Accounting Chapter 3

b c and d

Identify the main sections on a statement of cash flows. (Check all that apply.) a) Cash flows from borrowing activities b) Cash flows from operating activities c) Cash flows from investing activities d) Cash flows from financing activities e) Cash flows from owner activities

b

If a company incorrectly records a payment as an asset instead of an expense, how will this error affect net income in the current period? a) Net income will not be affected by this error. b) Net income will be too high. c) Net income will be too low.

d

If the journal entry to record services provided to a customer on account was recorded with a debit to Accounts Receivable and a credit to Service Revenue, then the company is using ______ basis accounting a) cash b) investing c) operating d) accrual

a

In May, Sea the World Cruises, Inc. collected $1,000 cash from a customer for services to be performed in June. Which of the following is true assuming accrual accounting? a) $1,000 of revenue should be recorded in June. b) $500 of revenue should be recorded in May and $500 in June. c) $1,000 of revenue should be recorded in May.

b and d

In its first year of business, Wok 'n' Roll, Inc. earned $100,000 of revenues of which $80,000 was collected. It also incurred $90,000 in expenses for which $80,000 was paid. Which of the following statements are correct? (Check all that apply.) a) Wok 'n' Roll should report net income of $20,000 for external reporting purposes. b) Wok 'n' Roll should use accrual basis accounting for external reporting purposes to conform with GAAP and IFRS. c) Wok 'n' Roll should report $0 net income for external reporting purposes. d) Wok 'n' Roll should report net income of $10,000 for external reporting purposes.

a

Income distributed to stockholders are ______ and ______ Retained Earnings a) dividends; decrease b) common stock; increase c) dividends; increase d) net income; increase e) net income; decrease f) common stock; decrease

c

Jackson's Catering provided $3,000 worth of cookies to the local college. The college paid immediately. This transaction is recorded by ______. a) decreasing Cash and increasing Revenue b) increasing Supplies and Revenue c) increasing Cash and Revenue d) increasing Cash and Expenses

a and b

Lord of the Fries, Inc. purchased $1,000 of supplies paying $400 and owing the rest on account. Show the effect of this transaction on the accounting equation. (Select all that apply.) a) total liabilities increase by $600 b) total assets increase by $600 c) total assets increase by $1,000 d) total liabilities decrease by $600 e) total stockholders' equity decreases by $1,000 f) total stockholders' equity decreases by $600

a c and e

Lord of the Fries, Inc. purchased $1,000 of supplies paying $400 and owing the rest on account. The journal entry to record the purchase includes ______. (Select all that apply.) a) credit to Accounts Payable for $600 b) debit to Supplies Expense for $1,000 c) debit to Supplies for $1,000 d) credit to Accounts Receivable for $600 e) credit to Cash for $400

b

Monster Music Company provided music lessons for customers and earned $10,000, receiving $6,000 in cash and recording an accounts receivable for the remainder. What is Monster Music Company's revenue under the cash basis accounting? a) $4,000 b) $6,000 c) $10,000

c

Morris Lest, Inc. received and paid a $500 electric bill in June for services received in May. In which month should Morris Lest record the expense? a) Half in May and half in June b) June c) May

d

Morsels Company provided catering services at a wedding. The bride is billed $4,000 and will pay during the following month. Record this transaction in Morsels' accounting equation by: a) increasing Cash and increasing Revenue b) increasing Accounts Receivable and decreasing Revenue c) increasing Accounts Payable and increasing Revenue d) increasing Accounts Receivable and increasing Revenue

a b c and d

Of the following amounts posted to the Cash account in the general ledger (i.e., the Cash T-account), which of these are operating activities? (Select all that apply.) a) $100,000 credit for payments of supplies b) $90,000 credit for payments to employees c) $30,000 credit for prepaid assets d) $800,000 debit for collections from customers e) $10,000 debit for collections from asset disposals

c

Wages Payable is a(n) ______. a) stockholders' equity account on the balance sheet b) asset on the balance sheet c) liability on the balance sheet d) expense on the income statement

true

True or false: Operating activities are the primary sources of revenue and expenses involved in running a business.

recognition

Under the accrual basis of accounting, the expense ___ principle requires that expenses be deducted on the income statement in the same period as the related revenues.

