Accounting: test 15.10

How is the price-earnings ratio calculated?

Market price per share divided by the earnings per share

How is the earnings per share calculated?

Net income after federal income tax divided by the number of shares outstanding

A corporation's balance sheet reports assets, liabilities, and stockholders' equity on a specific date.

True

A major difference between balance sheets of a corporation and a proprietorship is the owners' equity section.

True

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

True

A supporting schedule is sometimes referred to as an exhibit.

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

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

True

Information from a completed work sheet is used to prepare the income statement.

True

Revenue remaining after cost of merchandise sold has been deducted is called gross profit on sales.

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

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

True

The total amount of stockholders' equity is shown on the last line of a statement of stockholders' equity.

True

Acceptable component percentages should be determined ____.

based on industry standards and comparisons with prior fiscal periods

To prepare the corporation's balance sheet, use the information from ____.

both A and B

For a merchandising business, every sales dollar reported on the income statement includes ____.

cost of merchandise sold, gross profit on sales, total expenses, and net income before income tax

The amount of net income after federal income tax belonging to a single share of stock is called ____.

earnings per share

The revenue remaining after cost of merchandise sold has been deducted is ____.

gross profit on sales

One way to increase gross profit on sales is to ____.

increase sales revenue

Liabilities owed for more than a year are called ____.

long-term liabilities

Total sales less sales discount and sales returns and allowances is called ____.

net sales

Cost of merchandise sold is found by taking the amount of beginning merchandise inventory ____.

plus purchases less ending inventory

The relationship between the market value per share and earnings per share of a stock is called the ____.

price-earnings ratio

An income statement has three main sections for ____.

revenue, cost of merchandise sold, and expenses

One way to improve an unacceptable component percentage for cost of merchandise sold is ____.

to purchase from different vendors who offer better prices

Recording the total original price of all merchandise sold as the cost of merchandise sold is an application of the accounting concept ____.

Historical Cost

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 ____.

Adequate Disclosure

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

Consistent Reporting

A balance sheet must be prepared in account form only.

False

A business owning both current and plant assets usually lists them under one heading on a balance sheet.

False

A corporation prepares only two financial statements: an income statement and a balance sheet.

False

A supporting schedule is always prepared for principal financial statements.

False

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

False

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

False

For a merchandising business, every sales dollar reported on the income statement includes only two components: 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 percent, the current year's actual component percentage of 48.9 percent is unacceptable.

False

If a company has determined that the acceptable component percentage for gross profit on sales is not less 45.0 percent, the current year's actual component percentage of 48.9 percent is unacceptable.

False

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

False

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

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

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

False

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

False

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

False

A financial statement that reports a corporation's assets, liabilities, and stockholders' equity on a specific date is ____.

a balance sheet

When information about the account balance of each vendor is needed, ____.

a schedule of accounts payable is prepared

A financial statement that summarizes the changes in a corporation's ownership for a fiscal period is ____.

a statement of stockholders' equity

A report prepared to give details about an item on a principal financial statement is ____.

a supporting schedule

An asset's book value is reported on a balance sheet by listing ____.

all of the above

On an income statement, merchandising businesses report ____.

all of the above

The total original price of all merchandise sold during a fiscal period is ____.

all of the above

Sometimes increasing the markup to improve an unacceptable component percentage for gross profit on sales is a bad decision because ____.

an increase in markup may actually cause a decrease in sales revenue