Question

1.

Tuna Co. purchased a building in 2018 for $650,000 and debited an asset called "Buildings" for the entire amount. The company never depreciated the building although it had a useful life of 15 years. At the end of 2018, this action will cause:

Select one:

a. Net income to be understated.

b. Net income to be overstated.

c. Net income will not be affected.

d. Total assets will be understated.

2.

The closing entry for an expense account would consist of a:

Select one:

a. Debit to Income Summary and a credit to the expense account.

b. Debit to the expense account and a credit to Income Summary.

c. Credit to Retained Earnings and a debit to the expense account.

d. Credit to Revenue and a debit to the expense account.

3.

Sales discounts and allowances:

Select one:

a. Will reduce net profit when properly recorded.

b. Will increase net profit when properly recorded.

c. Will not affect net profit.

d. Are always immaterial and need not be recorded.

4.

Which of the following appears in the income statement of a merchandising business, but not in the income statement of a business that renders only services?

Select one:

a. Interest revenue

b. Gross profit

c. Advertising expense

d. Income tax expense

5.

The following information is available:

Sales	$	2,850
Inventory-year-end	$	1,500
Purchases	$	1,950
Cost of Goods Sold	$	2,400

Gross profit is:

Select one:

a. $0.

b. $1,500.

c. $450.

d. $900.

Answer 1

1) Net Income over stated

2) Debit income summary and credit a credit to the expenses account

3) Will reduce net profit when properly recorded

4) Gross profit

5) $0

Proof :

Gross profit = Net sales - Cost of goods sold

Cost of goods sold = (purchases + Cost of goods sold) - Inventory year ended

                            = (1,950 + 2,400) - 1,500

Cost of goods sold = 4350 - 1500 = $2,850

Net Sales = $2,850

Gross profit = $2,850 - $2,850 = $0