Accounting Chapter 15

Beginning merchandise inventory less purchases made during the fiscal period plus ending inventory equals cost of merchandise sold.

False

Data needed to prepare the liabilities section of a balance sheet are obtained from a work sheet's Balance Sheet Debit column.

False

Dividends Payable is a long-term liability.

False

Every amount on a financial statement is accompanied by a related description.

False

For a merchandising business, every sales dollar reported on the income statement includes only three components: gross profit on sales, total expenses, and net income.

False

If a company has determined that the acceptable component percentage for cost of merchandise sold is not more than 51.1%, the current year's actual component percentage of 48.9% is unacceptable.

False

In the preparation of financial statements, accounting principles are applied differently from one fiscal period to the next.

False

Low price-earnings ratios are typically associated with high growth companies/

False

Most businesses correct an unacceptable component percentage for gross profit by simply increasing the markup on merchandise purchased for sale because an increased selling price will always increase profit.

False

Net income is shown on the last line of a statement of stockholders' equity.

False

On an income statement, component percentages are calculated by dividing the amount of each component by the amount of expenses.

False

Reporting financial information the same way from one fiscal period to the next is an application of the accounting concept Adequate Disclosure.

False

Reporting financial information the same way from one fiscal period to the next is an application of the accounting concept Adequate Discolsure

False

Revenue less cost of merchandise sold equals net income.

False

When a business's expenses are less than the gross profit on sales, the difference is known as a net loss.

False

A statement of stockholders' equity contains two major sections: (1) capital stock and (2) retained earnings.

True

A statement of stockholders' equity summarizes the changes in owners' equity during a fiscal period.

True

A value assigned to a share of stock and printed on a stock certificate is called par value.

True

An income statement for a merchandising business has three main sections: revenue section, cost of merchandise section, and expenses section.

True

An income statement is used to report a business's financial progress.

True

Calculating a ratio between gross profit on sales and net sales enables management to compare its performance to prior fiscal periods.

True

Cost of merchandise sold is also known as cost of goods sold.

True

Data needed to prepare the liabilities section of a balance sheet are obtained from a work sheet.

True

Earnings per share is calculated by dividing net income after federal income taxes by the number of shares outstanding.

True

Financial statements provide the primary source of information needed by owners and managers to make decisions on the future activity of a business.

True

Increasing sales revenue while keeping cost of merchandise sold the same will increase gross profit on sales.

True

Individual amounts reported on an income statement have little meaning without being compared to another amount.

True

One way a business determines acceptable component percentages is by making comparisons with prior fiscal periods.

True

Ruled double lines across both amount columns below the Assets section and below the Stockholders' Equity section show that the assets equal liabilities plus owners' equity.

True

Some income may be distributed as dividends to provide stockholders with a return on their investments.

True

Some management decisions can best be made after the amount of assets, liabilities, and stockholders' equity in the business is determined.

True

The amount in the capital stock section of the statement of stockholders' equity are obtained from the general ledger account, Capital Stock.

True

The beginning balance of the capital stock account is the amount of capital stock issued at the beginning of the year.

True

Total expenses on an income statement are deducted from the gross profit on sales to find net income before federal income tax.

True

Total expenses on an income statement are deducted from the gross profit on sales to find net income.

True

When more detailed information about an item on a financial statement is needed, a supporting schedule may be prepared.

True

Preparing financial statements that provide information about a business's financial condition, changes in this financial condition, and the progress of operations is an application of the accounting concept _____. a. Matching Expenses with Revenue b. Adequate Disclosure c. Consistent Reporting d. Historical Cost

b. Adequate Disclosure

A financial statement that reports the amount of dividends is _____. a. a balance sheet b. a statement of stockholders' equity c. an income statement d. none of the above

b. a statement of stockholders' equity

One way to improve an unacceptable component percentage for cost of merchandise sold is _____. a. to increase selling prices b. to purchase from different vendors who offer better prices c. to sell more merchandise d. none of these

b. to purchase from different vendors who offer better prices

One way to increase gross profit on sales is to _____. a. decrease sales revenue b. decrease expenses c. increase sales revenue d. increase cost of merchandise sold

c. increase sales revenue

The earnings per share of a corporation cannot be compared to _____. a. the market price of the stock b. management's estimate of earnings per share c. industry standards d. last year's earnings per share

c. industry standards

the original price of all merchandise sold during a fiscal period

cost of merchandise sold

liabilities due within a short time, usually within a year

current liabilities

The total original price of all merchandise sold during a fiscal period is called _____. a. the cost of merchandise sold b. the cost of sales c. the cost of goods sold d. all of these

d. all of these

The revenue remaining after cost of merchandise sold has been deducted is _____. a. cost of merchandise sold b. net sales c. total sales d. gross profit on sales

d. gross profit on sales

the amount of net income after federal income tax belonging to a single share of stock

earnings per share

a comparison between two items of financial information

financial ratio

the revenue remaining after cost of merchandise sold has been deducted

gross profit on sales

liabilities owed for more than a year

long-term liabilities

total sales less sales discount and sales returns and allownaces

net sales

a value assigned to a share of stock and printed on the stock certificate

par value

the relationship between the market value per share and earnings per share of a stock

price-earnings ratio

a financial statement that shows changes in a corporation's ownership for a fiscal period

statement of stockholders' equity

a report prepared to give more details about an item on a principal financial statement

supporting schedule