True/False
Indicate whether the sentence or statement is true
or false.
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1.
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The
total of the operating expenses for the period is deducted from the gross profit on sales to
determine the net income or net loss from operations.
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2.
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The
balance of the Sales Returns and Allowances account is reported as a selling expense in Operating
Expenses section of a multiple-step income statement.
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3.
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In
the closing process, the balance of the owner's drawing account is transferred to the debit side of
the owner's capital account.
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4.
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In
the closing process, the balance of the Purchases account is transferred to the Merchandise Inventory
account.
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5.
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If
the Income Summary account has a credit balance after revenues, costs, and expenses are closed into
it, the firm had a net income for the fiscal period.
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6.
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If a
business is to earn a net income, the gross profit on sales must be great enough to more than cover
operating expenses.
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7.
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Salaries of office employees would be grouped with the selling expenses in the
Operating Expenses section of the income statement.
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8.
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Interest on notes payable would be listed in the Other Income section of a classified
income statement.
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9.
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If a
firm experiences a net loss, this amount is placed in parentheses on the income
statement.
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10.
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When
a firm experiences a net loss, the owner's capital is decreased.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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11.
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Which
of the following is not a current asset? a. | Accounts Receivable. | c. | Merchandise Inventory. | b. | Prepaid
Insurance. | d. | Equipment. | | | | |
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12.
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Prepaid expenses appear in a. | the Operating Expenses section of the income
statement. | b. | the Other Expenses section of the income
statement. | c. | the Current Assets section of the balance
sheet. | d. | the Current Liabilities section of the balance
sheet. | | |
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13.
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The
beginning capital balance shown on a statement of owner's equity is $38,000. Net income for the
period is $18,000. The owner withdrew $23,000 cash from the business and made no additional
investments during the period. The owner's capital balance at the end of the period
is a. | $43,000. | c. | $56,000. | b. | $33,000. | d. | $79,000. | | | | |
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14.
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Gross
profit on sales is calculated by a. | subtracting sales returns and allowances from
sales. | b. | subtracting cost of goods sold from net
sales. | c. | subtracting ending inventory from the total merchandise
available for sale. | d. | subtracting total expenses from
sales. | | |
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15.
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The
balance of the owner's drawing account is a. | listed in the Other Expenses section of the income
statement. | b. | listed in the Current Assets section of the balance
sheet. | c. | used in the calculation of ending capital on a statement of
owner's equity. | d. | listed in the Operating Expenses section of the income
statement. | | |
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16.
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Which
of the following accounts is not closed? a. | Purchases. | c. | Sales. | b. | Rent
Expense. | d. | Merchandise
Inventory. | | | | |
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17.
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Which
of the following accounts will appear on the postclosing trial balance? a. | Miscellaneous
Income. | c. | Medicare Tax
Payable. | b. | Payroll Taxes Expense. | d. | Sales | | | | |
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18.
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Which
of the following groups of accounts will have zero balances after the closing process is
completed? a. | Allowance for
Doubtful Accounts and Uncollectible Accounts Expense. | b. | Purchases and
Purchases Returns and Allowances. | c. | Merchandise Inventory and Sales. | d. | Depreciation
Expense and Allowance for Depreciation—Equipment. | | |
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Numeric Response
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For this section identify by numbers 1 through 4 which step of the
closing process the following accounts would be closed in or by number 5 if the account is
not closed.
1--Closing step
#1 | 3--Closing step #3 | 5--Not
Closed | 2--Closing step #2 | 4--Closing step
#4 | | | | |
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19.
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Purchases
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20.
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Sales
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21.
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Purchases Discounts
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22.
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Sales
Discounts
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23.
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Drawing
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24.
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Capital
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25.
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Income Summary
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26.
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Sales
Returns
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27.
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Purchases Returns
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28.
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Freight In
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29.
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Merchandise Inventory
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30.
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Interest Expense
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31.
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Interest Income
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32.
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Depreciation Expense
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33.
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Accumulated Depreciaton
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For this section, use the numbers below to identify in which
financial statement the accounts would be found.
1--Income Statement |
2--Capital Statement |
3--Balance Sheet | | | |
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34.
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Accounts Receivable
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35.
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Accounts Payable
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36.
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Drawing
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37.
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Purchases
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38.
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Beginning Capital
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39.
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Interest Expense
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40.
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Beginning Merchandise Inventory
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41.
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Accumulated Depreciation
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42.
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Depreciation Expense
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43.
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Notes
Payable
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44.
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Sales
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45.
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Freight In
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46.
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Supplies
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47.
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Sales
Discounts
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48.
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Purchases Discounts
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