1. Gross profit equals ________.

 (Not rated)
 (Not rated)

1.  Gross profit equals ________. 

 operating income minus cost of goods sold

 the increase in cash for the period

 revenue minus expenses

 sales minus cost of goods sold


2.  Busy Beaver had revenues of $2,000, cost of goods sold of $780, advertising expense of $100, and interest expense of $25. Gross profit was ________.  






3. The set of rules that a U.S. company must follow when preparing its financial statements is called ________. 

 internal revenue code

 generally accepted accounting principles

 internal control procedures

 internally accepted accounting principles


4. ________ have more detailed rules than ________. 


 This is a trick question, since U.S. GAAP and IFRS are the same.

 U.S. GAAP; IFRS    



5. Relevant information ________. 

 allows users to make comparisons across financial statements

 is presented the same way period after period

 needs to be current so it can be used to make decisions

 can be verified as accurate and truthful


6. Consistent information ________. 

 is presented the same way period after period

 needs to be current so it can be used to make decisions

 allows users to make comparisons across financial statements

 can be verified as accurate and truthful


7. Team Shirts has $200 in its Prepaid insurance account on June 30. This amount is for insurance for July and August. It represents a ________.  

 long-term asset

 long-term liability

 current liability

 current asset


8. On July 1, Team Shirts paid $600 for three months' worth of advertising beginning on July 1. What is Advertising expense for the MONTH ended August 31?  






9. Team Shirts purchased T-shirts in July. The T-shirts were sold to customers in August. Team Shirts received the final cash payments in September. According to the revenue-recognition principle, when should revenue be recorded? 




 both August and September


10. Team Shirts ordered T-shirts from its supplier in June. The T-shirts were delivered in July. Team Shirts paid the bill in August and sold the T-shirts in September. When should Team Shirts recognize an expense using cash-basis accounting? 






11. Team Shirts had current assets of $2,500, long-term assets of $3,850, current liabilities of $1,450, long-term liabilities of $2,000, and shareholder's equity of $2,900. The current ratio is ________. 






12. Clean Sweep had current assets of $650 and long-term assets of $1,350. It had current liabilities of $500 and a note payable of $600 due in three years. Its current ratio was ________.  






13. Internal controls are ________.  

 policies and procedures the managers of a firm use to protect a firm’s assets and the accuracy of its accounting records

 rules required by creditors to ensure repayment of liabilities

 laws and regulations imposed by the IRS and SEC to ensure the accuracy of financial statements

 accounting procedures required by the FASB to ensure the accuracy and reliability of firms’ accounting records


14. Preventive controls are ________.  

 designed to identify when an error or irregularity has occurred

 directed at recovering from an error

 designed to stop a problem before it starts

 designed to monitor business risks


15. Details, Inc. paints a truck on May 31. The customer picks up the truck on June 6 and mails the payment to Details on August 5. Details receives the check in the mail on August 8. When should Details record that the revenue was earned? 

 August 8

 June 6

 May 31

 August 5


16. Sales revenue is usually considered earned when ________.  

 goods have been shipped from the seller to the buyer

 the customer places an order for goods to be shipped

 cash is received from credit sales

 the adjustments are made at the end of the accounting period


17. Other receivables represents the amount ________.  

 lent to others

 borrowed from others

 collected in advance of performing the services

 customers owe for goods or services previously delivered


18. Which financial statement shows Unearned revenue?  

 Statement of cash flows

 Balance sheet

 Statement of changes in shareholders’ equity

 Income statement


19. In February, Ira Roth, Public Accountant, accepted $500 in cash from a customer in exchange for a tax return he promised to prepare in April. Which of the following statements is true?  

 Ira has to record Cash of $500 in April when the return is prepared.

 Ira has a $500 liability in February.   

 Ira has earned $500 in February.

 Ira does not need to record anything in February. He can wait until April.


20. On January 1, Needem, Inc. borrows $10,000 and agrees to repay the loan plus 8% interest in two years. If the proper adjustment is not made at the end of the first year, what will be wrong with the financial statements?  

 Liabilities will be understated on the balance sheet.  

 Nothing will be wrong with the financial statements.

 Expenses will be overstated on the income statement.

 Cash will be overstated on the balance sheet.



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