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Question 1 (Multiple Choice Worth 3.44 points)

Closing entries are made

in order to terminate the business as an operating entity.

so that all assets, liabilities, and owner's capital accounts will have zero balances when the next accountingperiod starts.

in order to transfer net income (or loss) and owner's drawing to the owner's capital account.

so that financial statements can be prepared.

Question 2 (True/False Worth 3.44 points)

Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in theincome statement.

True

False


Ethics are the standards of conduct by which one's actions are judged as

right or wrong.

honest or dishonest.

fair or unfair.

all of these.


Reese Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30.

Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

20%

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24%

36%

72%


Sales minus operating expenses equals gross profit.

True

False


Transactions that affect inventories on hand have an effect on both the balance sheet and the income

statement.

True

False

Question 7(Multiple Choice Worth 3.44 points)

Monthly and quarterly time periods are called

calendar periods.

fiscal periods.

interim periods.

quarterly periods.


The consistent application of an inventory costing method is essential for

conservatism.

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accuracy.

comparability.

efficiency.


A company just starting business made the following four inventory purchases in June:

A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the

average-cost method, the amount allocated to the ending inventory on June 30 is

$2,100.

$1,500.

$575.

$600.


Generally accepted accounting principles are

income tax regulations of the Internal Revenue Service.

standards that indicate how to report economic events.

theories that are based on physical laws of the universe.

principles that have been proven correct by academic researchers.

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Sales revenue less cost of goods sold is called

gross profit.

net profit.

net income.

marginal income.


Which of the following are in accordance with generally accepted accounting principles?

Accrual basis accounting

Cash basis accounting

Both accrual basis and cash basis accounting

Neither accrual basis nor cash basis accounting


The cash basis of accounting is not in accordance with generally accepted accounting principles.

True

False


Inventory is reported in the financial statements at

cost.

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market.

the higher-of-cost-or-market.

the lower-of-cost-or-market.


Cost of goods sold is computed from the following equation:

beginning inventory cost of goods purchased + ending inventory.

sales cost of goods purchased + beginning inventory ending inventory.

sales + gross profit ending inventory + beginning inventory.

beginning inventory + cost of goods purchased ending inventory


The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

True

False


Sales revenues are usually considered earned when

cash is received from credit sales.

an order is received.

goods have been transferred from the seller to the buyer.

adjusting entries are made.

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Ted's Used Cars uses the specific identification method of costing inventory. During March, Ted purchased

three cars for $6,000, $7,500, and $9,750, respectively. During March, two cars are sold for $9,000 each. Ted

determines that at March 31, the $9,750 car is still on hand. What is Teds gross profit for March?

$5,250.

$4,500.

$750.

$8,250.


A liability is classified as a current liability if the company is to pay it within the forthcoming year.

True

False


Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

True

False


A merchandising company that sells directly to consumers is a

retailer.

wholesaler.

broker.

service company.

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Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

True

False


If net sales are $800,000 and cost of goods sold is $600,000, the gross profit rate is 25%.

True

False


Income from operations is gross profit less

financing expenses.

operating expenses.

other expenses and losses.

other expenses.


The accounting cycle is usually shorter for a merchandising company than for a service company

True

False


The book value of a depreciable asset is always equal to its market value because depreciation is a valuation

technique.

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True

False


Operating expenses are similar for merchandising and service enterprises.

True

False


If the total debit column exceeds the total credit column of the income statement columns on a worksheet, thenthe company has

earned net income for the period.

an error because debits do not equal credits.

suffered a net loss for the period.

to make an adjusting entry.


The accounting cycle begins at the start of a new accounting period.

True

False

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