TRUE/FALSE QUESTIONS

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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


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