Deck 26: Merchandising Business As a Corporation

Question 1

A line of credit does not have to be repaid as long as the business pays its monthly interest.

Answer 1

False

Question 2

The gross profit method makes it possible to prepare monthly income statements without taking a physical inventory.

Answer 2

True

Question 3

The LIFO method is used to determine the quantity of each type of merchandise on hand.

Answer 3

False

Question 4

At any time, the accumulated depreciation for a plant asset owned by the company reflects next year's estimated depreciation expense.

Question 5

If cash is received for revenue that has not been earned, a liability is increased.

Question 6

The payment of cash dividends is listed as an investing activity on the statement of cash flows.

Question 7

The declining-balance method of depreciation multiplies the book value by a constant depreciation rate to determine annual depreciation.

Question 8

A disadvantage of issuing stock is that dividends must be paid to stockholders.

Question 9

The adjusting entry for deferred rent expense incurred includes a credit to Prepaid Rent.

Question 10

The statement of cash flows is prepared on a cash basis rather than an accrual basis.

Question 11

Expensing the cost of an asset over the asset's useful life is an application of the concept

A) Going Concern.
B) Historical Cost.
C) Matching Expenses with Revenue.
D) Objective Evidence.

Question 12

Paying cash for merchandise inventory would be listed on the statement of cash flows as

A) an operating activity.
B) an investing activity.
C) a financing activity.
D) none of these.

Question 13

The entry for drawing cash on a line of credit is

A) debit Cash; credit Notes Payable.
B) debit Line of Credit; credit Cash.
C) debit Notes Payable; credit Cash.
D) debit Cash; credit Line of Credit.

Question 14

The adjusting entry for deferred rent revenue that is now earned includes a

A) debit to Cash.
B) debit to Rent Expense.
C) credit to Unearned Rent Income.
D) credit to Rent Income.

Question 15

The FIFO method is based on the assumption that the merchandise purchased first is the merchandise

A) sold first.
B) sold last.
C) in ending inventory.
D) none of these.

Question 16

The reversing entry for accrued interest expense includes a debit to

A) Interest Expense.
B) Interest Payable.
C) Cash.
D) Interest Receivable.

Question 17

Obtaining capital by issuing stock in a corporation is called

A) equity financing.
B) debt financing.
C) a capital expenditure.
D) a revenue expenditure.

Question 18

When a plant asset is sold and a loss is recorded,

A) cash received equals the book value of the asset.
B) cash received is less than the book value of the asset.
C) cash received is more than the book value of the asset.
D) none of these.

Question 19

When the LIFO method is used, cost of merchandise sold is valued at

A) the average cost.
B) the earliest cost.
C) the most recent cost.
D) none of these.

Question 20

When there is a net loss, the closing entry for the Income Summary account includes a debit to

A) Income Summary.
B) Retained Earnings.
C) each expense account.
D) each revenue account.

Question 21

Select the one term that best fits each definition.

-The spreading of the cost of an intangible asset over its useful life.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 22

Select the one term that best fits each definition.

-Cash receipts and payments involving debt or equity transactions.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 23

Select the one term that best fits each definition.

-The interest rate used to calculate periodic interest payments on a bond.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 24

Select the one term that best fits each definition.

-Land and anything attached to the land.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 25

Select the one term that best fits each definition.

-Using the cost of merchandise purchased first to calculate the cost of merchandise sold first.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 26

Select the one term that best fits each definition.

-Cash receipts and cash payments involving the sale or purchase of assets used to earn revenue over a period of time.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 27

Select the one term that best fits each definition.

-An entry recording revenue before the cash is received, or an expense before the cash is paid.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 28

Select the one term that best fits each definition.

-An entry recording the receipt of cash before the related revenue is earned, or payment of cash before the related expense is incurred.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 29

Select the one term that best fits each definition.

-Using the cost of merchandise purchased last to calculate the cost of merchandise sold first.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 30

Select the one term that best fits each definition.

-Purchases of plant assets used in the operation of a business.

