True/False
Indicate whether the sentence or statement is true
or false.
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1.
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A
balance sheet reports financial information over a specific period of time.
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2.
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The
financial condition of a business refers to its financial strength.
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3.
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Reporting in the same fiscal period the revenue earned and the expenses incurred to
earn that revenue is an application of the accounting concept Matching Expenses with
Revenue.
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4.
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All
financial statements have four-line headings.
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5.
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Amounts from a work sheet's Trial Balance columns are used in preparing the revenue
section of an income statement.
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6.
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Amounts from a work sheet's Income Statement Debit column are used in preparing the
expense section of an income statement.
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7.
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The
formula for calculating net income is total revenue minus total expenses equals net
income.
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8.
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The
net income calculated for the income statement and the net income on the work sheet must be the
same.
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9.
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On an
income statement, double lines are ruled across both amount columns to indicate that debits equal
credits.
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10.
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For a
service business, the revenue reported on an income statement includes components for total expenses
and net income.
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11.
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The
formula for calculating the total expenses component percentage is: total expenses divided by total
sales equals total expenses component percentage.
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12.
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Information needed to prepare the assets section of the balance sheet is obtained from
the work sheet's Account Title column and the Balance Sheet Credit column.
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13.
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Information needed to prepare the liabilities section of a balance sheet is obtained
from the work sheet's Account Title column and the Balance Sheet Credit column.
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14.
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The
current capital to be reported on a balance sheet is calculated as: the capital account balance plus
net income equals current capital.
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15.
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On a
balance sheet, double lines are ruled across both amount columns to indicate that debits equal
credits.
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16.
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Component percentages on an income statement are calculated by dividing sales and
total expenses by net income.
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17.
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A
component percentage is the percentage relationship between one financial statement item and the
total that includes that item.
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18.
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The
Adequate Disclosure accounting concept is applied when financial statements contain all information
necessary to understand a business's financial condition.
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19.
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An
income statement reports information over a period of time, indicating the financial progress of a
business in earning a net income or a net loss.
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20.
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The
Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses
incurred to earn that revenue are reported in the same fiscal period.
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21.
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Information needed to prepare an income statement comes from the Trial Balance columns
and the Income Statement columns of a work sheet.
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22.
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The
income statement for a service business has five sections: heading, revenue, expenses, net income or
loss, and capital.
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23.
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The
work sheet is used to assist in preparing the revenue, expenses, and net income sections of an income
statement.
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24.
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Only
revenue accounts and expense accounts are used in preparing the income statement.
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25.
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The
net income on an income statement is verified by checking the balance sheet.
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26.
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Single lines ruled across an amount column of an income statement indicate that
amounts are to be added.
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27.
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An
amount written in parentheses on a financial statement indicates an estimate.
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28.
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A
balance sheet reports financial information on a specific date and includes the assets, liabilities,
and owner's equity.
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29.
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A
balance sheet reports information about the elements of the accounting equation.
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30.
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Double lines are ruled across the balance sheet columns to show that the column totals
have been verified as correct.
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31.
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The
position of the total asset line is determined after the equities section is prepared.
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32.
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All
companies should have a total expenses component percentage that is not more than 80.0
percent.
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33.
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When
a business has two different sources of revenue, a separate income statement should be prepared for
each kind of revenue.
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34.
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The
owner's capital amount reported on a balance sheet is calculated as: capital account balance plus
drawing account balance less net income.
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35.
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The
owner's equity section of a balance sheet may report different kinds of details about owner's equity,
depending on the need of the business.
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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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36.
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Assuring that financial statements contain all information necessary to understand a
business's financial condition is an application of the accounting concept ____. a. | Adequate
Disclosure | c. | Objective
Evidence | b. | Going Concern | d. | Accounting Period Cycle | | | | |
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37.
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Preparing financial statements at the end of each monthly fiscal period is an
application of the accounting concept ____. a. | Adequate Disclosure | c. | Objective Evidence | b. | Going
Concern | d. | Accounting
Period Cycle | | | | |
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38.
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An
income statement reports a business's financial ____. a. | condition over a
specific period of time | b. | progress over a specific period of
time | c. | condition on a
specific date | d. | progress on a specific date | | |
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39.
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A
balance sheet reports a business's financial ____. a. | condition over a
specific period of time | b. | progress over a specific period of
time | c. | condition on a
specific date | d. | progress on a specific date | | |
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40.
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The
sections of an income statement are ____. a. | assets, liabilities, and owner's
equity | b. | heading, revenue, expenses, and net income or net
loss | c. | assets,
liabilities, and net income or net loss | d. | assets, revenue, and net income or net
loss | | |
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41.
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The
date on a monthly income statement prepared on July 31 is written as ____. a. | For Month Ended
July 31, 20-- | c. | 20--, July
31 | b. | July 31,
20-- | d. | none of the
above | | | | |
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42.
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Information needed to prepare an income statement's revenue section is obtained from a
work sheet's Account Title column and ____. a. | Income Statement Debit column | c. | Balance Sheet Debit column | b. | Income Statement
Credit column | d. | Balance Sheet
Credit column | | | | |
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43.
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Information needed to prepare an income statement's expense section is obtained from a
work sheet's Account Title column and ____. a. | Income Statement Debit column | c. | Balance Sheet Debit column | b. | Income Statement
Credit column | d. | Balance Sheet
Credit column | | | | |
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44.
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The
amount of net income calculated on an income statement is correct if ____. a. | it is the same
as net income shown on the work sheet | b. | debits equal credits | c. | it is the same
as the balance sheet | d. | none of the above | | |
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45.
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The
percentage relationship between one financial statement item and the total that includes that item is
____. a. | an
adjustment | c. | a component
percentage | b. | an endorsement | d. | none of the above | | | | |
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46.
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The
formula for calculating the total expenses component percentage is ____. a. | total expenses
divided by total sales equals total expenses component percentage | b. | total sales
divided by total expenses equals total expenses component percentage | c. | total sales
minus total expenses divided by net income equals total expenses component
percentage | d. | none of the above | | |
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47.
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The
formula for calculating the net income component percentage is ____. a. | net income
divided by total sales equals net income component percentage | b. | total sales
divided by total expenses equals net income component percentage | c. | total sales
minus total expenses divided by net income equals total net income
percentage | d. | none of the above | | |
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48.
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Information needed to prepare a balance sheet assets section is obtained from a work
sheet's Account Title column and ____. a. | Income Statement Debit column | c. | Balance Sheet Debit column | b. | Income Statement
Credit column | d. | Balance Sheet
Credit column | | | | |
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49.
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Information needed to prepare a balance sheet liabilities section is obtained from a
work sheet's Account Title column and ____. a. | Income Statement Debit column | c. | Balance Sheet Debit column | b. | Income Statement
Credit column | d. | Balance Sheet
Credit column | | | | |
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50.
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When
preparing a balance sheet, the amount of owner's capital is obtained from ____. a. | the general
ledger | b. | the income statement | c. | the work sheet's
Balance Sheet Credit column | d. | none of the above | | |
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