31. Operating income is:
A. A measure of profitability after deducting cost of sales from net sales.
B. A measure of profitability after deducting cost of sales and all expenses incurred in operating the business from net sales.
C. A measure of liquidity after deducting cost of sales from net sales.
D. The equivalent of net sales.
32. Sales discounts and allowances:
A. When properly recorded will reduce net profit.
B. When properly recorded will increase net profit.
C. Will not affect net profit.
D. Are always immaterial and need not be recorded.
33. A lower level employee who is asked to participate in an accounting fraud:
A. Cannot be held accountable since he or she just followed orders.
B. May be terminated from their position if they fail to participate in the fraud.
C. May be afforded some protection by the Sarbanes Oxley Act.
D. Has nothing to fear since no lower level employee is ever asked to participate in a fraud.
34. The Cost of Goods Sold account is closed by
A. Debiting Cost of Goods Sold and crediting Income Summary
B. Debiting Cost of Goods Sold and crediting Retained Earnings
C. Debiting Income Summary and crediting Cost of Goods Sold
D. Debiting Retained Earnings and crediting Cost of Goods Sold
35. Merchandising companies that are small and do not use a perpetual inventory system may elect to use:
A. A physical inventory system
B. A periodic inventory system
C. An inventory shrinkage method
D. An inventory subsidiary ledger system.
36. Which of the following would not tend to make a manufacturer choose a perpetual inventory system?
A. Management wants information about quantities of specific products
B. A low volume of sales transactions and a computerized accounting system
C. A high volume of sales transactions and a manual accounting system
D. Items in inventory with high per unit costs
37. Which of the following should not be classified as inventory in the balance sheet of a large automobile dealership?
A. Pickup trucks offered for sale.
B. Used cars taken in trade and offered for sale on the company's used-car lot.
C. Spark plugs, oil filters, and other parts which are intended for use by the service department in repairing and servicing customers' cars.
D. "Company cars" provided to specific company executives for their personal use.
38. Which of the following factors would suggest the use of a perpetual inventory system?
A. A small company.
B. A high volume of many different, low-cost items.
C. Neither a or b.
D. Both a and b.
39. Which of the following businesses is likely to have the shortest operating cycle?
A. A food store.
B. A department store.
C. An art store.
D. A car store.
40. Which of the following companies would be more likely to use a periodic inventory system?
A. IBM
B. 1stBank of New York
C. Sears
D. A newspaper stand