A) accrual
B) amortization
C) capital expenditures
D) deferral
E) financial activities
F) first-in, first-out inventory costing method
G) investing activities
H) last-in, first-out inventory costing method
I) real property
J) stated interest rate

Question 31

Interest income is recorded only if a note receivable is collected.

Question 32

Preparing the general ledger for the next fiscal period is an application of the Business Entity accounting concept.

Question 33

The closing entry for income statement accounts with debit balances closes only the expense accounts.

Question 34

A temporary account is closed by transferring its balance out of the account.

Question 35

The book value of accounts receivable at year end is an estimate of the amount of accounts receivable the business expects to collect during the next fiscal year.

Question 36

The amount of dividends declared during the year is presented on the income statement.

Question 37

The purpose of the post-closing trial balance is to prove the general ledger equality of debits and credits.

Question 38

Increasing operating revenue while keeping cost of merchandise sold the same will increase gross profit.

Question 39

Alpha Company's target range for its total operating expense ratio is between 28.0% and 30.0%. A decline in its operating expense ratio from 32.1% to 30.8% is a favorable trend.

Question 40

The column totals of an employee earnings record provide the debit and credit amounts needed to journalize a payroll.

Question 41

A corporation having a net income before federal income tax of $190,000.00 will pay a higher rate of tax than a company having $40,000.00 of net income before federal income tax.

Question 42

A company having earnings per share of $14.50 is always more profitable than a company having earnings per share of $3.25.

Question 43

Income stocks typically have a higher dividend yield than growth stocks.

Question 44

Investors are willing to pay a higher price-earnings ratio for growth stocks than for income stocks.

Question 45

A corporation has the legal rights of a person.

Question 46

A business has net income before federal income tax of $60,000. According to the tax rate schedule, the first $50,000 of taxable income is taxed at 15%. The next $25,000 of taxable income is taxed at 25%. The marginal tax rate that would be applied to an additional dollar of taxable income would be

A) 15%.
B) 20%.
C) 25%.
D) none of these.

Question 47

The total of the schedule of accounts receivable should equal

A) the Accounts Receivable account balance in the general ledger.
B) the Cash account.
C) the debit and credit proof.
D) none of these.

Question 48

The withholding allowances of an employee affect the amount of

A) social security tax withheld.
B) federal income tax withheld.
C) federal unemployment tax owed.
D) state unemployment tax owed.

Question 49

Some businesses deposit employee net pay directly to each employee's bank account by using

A) payroll checks.
B) payroll registers.
C) EFT.
D) none of these.

Question 50

A business has an $8,000 note receivable outstanding. The 60-day, 10% note is dated December 6. On December 31, the business would record an adjusting entry to

A) credit Interest Income for $55. 56.
B) debit Interest Income for $55. 56.
C) credit Interest Receivable for $66. 67.
D) debit Interest Receivable for $66. 67.

Question 51

A company purchases office equipment for $2,500.00 having a 3-year useful life and a $100.00 salvage value. Using the straight-line method of depreciation, depreciation expense in year 2 of the asset's useful life will be

A) $500. 00.
B) $600. 00.
C) $800. 00.
D) $833. 33.

Question 52

Recording expenses in the fiscal period in which the expenses contribute to earning revenue is an application of the accounting concept

A) Accounting Period Cycle.
B) Adequate Disclosure.
C) Matching Expenses with Revenue.
D) Historical Cost.

Question 53

The amount of prepaid insurance not expired during a fiscal period represents

A) an asset.
B) a liability.
C) revenue.
D) an expense.

Question 54

A qualified retirement plan that allows tax-free withdrawal from the account is the

A) 401(k).
B) individual retirement account.
C) Roth individual retirement account.
D) 403(b).

Question 55

The par value of common stock is reported on the

A) income statement.
B) balance sheet.
C) statement of stockholders' equity.
D) none of these.

Question 56

A business with 10,000 shares of $2.00 par value common stock has earnings per share of $5.00, pays dividends of $1.00 per share, and has a market value of $10.00 per share. The dividend ratio is

A) 5. 0%.
B) 10. 0%.
C) 20. 0%.
D) 50. 0%.

