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Fill in the Blanks 14 Items

1The formal income statement uses figures for inventory.

2. The gross profit figure is found on the worksheet.

3. expenses are related to the selling activity.

4. are related to the administrative function.

5. could be broken down into selling and administrative

expense.

6. The figure for capital is not found on the worksheet.

7. are cash or other assets that will be converted into cash

during the normal operating cycle of the company or one year, whichever is longer.

8 and are long-lived assets used for the

production or sale of other assets or services.

9. Debts or obligations that are to be paid with current asets within one year or one

operating cycle are called .

10. Mortgage Payable is an example of a .

11. Ending merchandise inventory is a .

12. By the adjusting process, the beginning inventory of the period is transferred to

13 The post-closing trial balance contains no accounts.

14. reversing entry involves certain entries.

True or False 15 items

1. Cost of goods sold is the primary difference between a merchandising and a service

business income statement.

2. Debiting income summary and crediting beginning merchandise inventory

eliminates the beginning inventory at the end of the period.

3. Cost of goods sold is a major expense of a merchandising business.

4. Using the nature of expense method of presenting expenses in the income

statement has the advantage of simplicity because no allocation of operating

expenses between functional classifications is necessary.

5. The function of expense method reports gross margin and income from operations.

6. Operating income is not computed in the nature of expense method.

7. Gross margin from sales is the income that the business would have made if all

goods available for sale had been sold during the period.

8. The excess of gross profit over operating expenses is called operating profit.

9. In the worksheet, the ending inventory amount will appear in the income statement

credit column and the balance sheet debit column.

10. The determination of net cost of purchases would include addition of transportation

Out.

11. The traditional balance sheet arrangement of assets on the left-hand side with the

liabilities and owner's equity on the right-hand side is called the report form.

12. Net sales is not ah account name.

13. In the income statement, operating expenses are classified as selling expenses,

administrative expenses and other operating expenses,

14. The sales returns and allowances account has a normal debit balance.

15. The closing entry for transportation in debits purchases and credits income

summary.

True or False 14 items

1 Both Transportations In and Transportation Out accounts are closed by crediting the accounts.

2. On the worksheet of a merchandising entity that uses the perpetual inventory

system, the Merchandise Inventory account balance is not adjusted.

3. When using the perpetual inventory system, the Merchandise Inventory account

will not appear in closing entries.

4. The worksheet of a merchandising entity that uses the perpetual inventory system

will not have a Transportation In account.

5 When preparing a worksheet for a merchandising entity that uses the perpetual

inventory system, the cost of goods sold can be derived from the balances of several

accounts in the Income Statement columns.

6. Under the perpetual inventory system, the ending merchandise inventory balance is

closed at the same time as Cost of Goods Sold.

7. When preparing a worksheet for a merchandising entity that uses the periodic

inventory system, the merchandise inventory amount shown on the trial balance

will be carried over to the Balance Sheet debit column.

8. On the worksheet of a merchandising entity that uses the periodic inventory system,

both Purchases and Purchases Returns and Allowances appear in the Income Statement columns.

9 The Purchases account is closed to the Merchandise Inventory account.

10 The ending inventory amount appears in both income Statement columns on the

worksheet of a merchandising entity that uses the periodic inventory system.

11. Under the periodic inventory system, the merchandise Inventory account appears in the closing entries made at the end of the period.

12. When preparing closing entries under the periodic inventory system, Sales and

Purchases Returns and Allowances are both closed in the same entry.

13. Sales Discounts is a contra-revenue account with a normal credit balance.

14 Purchases Discounts would be recorded as a credit

Multiple Choice