Deck 16: Financial Statements and Closing Entries

Question 1

In the preparation of financial statements, accounting principles are applied differently from one fiscal period to the next.

Answer 1

False

Question 2

Dividends Payable is a long-term liability.

Answer 2

False

Question 3

Every amount on a financial statement is accompanied by a related description.

Answer 3

False

Question 4

Management uses gross profit as a measure for how effectively the business is performing in its primary functions of buying and selling merchandise.

Question 5

Data needed to prepare the Liabilities section of a balance sheet are obtained from the Debit column of an adjusted trial balance.

Question 6

The difference between an asset's account balance and its related contra account balance is known as its book value.

Question 7

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

Question 8

Some management decisions can best be made after the amount of assets, liabilities, and stockholders' equity in the business is determined.

Question 9

Interest income is reported on the income statement in a section labeled Other Revenue.

Question 10

Reporting financial information the same way from one fiscal period to the next is an application of the accounting concept Adequate Disclosure.

Question 11

Operating revenue less cost of merchandise sold equals net income.

Question 12

Total operating expenses on an income statement are deducted from gross profit to find income from operations.

Question 13

When a business's expenses are less than the gross profit, the difference is known as a net loss.

Question 14

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

Question 15

All the information required to prepare a statement of stockholders' equity is obtained from the income statement and the adjusted trial balance.

Question 16

When more detailed information about an item on a financial statement is needed, a supporting schedule may be prepared.

Question 17

A statement of stockholders' equity summarizes the changes in owners' equity during a fiscal period.

Question 18

Interest earned on notes receivable is reported in the Operating Revenue section of an income statement.

Question 19

Beginning merchandise inventory less purchases made during the fiscal period plus ending inventory equals cost of merchandise sold.

Question 20

On an income statement, vertical analysis percentages are calculated by dividing the amount on each line by the amount of operating expenses.

Question 21

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

A) gross profit.
B) cost of merchandise sold.
C) net sales.
D) total sales.

Question 22

The income from operations is calculated by subtracting operating expenses from

A) revenue.
B) net sales.
C) gross profit.
D) cost of merchandise sold.

Question 23

One way to increase gross profit is to

A) decrease operating expenses.
B) decrease sales revenue.
C) increase sales revenue.
D) increase cost of merchandise sold.

Question 24

A financial statement that reports the amount of dividends is

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

Question 25

The financial statement that reports the par value of the stock is

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

Question 26

The total original price of all merchandise sold during a fiscal period is called

A) the cost of merchandise sold.
B) the cost of goods sold.
C) the cost of sales.
D) all of these.

Question 27

Preparing financial statements that provide information about a business's financial condition, changes in this financial condition, and the progress of operations is an application of the accounting concept

A) Consistent Reporting.
B) Adequate Disclosure.
C) Historical Cost.
D) Matching Expenses with Revenue.

Question 28

In the accounting cycle, closing entries are journalized and posted

A) after adjusting entries are posted to the general ledger.
B) after the adjusted trial balance is prepared.
C) after the financial statements are prepared.
D) before the adjusted trial balance is prepared.