Question

select true or false for each of the following statements.

1. interest income is recorded only if a note receivable is collected.
2. preparing the general ledger for the next fiscal period is an application of the business entity accounting concept.
3. the closing entry for income statement accounts with debit balances closes only the expense accounts.
4. a temporary account is closed by transferring its balance out of the account.
5. the book value of accounts receivable at year end is an estimate of the amount of accounts receivable the business expects to collect during the next fiscal year.
6. the amount of dividends declared during the year is presented on the income statement.
7. the purpose of the post - closing trial balance is to prove the general ledger equality of debits and credits.
8. increasing operating revenue while keeping cost of merchandise sold the same will increase gross profit.
9. alpha company’s benchmark total operating expense ratio is between 28.0% and 30.0%. a decline in its operating expense ratio from 32.1% to 30.8% is a favorable trend.
10. the column totals of an employee earnings record provide the debit and credit amounts needed to journalize a payroll.
11. a corporation having a net income before federal income tax of $190,000.00 will pay a higher rate of tax than a company having $40,000.00 of net income before federal income tax.
12. a company having earnings per share of $14.50 is always more profitable than a company having earnings per share of $3.25.
13. income stocks typically have a higher dividend yield than growth stocks.
14. investors are willing to pay a higher price - earnings ratio for growth stocks than for income stocks.
15. a corporation has the legal rights of a person.

Explanation:

1. Interest income is recorded when it is earned, not just when the note receivable is collected, so it's False.
2. Preparing the general - ledger for the next fiscal period is related to the accounting cycle, not the Business Entity concept, so it's False.
3. Closing entries for income statement accounts with debit balances close expense accounts and other debit - balance income statement accounts like cost of goods sold, so it's False.
4. Temporary accounts are closed by transferring their balances out to a permanent account (like retained earnings for a corporation), so it's True.
5. The book value of accounts receivable at year - end is net of the allowance for doubtful accounts and is an estimate of the collectible amount, so it's True.
6. Dividends declared are shown on the statement of retained earnings, not the income statement, so it's False.
7. The post - closing trial balance is used to prove the equality of debits and credits in the general ledger after closing entries are made, so it's True.
8. Gross profit = Operating revenue - Cost of merchandise sold. Increasing revenue while keeping cost of goods sold the same increases gross profit, so it's True.
9. Alpha Company's benchmark is 28.0% - 30.0% and the ratio declined from 32.1% to 30.8%, moving closer to the benchmark, so it's a favorable trend, True.
10. The column totals of an employee earnings record provide the debit and credit amounts for payroll journalization, so it's True.
11. In a progressive tax system, a corporation with higher pre - tax income generally pays a higher tax rate, so it's True.
12. Earnings per share doesn't fully represent overall profitability as it depends on the number of shares outstanding. A company with a lower EPS could have higher overall profit if it has more shares, so it's False.
13. Income stocks are known for higher dividend yields compared to growth stocks, so it's True.
14. Growth stocks are expected to have higher future growth, so investors are willing to pay a higher P/E ratio, so it's True.
15. A corporation has many of the legal rights of a person, so it's True.

Answer:

1. False
2. False
3. False
4. True
5. True
6. False
7. True
8. True
9. True
10. True
11. True
12. False
13. True
14. True
15. True