Deck 15: Financial Statements and Year-End Accounting for a Merchandising Business

Question 1

The ending balance for merchandise inventory is reported on the balance sheet as a current asset.

Answer 1

True

Question 2

Undepreciated cost is the same as the book value of an asset.

Answer 2

True

Question 3

The purpose of a balance sheet is to summarize the results of operations during an accounting period.

Answer 3

False

Question 4

Net sales plus cost of goods sold is called gross profit.

Question 5

Assets that are used in the operation of a business are called temporary investments.

Question 6

Liquidity refers to the speed with which the assets can be converted to cash.

Question 7

Current assets include cash and all other assets that may be reasonably expected to be converted into cash or consumed within one year or the normal operating cycle of the business, whichever is longer.

Question 8

Assets that are expected to be used for more than one year in an operation of a business are called property, plant, and equipment.

Question 9

The purpose of an income statement is to provide information on the status of a business at a specified date.

Question 10

The multiple-step form of income statement shows operating income separate from other revenue and other expenses.

Question 11

Working capital is the difference between current assets and current liabilities.

Question 12

The cost of a building less its accumulated depreciation represents the undepreciated cost.

Question 13

Current assets are listed on the balance sheet from the most liquid to least liquid.

Question 14

Current liabilities are those obligations that are due within one year or the normal operating cycle of the business, whichever is longer, and which will require no use of current assets.

Question 15

The single-step form of income statement lists all revenue items and their totals first, followed by all expense items and their totals, to produce a difference that is either net income or net loss.

Question 16

Gross sales less sales returns and allowances is called net sales.

Question 17

A primary purpose of the work sheet is to serve as an aid in the preparation of the financial statements.

Question 18

The statement of owner's equity summarizes all changes in the owner's equity during the period.

Question 19

Gross profit less operating expenses produces the income from operations.

Question 20

A formal statement of the changes in owner's equity during an accounting period is called a statement of financial position.

Question 21

Long-term liabilities are obligations that will extend beyond one year or the normal operating cycle, whichever is longer.

Question 22

The current ratio is determined by subtracting current liabilities from current assets.

Question 23

Inventory turnover is determined by dividing cost of goods sold for the period by the average inventory.

Question 24

A formal statement of the results of the operation of a business during an accounting period is called a(n)

A) statement of changes.
B) balance sheet.
C) statement of condition.
D) income statement.

Question 25

Quick assets include cash and other current assets that can be converted into cash quickly.

Question 26

Return on owner's equity is the ratio of net income to average owner's equity in the business.

Question 27

Entries required at the end of an accounting period to bring certain account balances up-to-date are known as closing entries.

Question 28

The purpose of the post-closing trial balance is to prove that the general ledger is in balance at the beginning of the new accounting period.

Question 29

Current liabilities include those obligations that will extend beyond one year or the normal operating cycle, whichever is longer.

Question 30

The quick ratio is determined by subtracting current liabilities from quick assets.

Question 31

If inventory is taken only at the end of each accounting period, the average inventory for the period can be calculated by adding the beginning and the ending inventories and dividing their sum by two.

Question 32

A quick ratio of 1.5 to 1 indicates that quick assets are more than adequate to meet current obligations.

Question 33

The difference between current assets and current liabilities represents the amount of capital the firm has to work with for current operations.

Question 34

Working capital is the amount of capital the firm has to work with for current operations.

Question 35

Reversing entries make possible the entering of the transactions of the succeeding accounting period in a routine manner.

Question 36

All adjusting entries should be reversed.

Question 37

The number of times the accounts receivable turned over or were collected during the accounting period is called net credit sales for the period.

Question 38

A mortgage payable is a written agreement specifying that if the borrower does not repay a debt, the lender has the right to take over the property to satisfy the debt.

Question 39

The ability of a business to meet its current obligations may be evaluated with the return on owner's equity ratio.

Question 40

The heading on a financial statement includes which of the following information, in the order shown?

A) the name of the business, the period of time the statement covers, and the name of the statement
B) the name of the statement, the period of time the statement covers, and the name of the business
C) the period of time the statement covers, the name of the statement, and the name of the business
D) the name of the business, the name of the statement, and the period of time the statement covers

Question 41

A trial balance of the general ledger accounts taken after the temporary owner's equity accounts have been closed is usually referred to as a

A) post-closing trial balance.
B) new accounting period trial balance.
C) pre-closing trial balance.
D) subsidiary trial balance.

Question 42

Closing entries are made in the

A) sales journal.
B) purchases journal.
C) general journal.
D) cash receipts journal.

Question 43

After the temporary owner's equity and drawing accounts are transferred to the permanent owner's equity account, which of the following accounts will have a balance?

A) Expenses
B) Revenues
C) Owner's Capital
D) Income Summary

Question 44

Those obligations that are due within one year or the normal operating cycle of the business and will be paid with money provided by the current assets are called

A) investments.
B) marketable securities.
C) current liabilities.
D) long-term liabilities.

