ACC ch. 6 practice questions

Which of the following is not a true statement about a multiple-step income statement? a. Operating expenses do not include income tax expense. b. There may be a section for non-operating activities. c. There may be a section for operating assets. d. There is a section for cost of goods sold.

c. There may be a section for operating assets.

Assume that sales revenue is $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. Assume there are no other revenues, other expenses, or income tax expense. How much are gross profit and operating expenses, respectively? a. $130,000 and $85,000 b. $120,000 and $85,000 c. $130,000 and $95,000 d. $120,000 and $95,000

b. $120,000 and $85,000

What type of receivables result from sales transactions? a. Non-trade receivables b. Other receivables c. Trade receivables d. Long-term receivables

c. Trade receivables

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. Assume there are no other revenues, other expenses, or income tax expense. How much is cost of goods sold? a. $60,000 b. $40,000 c. $35,000 d. $15,00

b. $40,000

Which of the following would appear on both a single-step and a multiple-step income statement? a. Gross profit b. Cost of goods sold c. Income from operations d. Other expenses and losses

b. Cost of goods sold

At what value are accounts receivable reported on the balance sheet? a. Fair market value b. Present value c. Cash realizable value d. Maturity value

c. Cash realizable value

What type of accounts are Sales Returns and Allowances and Sales Discounts? a. Contra asset accounts b. Expense accounts c. Contra revenue accounts d. Contra expense accounts

c. Contra revenue accounts

The operating expenses section of an income statement for a merchandising company would not include a. Freight-out. b. Utilities expense. c. Cost of goods sold. d. Insurance expense.

c. Cost of goods sold.

Multiple-step income statements show a. gross profit but not income from operations. b. neither gross profit nor income from operations. c. both income from operations and gross profit. d. income from operations but not gross profit.

c. both income from operations and gross profit.

Which of the following is classified in an income statement as a non-operating activity? a. Sales returns and allowances b. Cost of goods sold c. Advertising expense d. Interest expense

d. Interest expense

Which one of the following will result in gross profit? a. Net sales less operating expenses b. Operating expenses less cost of goods sold c. Operating expenses less net income d. Net sales less cost of goods sold

d. Net sales less cost of goods sold

Which of the following is classified in an income statement as a non-operating activity? a. Returning merchandise b. Paying employee salaries c. Paying for a purchase of inventory d. Receiving dividend revenue from an investment

d. Receiving dividend revenue from an investment

if a company uses the allowance method for uncollectible accounts, a write-off of $800 will a. increase Bad Debts Expense by $800. b. increase Allowance for Doubtful Accounts by $800. c. decrease Bad Debts Expense by $800. d. decrease Allowance for Doubtful Accounts by $800.

d. decrease Allowance for Doubtful Accounts by $800.

true/false Accounts receivable are one of a company's least liquid assets.

false

true/false Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from Net Sales.

false

true/false Nonoperating activities include revenues and expenses that are related to the company's main line of operations.

false

true/false Operating expenses include interest expense and income tax expense.

false

true/false Receivables are reported on the balance sheet at the cash amount owed by customers.

false

true/false The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

false

true/false When the allowance method is used, the write-off of an account receivable results in an expense at the time of write-off.

false

true/false When using the allowance method bad debt expense is recorded when an individual customer defaults

false

true/false A merchandising company's net income is determined by subtracting operating expenses from gross profit.

true

true/false Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the balance sheet.

true

true/false Bad debt losses are a cost of selling on credit.

true

true/false Gross profit is the difference between net sales and cost of goods sold.

true

true/false Sales revenues, cost of goods sold, and gross profit are amounts on a merchandising company's income statement not commonly found on the income statement of a service company.

true

true/false The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income.

true

true/false Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.

true

true/false Under the accounts receivable aging method, the balance in Allowance for Doubtful Accounts must be considered carefully prior to adjusting for estimated uncollectible accounts.

true

true/false Under the allowance method, the write off of an account receivable leaves the cash realizable value of the receivables unchanged.

true

true/false both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

true

true/false freight-out appears as an operating expense in the income statement.

true

Sales revenue totals $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. How much is net sales? a. $8,500 b. $11,500 c. $10,500 d. $10,000

a. $8,500

If net sales totals $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, how much is the gross profit? Assume there are no other revenues, other expenses, or income tax expense. a. $90,000 b. $340,000 c. $30,000 d. $400,000

a. $90,000

Income from operations is gross profit less1. operating expenses and other expenses and losses.2. operating expenses plus other revenues and gains.3. operating expenses. a. 3 b. 2 c. both 1 and 2 d. 1

a. 3

Interest expense would be classified on a multiple-step income statement under the heading a. Other expenses and losses. b. Other revenues and gains. c. Operating expenses. d. Cost of goods sold.

a. Other expenses and losses.

Which of the following will be shown on the income statement for a merchandising company? a. Gross profit. b. Cost of goods sold. c. A sales revenue section. d. All of the answer choices are correct.

d. All of the answer choices are correct.

The sales section of an income statement for a retailer would not include a. Sales discounts. b. Sales revenue. c. Net sales. d. Cost of goods sold.

d. Cost of goods sold.

What is the term applied to the excess of net sales over the cost of goods sold? a. Income before income taxes b. Income from operations c. Net income d. Gross profit

d. Gross profit