If profit margin represents a relationship between net income and net sales, what outcome would you predict if there was an increase in net income, although no change in net sales?

The profit margin would decrease.
There would be no change.
Profit margin would increase at the same rate as net sales.
The profit margin would increase.

Question 2.2. One of your co-workers has developed the following accounting cycle to be included in the procedures manual of the accounting department at the Marathon Shoe Company. What, if any, of the following modifications would you recommend?
Determine which accounts to debit and credit
Record the transaction in the journal
Create reversing entries
Prepare statements
Record in the appropriate account
Prepare unadjusted trial balance
Make entries for prepaid insurance, depreciation, and so on
Prepare adjusted trial balance
Close temporary accounts
Prepare post-closing trial balance

No changes recommended.
Reversing entries should be done last, and financial statements are not prepared until after the adjusted trial balance.
Temporary accounts should be closed after all transactions are posted to the general ledger.
The adjusted trial balance is done after the temporary accounts are closed.


Question 3.3.
A company receives a discount on its computer supplies if it purchases the entire year's inventory in January. What kind of adjusting entry will be needed to accurately record this expense?

A monthly adjustment to prepaid expense
A quarterly adjustment to depreciation
A monthly adjustment to accrued revenue
A bi-monthly adjustment to supplies expense

Question 4.4.
Would you agree that accrual accounting is a better indication of a company's future performance than cash accounting? Why or why not?

No. Both are equally consistent with GAAP.
Yes. It gives a more reliable comparison of past and present financial statements.
No. It is misleading to recognize expenses until cash is actually disbursed.
Yes. A good indication of a company's success is to recognize cash when it is received.


Question 5.5.
If the new clerk in the accounting department insists on including the sales revenue account on the post-closing trial balance, would you agree? Why, or why not?

I would disagree because revenue accounts are temporary accounts.
I would disagree because revenue accounts are permanent accounts, and only temporary accounts appear on the post-closing trial balance.
I would agree because all revenue accounts should appear on the post-closing trial balance.
I would disagree because revenue accounts other than sales revenue appear only on the post-closing trial balance.

Question 6.6.
What conclusion can you draw after examining an unadjusted trail balance and an adjusted trial balance?

Debits and Credits on both trial balances are still equal.
Debits and Credits on the unadjusted trial balance are affected by the amount of the adjustments.
Debits on the unadjusted and adjusted balance are equal to each other; credits on the adjusted trial balance are equal to each other.
Only those accounts that were adjusted will appear on the adjusted trial balance.


Question 7.7. How would you assess the usefulness of the Income Summary account as it relates to the closing process?
It is a revenue account that records income owed to a company in future periods
It is a permanent account used to transfer balances into revenue and expense accounts
It is a temporary account used to take revenue and expense accounts to a zero balance
It is a holding account used each month to record changes in assets

Question 8.8.
A transportation company is paid in the month of May for delivering a truckload of goods, although it actually delivers it in June. What effect will there be on the financial statements if the correct adjusting entry is not made?

Assets will be understated on the Balance Sheet
Equity will be overstated on the Statement of Owner's Equity
Cash will be overstated on the Statement of Cash Flows
Revenue will be understated on the Income Statement


Question 9.9.
At the end of each accounting period, the president of the company wants to see all general ledger account balances on one document. Bill has suggested using the general journal; Sam suggests giving him a copy of the unclassified balance sheet. How would you access their understanding of financial statements?

Both are incorrect; they should give the boss a classified balance sheet.
Both are incorrect; they should give the boss an income statement.
Bill is correct; the general journal will provide accurate account balances.
Both are correct; the unclassified balance sheet and general journal provide period ending account balances


Question 10.10.
For what purpose would you least likely use a worksheet?

To predict how the purchase of new equipment would affect the company in future periods
To demonstrate the company's good financial position to a potential lender
To assist in the preparation of the Statement of Cash Flows
To show the connection between depreciation entries and financial st

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