Question 45

Net sales minus cost of goods sold equals

A) operating income.
B) operating expenses.
C) other expenses.
D) gross profit.

Question 46

In a multiple-step income statement, operating expenses are subtracted from gross profit to compute

A) income from operations.
B) net income.
C) other income.
D) net loss.

Question 47

The ability of a business to meet its current obligations may be determined by the

A) current ratio.
B) inventory turnover.
C) working ratio.
D) accounts receivable turnover.

Question 48

Information needed in journalizing the first three closing entries is obtained from which of the following work sheet columns?

A) Trial Balance
B) Adjustments
C) Adjusted Trial Balance
D) Income Statement

Question 49

Which of the following accounts is used only at the close of the accounting period to adjust the merchandise inventory account and summarize the temporary owner's equity accounts?

A) Owner's Capital
B) Income Summary
C) Cost of Goods Sold
D) Sales

Question 50

Reversing entries are made in the

A) general journal.
B) sales journal.
C) purchases journal.
D) cash receipts journal.

Question 51

The information needed in journalizing the closing entries is obtained from the

A) accounts receivable ledger.
B) general journal.
C) work sheet.
D) income statement.

Question 52

The third step in the closing process is to transfer the balance in which of the following accounts to the permanent owner's equity account?

A) Revenue
B) Expense
C) Income Summary
D) Owner's Capital

Question 53

The rough "rule of thumb" for a quick ratio is that the ratio should be about

A) 2 to 1.
B) 1 to 1.
C) .1 to 1.
D) 1 to .1.

Question 54

Adjusting entries are made in the

A) sales journal.
B) general journal.
C) cash receipts journal.
D) cash payments journal.

Question 55

Accumulated depreciation amounts are shown as deductions from the

A) cost of building and equipment accounts.
B) accounts receivable account.
C) accounts payable account.
D) prepaid insurance account.

Question 56

A formal statement of the assets, liabilities, and owner's equity of a business at a specified date is known as a(n)

A) balance sheet.
B) income statement.
C) statement of profits and losses.
D) statement of earnings.

Question 57

Assets that are used for several years in the operation of a business are called

A) marketable securities.
B) current assets.
C) investments.
D) property, plant, and equipment.

Question 58

Which of the following serves as an end-of-period accuracy check?

A) statement of owner's equity
B) income statement
C) balance sheet
D) post-closing trial balance

Question 59

Cash and all other assets that may be reasonably expected to be converted to cash or consumed within one year or the normal operating cycle of the business are classified as

A) temporary investments.
B) marketable securities.
C) current assets.
D) investments.

Question 60

The entries that transfer the balances of the temporary owner's equity accounts to the permanent owner's equity account are called

A) adjusting entries.
B) closing entries.
C) reversing entries.
D) general journal entries.

Question 61

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.quick ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The number of days in the year divided by the accounts receivable turnover.

Question 62

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
The length of time generally required for a business to buy inventory, sell it, and collect the cash.

Question 63

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
The number of times the merchandise inventory turned over, or was sold, during the accounting period.

Question 64

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
Refers to the speed with which an asset can be converted to cash.

Question 65

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.quick ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
Those obligations that are due within one year or the normal operating cycle of the business, whichever is longer, and will require the use of current assets.

Question 66

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
Gross sales less sales returns and allowances and sales discounts.

Question 67

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.quick ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
Cash and all other assets expected to be converted into cash or consumed within one year or the normal operating cycle of the business, whichever is longer.

Question 68

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
Current assets divided by current liabilities.

Question 69

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
Those expenses associated with administrative or office operating expenses.

Question 70

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
Net sales minus cost of goods sold.

Question 71

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
Cost of plant and equipment less the accumulated depreciation amounts.

Question 72

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
Cash and all other current assets that can be converted into cash quickly.

Question 73

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.quick ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
Net income divided by average owner's equity.

Question 74

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.quick ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The number of times the accounts receivable turned over, or were collected, during the accounting period.

Question 75

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.quick ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The opposite of the adjusting entry. It is made on the first day of the next accounting period and simplifies recording transactions in the new period.

Question 76

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
This statement shows a step-by-step calculation of net sales, cost of goods sold, gross profit, operating expenses, income from operations, other revenues and expenses, and net income.

Question 77

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.quick ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
Those obligations that will extend beyond one year or the normal operating cycle, whichever is longer.

Question 78

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
The number of days in the year divided by the inventory turnover.

Question 79

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
Those expenses directly associated with selling activities.

Question 80

Match the terms with the definitions.a.selling expenses
b.quick assets
c.average days to sell inventory
d.book value
e.property, plant, and equipment
f.operating cycle
g.current ratio
h.general expenses
i.gross profit
j.net sales
k.multiple-step income statement
l.inventory turnover
m.liquidity
Assets that are expected to be used for more than one year in the operation of a business.