the above. 
A) margin. 
B) revenues. 
C) expenses. 
D) all of the above. 
E) none of the above.

Subtraction of total operating expenses from sales yields:

On November 1, Year 1, Dorian Collections Agency accepted a $100,000, 3-month note from a customer.The note earns 9% interest per year.What is the amount of interest receivable recorded by Dorian Collections Agency at December 31, Year 1? (Assume no other entries to record interest have been made.)

A seller of goods can easily associate (or match) the consumption of the benefits of the asset sold with revenues from its sale.At the time of sale and revenue recognition, the seller

On April 1, Year 1, Seaside Bookstore bought an insurance policy costing $48,000 that would insure the retail building for two years against fire loss.What asset account and what amount are recorded on the balance sheet at December 31, Year 1?

At the end of the third year of operation, Forgione Corporation has total assets equal to $100,000, liabilities totaling $90,000, and contributed capital of $30,000.What is the balance in retained earnings?

Gains/Losses arise from relatively infrequent transactions, and there can be no assurance that they will recur in any future period.

Prepaid assets are valued on the balance sheet at

All transactions that increase net assets affect income.

To record the purchase of equipment that is fully financed by the seller, you would

Which of the following is not a period expense?

A firms decision to sell its headquarters building at a gain

Which of the following is/are true?

Gross Company purchased $50,000 worth of office supplies on January 1.Gross expects to use 60 percent of the supplies in the first year and the remainder in the second year.After adjusting entries (and before closing entries), how much should Gross show in its Supplies Expense account?

Dividends

When the accountant transfers the balance in each temporary revenue and expense account to the Retained Earnings account, this procedure is known as the closing of accounts.

_____ arise from relatively infrequent transactions, and there can be no assurance that they will recur in any future period.

If a firm detects an error at the end of the year, where property taxes on the headquarters buildings was recorded as a debit to Cost of Goods Sold instead of Selling and Administrative Expenses, which of the following entries would they make?

Magic Corp.purchased new equipment during the year but neglected to record depreciation.What is the effect of this omission on each of the named accounts? Accumulated Retained Depreciation Depreciation Earnings Expense

Common terminology, but not definitions in U.S.GAAP and IFRS, often refers to the difference between sales and cost of sales as gross

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

Exam 3: The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Subtraction of total operating expenses from sales yields:

On November 1, Year 1, Dorian Collections Agency accepted a $100,000, 3-month note from a customer.The note earns 9% interest per year.What is the amount of interest receivable recorded by Dorian Collections Agency at December 31, Year 1? (Assume no other entries to record interest have been made.)

A seller of goods can easily associate (or match) the consumption of the benefits of the asset sold with revenues from its sale.At the time of sale and revenue recognition, the seller

On April 1, Year 1, Seaside Bookstore bought an insurance policy costing $48,000 that would insure the retail building for two years against fire loss.What asset account and what amount are recorded on the balance sheet at December 31, Year 1?

At the end of the third year of operation, Forgione Corporation has total assets equal to $100,000, liabilities totaling $90,000, and contributed capital of $30,000.What is the balance in retained earnings?

Gains/Losses arise from relatively infrequent transactions, and there can be no assurance that they will recur in any future period.

Prepaid assets are valued on the balance sheet at

All transactions that increase net assets affect income.

To record the purchase of equipment that is fully financed by the seller, you would

Which of the following is not a period expense?

A firms decision to sell its headquarters building at a gain

Which of the following is/are true?

Gross Company purchased $50,000 worth of office supplies on January 1.Gross expects to use 60 percent of the supplies in the first year and the remainder in the second year.After adjusting entries (and before closing entries), how much should Gross show in its Supplies Expense account?

Dividends

When the accountant transfers the balance in each temporary revenue and expense account to the Retained Earnings account, this procedure is known as the closing of accounts.

_____ arise from relatively infrequent transactions, and there can be no assurance that they will recur in any future period.

If a firm detects an error at the end of the year, where property taxes on the headquarters buildings was recorded as a debit to Cost of Goods Sold instead of Selling and Administrative Expenses, which of the following entries would they make?

Magic Corp.purchased new equipment during the year but neglected to record depreciation.What is the effect of this omission on each of the named accounts? Accumulated Retained Depreciation Depreciation Earnings Expense

Common terminology, but not definitions in U.S.GAAP and IFRS, often refers to the difference between sales and cost of sales as gross

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters