1 Using accrual accounting, expenses are recorded when incurred to generate revenue. This is called the a. matching principle. b. realization principle. c. objectivity principle. d. conservatism concept.
2. Fashion Retailers, Inc.’s income statement for the year ended December 31, 20X8 included the following accounts: Sales………………………………………………………….$60,000,000 Cost of goods sold……………………………………………$36,000,000 Selling expenses (total)………………………………………$10,000,000 General and administrative expenses………………………….$8,000,000 Income tax expense……………………………………………$3,500,000 What was the gross profit ratio for the year-ended December 31, 20X8? a. 4.2% b. 10.0% c. 60% d. 40%
3. Depreciation represents: a. the valuation of long-lived (fixed) assets such as equipment and buildings as of the date of the preparation of the statement of financial position. b. the allocation of the costs of fixed assets such as buildings or equipment to expense of a given accounting period. c. both a and b. d. neither a nor b.
4. On January 1, 20X1, Emily’s Boutique purchased equipment for $62,000 which is expected to have a 10-year useful life and a $2,000 salvage value. Using straight-line depreciation, what is the annual depreciation expense on this equipment for the year-ended December 31, 20X3? a. $18,000. b. $18,600. c. $6,000. d. $6,200.
5. Which of the following types of accounts is not a temporary equity account? a. Revenues. b. Expenses. c. Dividends. d. Retained earnings.
6. The following account balances are all increased with a credit? a. Cash, accounts receivable, dividends, and salary expense. b. Cash, land, dividends payable, and accounts payable. c. Patents, buildings, service revenue, and common stock. d. Notes payable, retained earnings, dividends payable, and service revenue.
7. An issue of common 10,000 shares of common stock at $22 per share would be recorded as follows: a. Debit: Cash………………..…..……..220,000 Credit: Common stock…………………220,000 b. Debit: Common stock…..…......……..220,000 Credit: Cash……………….……………220,000 c. Debit: Cash……………..…..………..220,000 Credit: Retained earnings………………220,000 d. Debit: Cash………..…..…..…………220,000 Credit: Stockholders’ equity……………220,000.