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Chapter 16, TEST 16B Name Date _________________________ _________________________ SCORING RECORD Section Total Possible A B C D Total 30 30 10 30 100 Deductions Section A DIRECTIONS: Each of the following statements is true or false. Indicate your choice by writing in the Answers column T for a true answer or F for a false answer. (2 points for each correct answer) For Answers Scoring 1. An income statement shows the sources of revenue, types of expenses, and the amount of the net income or net loss for the period. _____ _____ 2. The multiple-step form of income statement lists all revenue items and their total, followed by all expense items and their total, to produce a difference that is either net income or net loss. _____ _____ 3. Gross sales plus sales returns and allowances is called net sales. _____ _____ 4. Gross profit less operating expenses produces the income from operations. _____ _____ 5. A formal statement of the changes in owner's equity during an accounting period is called a statement of owner's equity. _____ _____ 6. Current assets include cash and all other assets that may be reasonably expected to be converted into cash or consumed within one year or the normal operating cycle of the business, whichever is longer. _____ _____ 7. Liquidity refers to the speed at which a business can convert their assets to cash. _____ _____ 8. Current liabilities are those obligations that are due within one year or the normal operating cycle of the business, whichever is longer, and will require use of current assets. _____ _____ 9. Salvage value and accumulated depreciation are subtracted from the cost of an asset to calculate book value. _____ _____ 10. The current ratio is computed adding current assets and current liabilities. _____ _____ 11. The quick ratio is determined by subtracting current liabilities from current assets. _____ _____ 12. Interstatement analysis provides a comparison of the relationships between income statement and balance sheet amounts. _____ _____ 13. If inventory is taken only at the end of each accounting period, the average inventory for the period can be calculated by adding the beginning and ending inventories. _____ _____ 14. Closing entries for a merchandising business do not resemble closing entries for a service business. _____ _____ 15. Reversing entries simplify entering transactions in the succeeding accounting period. _____ _____ Student Score 16-2 Section B Directions: Complete each of the following statements by writing in the Answers column the letter of the word or words that correctly completes each statement. (3 points each) For Answers Scoring 1. 2. 3. 4. 5. 6. 7. 8. A formal statement of the results of the operation of a business during an accounting period is called a(n): (A) income statement; (B) balance sheet; (C) statement of condition; (D) statement of equities; (E) trial balance. _____ _____ The capital account is: (A) increased by additional investments; (B) decreased by withdrawals; (C) increased by net income for the accounting period; (D) decreased by a net loss for the accounting period; (E) increased by withdrawals. _____ _____ A formal statement of the assets, liabilities, and owner's equity of a business at a specified date is known as the: (A)income statement; (B) balance sheet; (C) owner's equity statement; (D) statement of profits and losses; (E) a and d. _____ _____ Assets that are used for several years in the operation of a business are called; (A) temporary investments; (B) marketable securities; (C) current assets; (D) investments; (E) property, plant, and equipment assets. _____ _____ The following information was taken from the financial statement of Hocking Valley Auto Supply: Total current assets 96,000 Property, plant and equipment 10,000 Current liabilities 24,000 Long-term liabilities 6,000 Owner's equity 76,000 Beginning inventory 60,000 Ending inventory 64,000 Cost of goods sold 300,000 Net income 80,000 The current ratio for Hocking Valley Auto Supply is: (A) 1.3 to 1; (B) 3.5 to 1; (C) 4 to 1; (D) $36,000; (E) $96,000. _____ _____ The following information was taken from the financial statement of Hocking Valley Auto Supply: Total current assets 82,000 Property, plant and equipment 10,000 Current liabilities 24,000 Long-term liabilities 6,000 Owner's equity 76,000 Beginning inventory 58,000 Ending inventory 66,000 Cost of goods sold 310,000 Net income 80,000 The inventory turnover (rounded to one decimal place) for Hocking Valley Auto Supply is: (A) 2.2; (B) 3.0; (C) 4.8; (D) 5.0; (E) 5.5. _____ _____ Which of the following is not considered a general expense: (A) Utilities Expense; (B) Rent Expense; (C) Telephone Expense; (D) Office Supplies Expense; (E) Sales Salaries Expense. _____ _____ After the temporary owner's equity and drawing accounts are transferred to the permanent owner's equity account, only the following account(s) will have balances: (A) assets; (B) liability; (C) capital; (D) all of these; (E) none of these. _____ _____ 16-3 9. Cash and all other current assets that can be converted into cash quickly, such as accounts receivable and temporary investment are referred to as: (A) quick assets; (B) current assets; (C) liquidity; (D) long-term assets; (E) property, plant and equipment. _____ 10. The following entries simplify the proper separation of revenues and expenses between successive accounting periods: (A) adjusting; (B) closing; (C) reversing; (D) general journal; (E) purchasing. _____ _____ _____ Section C DIRECTIONS: Indicate the proper category for the following accounts. CA = current asset CL = current liability N = neither (1 point each) Prepaid Insurance Accounts Payable Merchandise Inventory Unearned Revenue Computer Equipment ______ ______ ______ ______ ______ Cash ______ Accounts Receivable ______ Notes Payable(due in 3 yrs)______ Land ______ Supplies ______ Section D DIRECTIONS: The following Income Statement and Balance Sheet columns are from the work sheet of Rebecca’s Rainbow of Shirts for the year ended June 30, 20--. Prepare a multi-step income statement for Rebecca’s Rainbow of Shirts for the current fiscal year. (30 points total.) Rebecca's Rainbow of Shirts Partial Workshet For the year ended June 30, 20-Income Statement Debit Credit Cash Accounts Receivable Merchandise Inventory Store Supplies Office Supplies Prepaid Insurance Store Equipment Accum. Dep. - Store Equip. Office Equipment Accum. Dep. - Office Equip. Accounts Payable Notes Payable(due 5 years) R. Andrew, Capital R. Andrew, Drawing Income Summary Sales Sales Returns and Allow. Purchases Purchase Discounts Purchase Returns and Allow. Sales Salary Expense Office Salary Expense Store Supplies Expense Office Supplies Expense Insurance Expense Dep. Exp-Store Equip. Dep. Exp.-Office Equip. Net Income 10,500 5,210 77,000 Balance Sheet Debit Credit 12,000 23,000 8,400 1,600 850 420 56,000 23,000 12,000 6,540 6,500 23,000 58,840 6,500 8,400 135,200 1,400 16,000 12,000 3,800 2,600 4,500 6,000 4,500 142,110 145,000 120,770 117,880 2,890 145,000 145,000 120,770 2,890 120,770 16-4