Chapter 3
Understanding Financial Statement
IV. Multiple Choices
17. Which group of items would most
likely be included in the other assets
account on the balance sheet?
a. Land held for investment, start-up
costs, and long-term prepayments.
b. Inventories, marketable securities,
bonds.
c. One-year prepaid insurance policy,
stock investments, copyrights.
d. Inventories, franchies, patents.
18. What is the differeance between
notes payable – banks and current
maturities of long-term debt?
a. There is no difference.
b. Notes payable – banks are short-term
obligations, while current maturities of
long-term are the portio of long-term
debt that will be prepaid during the
upcoming year.
c. Notes payable- banks are usually
included under current liabilities, and
current maturities of long-term debt are
included under long-term debt.
d. Notes payable- banks are long-term
liabilities, and current maturities of long-
term debt are current liabilities.
19. Companies A, B, C :
A B
Inventories 90,000 120,000
Property, P & E 75,000 30,000
Total Assets 300,000 300,000
Which company is most likely a retailer?
a wholesaler? a manufacturer?
Company A Company B Company C
a. Wholesaler Manufacturer Retailer
b. Retailer Wholesaler Manufacturer
c. Manufacturer Wholesaler Retailer
d. Manufacturer Retailer Wholesaler
20. Which if the following items coyld
cause the recognition of accrued
liabilities?
a. Sales, taxes, iterest income.
b. Sales, interest expense, rent.
c. Salaries, rent, insurance.
d. Salaries, interest expense, interest
income.
21. Which of the items below need not
be disclosed separately in the income
statement?
a. Selling a major business segment.
b. Salary expense.
c. Extraodinary transactions.
d. Cumulative effect of changes in
accounting principles.
22. What does the income statement
measure for a firm?
C
180,000 a. The financing and investment
45,000 activities for a period.
300,000 b. The changes in assets and liabilities
that occurred during a pepriod.
c. The results of operations for a period.
d. The financial position of a firm for a
period.

23. Which two financial statements are

frequently combined for presentation
purposes?

a. The income and retained earnings

statements.
b. The statement of financial position
and the balance sheet.
c. The statement of cash flows and the
retained earnings statement.
d. The balance sheet and the income
statement.

24. What are three profit measures

calculated from the income statement?

a. Gross profit margin, cost of goods sold

percentage, EBIT.
b. Gross profit margin, operating profit
margin, net profit margin.
c. Operating profit margin, net profit
margin, repairs and maintenance to fixed
assets.
d. None of the above.