40·The basic purpose of generally accepted accounting principles is to: Minimize

Question

40·The basic purpose of generally accepted accounting principles is to: Minimize the possibility of a business becoming insolvent. Provide a framework for financial reporting that is understood by both the preparers and the users of financial statements Ensure that financial statements include the type of information that is best suited to every type of business decision. A) B) C) D) Eliminate the need for professional judgment in preparing financial statements 41. If current assets are $70,000 and current liabilities are $50,000, the current ratio will be: A) 71%. $20,000. B) D) $120,000 Use the following to answer questions 42-43: Michael uses a periodic inventory system and the following information is available: Sales Inventory-Be L$43,400 11,200 9,800 32, 42. Calculate the cost of goods sold: A) 9,800. B) $33,600. C) $32,200. D) $43,400. 43. Calculate the gross profit. A) $ 9,800 B) $33,600 C) $32,200 D) $43,400 44 The closing entry for an expense account would A) Debit Income Summary and credit the expense and credit Income Snman B) Debit the ex C) Credit Retained Earmings and debit the es D) Credit Revenue and debit the expense

Explanation / Answer

40 Accounting principle is used to provide the framework of financial reporting That is useful to both preparer and user of financial statement Correct answer is B 41 Current ratio = current asset / current liability Current asset 70000 Current liability 50000 Current ratio 1.4 So correct answer is C 42 Inventory beginning 11200 Add Purchases 32200 Total 43400 Less Inventory ending 9800 Cost of goods sold 33600 Correct answer is B 43 Sales revenue 43400 Less Cost of goods sold 33600 Gross profit 9800 Correct answer is A 44 Closing entry for expense Income summary debit             Expense   Credit Correct answer is A

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