Question 57

A company has revenue of $350,000, gross profit of $175,000, and expenses of $70,000. The vertical analysis ratio for net income is

A) 20. 0%.
B) 30. 0%.
C) 40. 0%
D) 50. 0%

Question 58

The two types of journal entries needed to change general ledger account balances at the end of the fiscal period are

A) adjusting and correcting entries.
B) closing and correcting entries.
C) adjusting and closing entries.
D) none of these.

Question 59

The depreciation adjusting entry includes a debit to Depreciation Expense-Office Equipment and a credit to

A) Income Summary.
B) Office Equipment.
C) Retained Earnings.
D) Accumulated Depreciation-Office Equipment.

Question 60

Accounts receivable increased from $40,000 to $50,000 during the fiscal year.
The horizontal analysis ratio for accounts receivable is

A) a $10,000 increase.
B) 20%.
C) 25%.
D) 0. 25.

Question 61

To close the Sales account,

A) debit Sales; credit Cash.
B) debit Sales; credit Income Summary.
C) debit Income Summary; credit Sales.
D) debit Cash; credit Sales.

Question 62

To rate the ability of a business to pay its current and long-term liabilities, investors use

A) market ratios.
B) profitability ratios.
C) liquidity ratios.
D) solvency ratios.

Question 63

A company estimates that $4,000 of its $50,000 accounts receivable will become uncollectible. The current balance in Allowance for Uncollectible Accounts is a $300 debit. The adjusting entry will include a

A) $4,300 credit to Uncollectible Accounts Expense.
B) $4,300 debit to Uncollectible Accounts Expense.
C) $3,700 debit to Allowance for Uncollectible Accounts.
D) $3,700 debit to Uncollectible Accounts Expense.

Question 64

After closing entries have been posted, the accounts that remain open are the

A) asset, liability, capital stock, and retained earnings accounts.
B) asset, liability, and cost accounts.
C) asset, liability, and dividends accounts.
D) asset, liability, and expense accounts.

Question 65

A system provided by the federal government for making federal tax deposits is the

A) Employment Deposit System (EDS).
B) Federal Tax Deposit System.
C) Electronic Federal Tax Payment System (EFTPS).
D) none of these.

Question 66

Select the one term that best fits each definition

-The amount of total current assets less total current liabilities.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 67

Select the one term that best fits each definition

-A federal tax paid for hospital insurance.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 68

Select the one term that best fits each definition

-The subsidiary ledger containing vendor accounts.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 69

Select the one term that best fits each definition

-The operating revenue remaining after cost of merchandise sold has been deducted.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 70

Select the one term that best fits each definition

-An account in a general ledger that summarizes all accounts in a subsidiary ledger.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 71

Select the one term that best fits each definition

-A ratio that measures the relationship of quick assets to current liabilities.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 72

Select the one term that best fits each definition

-A comparison of one item on a financial statement with the same item on a previous period's financial statement.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 73

Select the one term that best fits each definition

-An accounting form that summarizes the earnings, deductions, and net pay of all employees for one pay period.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 74

Select the one term that best fits each definition

-Total liabilities divided by total assets.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 75

Select the one term that best fits each definition

-The original price of all merchandise sold during a fiscal period.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 76

Select the one term that best fits each definition

-Credit allowed for part of the purchase price of merchandise that is not returned, resulting in a decrease in the customer's account payable to the vendor.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 77

Select the one term that best fits each definition

-A deduction from total earnings for each person legally supported by a taxpayer, including the employee.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 78

Select the one term that best fits each definition

-The difference between the balance of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 79

Select the one term that best fits each definition

-A report prepared to give details about an item on a principal financial statement.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital

Question 80

Select the one term that best fits each definition

-A ledger that is summarized in a single general ledger account.

A) accounts payable ledger
B) book value of accounts receivable
C) controlling account
D) cost of merchandise sold
E) debt ratio
F) gross profit
G) Medicare tax
H) horizontal analysis
I) payroll register
J) purchases allowance
K) quick ratio
L) subsidiary ledger
M) supporting schedule
N) withholding allowance
O) working capital