Multiple Choice Questions
1. Which of the following is expensed under the principle of systematic and rational allocation?
a. Salespeople’s monthly salaries
b. Insurance premiums
c. Transportation to customers
d. Electricity to light office building
2. The following information is available for Cooke Company for the current year:
Net sales....... $1,800,000
Freight-in ....... 45,000
Purchase discounts .... 25,000
Ending inventory .... 120,000
The gross margin is 40% of net sales. What is the cost of goods available for sale?
a. $840,000
b. $960,000
c. $1,200,000
d. $1,220,000
3. The following information is available for Wagner Corporation for the current year:
Sales ......... $500,000
Beginning inventory ... 180,000
Ending inventory ..... 95,000
Advertising ........ 45,000
Purchases ........ 215,000
How much is the cost of goods sold?
a. $200,000
b. $300,000
c. $345,000
d. $440,000
4. Dobbin Corporation, a manufacturer of house-hold paints, is preparing annual financial statements at year end. Because of a recently proven health hazard in one of its paints, the government required Dobbin to recall all cans of this paint sold in the last 6 months. The management of Dobbin estimates that this recall cost $1,000,000. What accounting recognition, if any, should be accorded this situation?
a. No recognition
b. Footnote disclosure
c. Operating expense of $1,000,000
d. Liability of $1,000,000
5. A loss from the sale of a component of a business enterprise is reported separately as a component of income:
a. After income from continuing operations
b. In income from continuing operations
c. After income tax expense
d. Before income from continuing operations
6. In a statement of cash flows, receipts from sales of property, plant, and equipment generally are classified as:
a. Investing activities
b. Selling activities
c. Operating activities
d. Financing activities