TRUE/FALSE QUESTIONS
10. Accumulated depreciation is a liability.
False
51. When no-par stock is recorded, no journal entry can be made to record the authorized issue.
True
54. When no-par stock is issued, it may be recorded by crediting the capital stock account with the entire
True
55. Merchandise turnover is the ratio of cost of goods sold to average inventory.
True
56. Accumulated depreciation is a valuation account.
True
57. Dividends should be paid only out of earnings.
True
58. The pledging of an asset as security for a loan should be indicated in the balance sheet by a footnote.
True
59. Interest prepaid on notes receivable is deferred income.
True
9. Inventory is considered a current asset.
True
59. Interest prepaid on notes receivable is deferred income.
tRUE
12. A corporation does not have the right under the law to declare a dividend unless it has sufficient cash with which to pay it.
False
13. Bonds payable is considered a current liability.
False
20. Extraneous profits should be credited to retained earnings.
False
22. voting power is never granted to preferred stock.
False
I5. Preferred stock cannot be issued in no-par form.
False
II. Preferred stock is usually nonparticipating.
False
1. Capital is increased by income.
TRUE
Question
Answer
I. Of the following taxes, the one that is levied most nearly according to ability to pay is a(n) (A) excise tax. (B) income tax. (C) general property tax. (D) sales tax.
B. income tax
23. In the event that a partnership is incorporated, the assets should be taken over by the corporation at the same values at which they have been carried on the partnership books.
False
24. It is best to show in a footnote on the balance sheet the amount of dividends in arrears on all classes of preferred stock.
False
25. Treasury stock is stock that has not been subscribed for.
False
27. In such case where the asset values of a corporation are to be adjusted, the adjusting entries should be made on the books of the corporation.
False
29. Usury is any interest rate over 6%.
False
3. Cumulative preferred dividends in arrears should be shown as a liability on The balance sheet
False
31. Depreciation is caused by income tax regulations.
False
33. An entirely new set of books should be opened by a partnership business at the time of its incorporation.
False
34. A perpetual inventory is maintained to avoid the expense of an annual physical inventory.
False
35. A time draft is a loan that may be called at any time.
False
36. Stock that has not been issued may be sold at a discount without the imposition of any discount liability on the purchaser.
False
41. The valuation accounts at the end of a period should be closed against the accounts against which they are valued/
False
42. All the stock that is owned by a corporation may be shown in its balance sheet as treasury stock.
False
43. Land is an intangible asset
False
49. A post-closing trial balance proves that the closing entries have been correctly made.
False
5. Loss and expense are synonymous.
False
52. Interest prepaid on notes payable is an accrued expense.
False
53. Special columns are often put into the books of original entry in order to save time in journalizing.
False
6. Merchandise inventory should be valued at market value price.
False
7. Discount in stock should be written off over the life of the stock.
False
8. Unrealized profits, which result from mere book earnings. entries writing up assets, should most properly be credited to capital surplus.
False
14. Notes received discounted should be shown in the balance sheet as a subtraction from an asset.
True
16. The balance sheet should most properly include among the liabilities all declared dividends, payable in cash, provided that notice of the declaration has been made to the stockholders.
True
17. Bonds payable is not treated as a fixed asset.
True
18. The excess received on a sale of a bond over its par value is known as premium on bonds.
True
19. Treasury stock should be shown in the balance sheet as a deduction from capital stock outstanding.
True
2. Current ratio is the ratio of total current assets to total current liabilities. I
True
21. Reserve for income taxes is a current liability
True
26. The allowance for doubtful accounts should be set up by a study of past experience.
True
28. Bond discount should be amortized over the life of the bonds.
True
30. The resulting increase or decrease in net worth, which is realized when asset values are adjusted on partnership books, should be divided among the partners in the profit and loss ratio.
True
32. Interest accrued on bonds owned should be shown as a current asset.
True
37. Prepaid expenses are always assets.
True
38. Excess provision for depreciation results in an understatement of net income.
True
39. No discount liability need be imposed on the purchaser when treasury stock is sold to him at a discount.
True
4. Operating profits should be credited to retained earnings.
True
40. Prepaid insurance, prepaid rent, and prepaid taxes were once considered "deferred charges."
True
44. The increase in value of fixed assets due to unpredictable events, such as shortage caused by economic conditions, is known as appreciation.
True
45. There is not a "necessary relation between the par value and the real value of a stock share.
True
46. A patent is an intangible asset.
True
47. Obsolescence is the loss in value of fixed assets due to the invention of more modem devices.
True
48. An individual purchasing no-par value stock cannot be held liable for discount on stock.
True
50. During construction, interest paid on money borrowed may be capitalized.
True
