Chapter 7 test

Question 1

any persons or groups who will be affected by an action

Answer 1

stakeholders

Question 2

the percentage relationship between on financial statement item and the total that includes that item

Answer 2

Component percentage

Question 3

net income=

Answer 3

total revenue - total expenses

Question 4

current capital=
(net income)

Answer 4

capital account balance + net income - drawing account balance

Question 5

current capital=
(net loss)

Answer 5

capital account balance - net loss - drawing account balance

Question 6

total expenses component percentage=

Answer 6

total revenue / total sales

Question 7

net income component percentage=

Answer 7

net income / total sales

Question 8

The adequate disclosure accounting concept is applied when financial statements contain all information necessary to understand a business’s financial condition

Answer 8

true

Question 9

stakeholders are any persons or groups who will be affected by an action

Answer 9

true

Question 10

an income statement reports information over a period of time, indicating the financial progress of a business in earning a net income or a net loss

Answer 10

true

Question 11

the matching expenses with revenue accounting concept is applied when the revenue earned and the expenses incurred to that revenue are reported in the same fiscal period

Answer 11

true

Question 12

information needed to prepare an income statement comes from the trial balance columns and the income statement columns of a worksheet

Answer 12

false

Question 13

the income statement for a service business has five sections: heading, revenue, expenses, net income or net loss, and capital

Answer 13

false

Question 14

the income statement’s account balances are obtained from the work sheet’s income statement columns

Answer 14

true

Question 15

the net income on an income statement is verified by checking the balance sheet

Answer 15

false

Question 16

a component percentage is the percentage relationship between one financial statement and the total that includes that item

Answer 16

true

Question 17

component percentages on an income statement are usually calculated by dividing sales and total expenses by net income

Answer 17

false

Question 18

all companies should have a total expenses component percentage that is not more than 80%

Answer 18

false

Question 19

when a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue

Answer 19

false

Question 20

an amount written in parentheses on a financial statement indicates an estimate

Answer 20

false

Question 21

a balance sheet reports financial information on a specific date and includes the assets, liabilities and owner’s equity

Answer 21

true

Question 22

a balance sheet reports information about the elements of the accounting equation

Answer 22

true

Question 23

the owner’s capital amount reported on a balance sheet is calculated as: capital account balance plus drawing account balance, less net income

Answer 23

false

Question 24

the position of the total asset line on the balance sheet is determined after the equities section is prepared

Answer 24

true

Question 25

double lines are ruled across the balance sheet columns to show that the column totals have been verified as correct

Answer 25

true

Question 26

the owner’s equity section of a balance may report different kinds of details about owner’s equity, depending on the need of the business

Answer 26

true

Question 27

the date on a monthly income statement prepared on July 31 is written as

Answer 27

For Month Ended July 31, 20–

Question 28

information needed to prepare an income statement’s revenue section is obtained from a work sheet’s Account Title column and

Answer 28

income statement credit column

Question 29

information needed to prepare an income statement’s expense section is obtained from a work sheet’s account title column

Answer 29

income statement debit column

Question 30

the amount of net income calculated on an income statement is correct if

Answer 30

it is the same as the net income shown on the work sheet

Question 31

the formula for calculating the net income component percentage is

Answer 31

net income divided by total sales equals net income component percentage