True or False 1.In the preparation of financial statements, accounting principles are applied differently from one fiscal period to the next.

2. Dividends Payable is a long-term liability.

3. Every amount on a financial statement is accompanied by a related description.

4. Management uses gross profit as a measure for how effectively the business is performing in its primary functions of buying and selling merchandise.

5. Data needed to prepare the Liabilities section of a balance sheet are obtained from the Debit column of an adjusted trial balance.

6. The difference between an assets account balance and its related contra account balance is known as its book value.

7. The amount of dividends paid during the year is presented on the income statement.

9. Some management decisions can best be made after the amount of assets, liabilities, and stockholders equity in the business is determined.

10. Interest income is reported on the income statement in a section labeled Other Revenue.

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

12. Operating revenue less cost of merchandise sold equals net income.

13. Total operating expenses on an income statement are deducted from gross profit to find income from operations.

14. When a businesss expenses are less than the gross profit, the difference is known as a net loss.

15. Increasing sales revenue while keeping cost of merchandise sold the same will increase gross profit.

16. All the information required to prepare a statement of stockholders equity is obtained from the income statement and the adjusted trial balance.

17. When more detailed information about an item on a financial statement is needed, a supporting schedule may be prepared.

18. A statement of stockholders equity summarizes the changes in owners equity during a fiscal period.

19. Interest earned on notes receivable is reported in the Operating Revenue section of an income statement.

20. Beginning merchandise inventory less purchases made during the fiscal period plus ending inventory equals cost of merchandise sold.

21. On an income statement, vertical analysis percentages are calculated by dividing the amount on each line by the amount of operating expenses.

Multiple choice:

1. The operating revenue remaining after cost of merchandise sold has been deducted is (A) gross profit. (B) cost of merchandise sold. (C) net sales. (D) total sales.
2. The income from operations is calculated by subtracting operating expenses from (A) revenue. (B) net sales. (C) gross profit. (D) cost of merchandise sold.
3. One way to increase gross profit is to (A) decrease operating expenses. (B) decrease sales revenue. (C) increase sales revenue. (D) increase cost of merchandise sold.
4. A financial statement that reports the amount of dividends is (A) an income statement. (B) a balance sheet. (C) a statement of stockholders equity. (D) none of these.
5. The financial statement that reports the par value of the stock is (A) an income statement. (B) a balance sheet. (C) a statement of stockholders equity. (D) none of these.
6. The total original price of all merchandise sold during a fiscal period is called (A) the cost of merchandise sold. (B) the cost of goods sold. (C) the cost of sales. (D) all of these.
7. Preparing financial statements that provide information about a businesss financial condition, changes in this financial condition, and the progress of operations is an application of the accounting concept (A) Consistent Reporting. (B) Adequate Disclosure. (C) Historical Cost. (D) Matching Expenses with Revenue.
8. In the accounting cycle, closing entries are journalized and posted (A) after adjusting entries are posted to the general ledger. (B) after the adjusted trial balance is prepared. (C) after the financial statements are prepared. (D) before the adjusted trial balance is prepared.