1. Which of the following accounts does not normally have a debit balance?

1. Accumulated depreciation
2. Prepaid insurance
3. Accounts receivable
4. Inventory
5. All of the above normally have a debit balance.

2. Your company orders and receives goods in January, pays for them in February, sells them in March and is paid by customers in April. Using the accrual basis of accounting:

1. Asset accounts are affected in January and March, but not in February and April.
2. Expenses are recorded in February and revenues are recorded in April.
3. Asset accounts are affected in February and April, but not in January and March.
4. Income statement accounts are affected in March.
5. None of the above is correct.

3. Before journal entries are prepared to close revenues, expenses, and dividends declared, the retained earnings balance in the adjusted trial balance is equal to:

1. The balance of retained earnings at the beginning of the year.
2. The balance of retained earnings after adding revenues and deducting expenses but before deducting dividends.
3. The balance of retained earnings at the end of the year.
4. The balance of retained earnings at the beginning of the following year.
5. None of the above.

4. During 2020, Star Companys gross profit increased compared to 2019, while its net sales revenue and net income remain unchanged. Which of the following statements is true?

1. Return on Equity will remain unchanged.
2. Gross profit as a percentage of sales will be lower.
3. Cost of goods sold as a percentage of sales will be lower.
4. All of the above statements are true.
5. None of the above statements is true.