c

Under which of the following circumstances would cash basis accounting report higher expenses than accrual basis accounting in the current accounting period? a) Cash is paid in the same accounting period as the services were performed b) Cash is paid in the following accounting period of when the services were performed c) Cash is paid in advance of services being provided

d

Unearned Revenue is a(n) ______ and is _____ when cash is collected in advance of being earned. a) liability; debited b) revenue; debited c) asset; credited d) liability; credited e) expense; debited f) revenue; credited

a c b

1) paid for wages incurred during the period 2) adjusted for wages owed during the period 3) paid for wages incurred in the prior period a) debit wages expense and credit cash b) debit wages payable and credit cash c) debit wages expense and credit wages payable Match a b and c in the order 1 2 3:

b

A classified income statement is categorized into ______. a) operating, investing and financing activities b) operating and peripheral activities c) current and noncurrent items d) earned and contributed capital

c

A service company receives a check from a customer as partial payment of his account balance. This transaction does not involve the sale of additional services. How should the entry be recorded? a) Debit Accounts Receivable and credit Cash b) Debit Cash and credit Sales Revenue c) Debit Cash and credit Accounts Receivable

d

ABC Company has the following amounts in its multiple step income statement: revenues of $5,000; operating expenses of $4,000; and income tax expense of $200. What is ABC Company's income from operations? a) $3,800 b) $800 c) $4,000 d) $1,000 e) $1,200 f) $5,000

c

ABC has the following amounts in its multiple step income statement: revenues of $2,898; salaries and wages expenses of $1,645; general and administrative expenses of $465; marketing and sales expenses of $308; income from operations of $480; and income tax expense of $186. The company's total operating expenses equal ______. a) $531 b) $195 c) $2,418 d) $1,645 e) $345

a

Accounts Receivable is ______. a) the amount the company expects to collect for previous credit sales b) always less than the company's cash c) reported on the income statement d) reported in the liabilities section of the balance sheet e) the amount the company expects to pay for previous credit sales

b and c

Accrual accounting results in recording ______. (Check all that apply.) a) expenses when paid regardless of when the service or resource is consumed b) revenues when earned regardless of when collected c) expenses when incurred regardless of when paid d) revenues when collected regardless of when the good or service is delivered

a b c and f

Accrual basis accounting records ______. (Check all that apply.) a) expenses even when cash has not yet been paid b) revenue even when cash has not been collected c) revenue when earned d) revenue only when cash is collected e) expenses only when cash is paid f) expenses when incurred to generate revenue

c

Accruix, Inc. uses accrual basis accounting. Its balance sheets reported Accounts Receivable of $5,000 at the end of its first year of business. Its income statement reported Sales Revenue of $100,000 for its first year. What would Accruix's revenues have been if it had used cash basis accounting? a) $100,000 b) $105,000 c) $95,000

d

Ace Electronics paid $4,000 of the $5,000 its employees had earned during the period. Ace Electronics should report Wages Expense of $5,000 on the income statement and Wages Payable of ______ on the balance sheet prepared in accordance with generally accepted accounting principles. a) $0 b) $5,000 c) $4,000 d) $1,000

a and b

Adjusting entries ______. (Check all that apply.) a) are needed in order to measure the period's net income or loss b) update the accounts to their proper balances c) are required in cash basis accounting only

true

True or false: Net income on the income statement will typically differ from the net operating cash flows on the statement of cash flows.

a and c

Adjusting entries are required before financial statements are prepared to ensure that ______. (Select all that apply.) a) all revenues earned during the period are recorded b) the expenses include only the amounts paid during the period c) all expense incurred during the period are recorded d) revenues earned equals the cash collected from customers during the period

balance

After increases and decreases in an account are recorded, the amount remaining in the account is its ending ___

d

Bakery Company receives its utility bill of $800 for the month and pays it in cash immediately. How would this transaction affect the accounting equation? a) Increase Expenses and increase Cash. b) Increase Cash and increase Accounts Payable. c) Increase Accounts Payable and increase Expenses. d) Increase Expenses and decrease Cash.

c d and f

Bank 'n' Roll, Inc. paid $55,000 to employees who worked this month for $30,000 and last month for $25,000 (recorded last month as a liability in Accrued Expenses Payable). The entry to record the payment includes a ______. (Check all that apply.) a) debit to Cash for $55,000 b) credit to Wages Expense for $30,000 c) debit to Wages Expense for $30,000 d) credit to Cash for $55,000 e) debit to Wages Expense for $55,000 f) debit to Accrued Expenses Payable for $25,000

credited right debited left

Brown Company provided services to a customer and immediately collected $1,900 cash. Show how to record the transaction to the T-accounts by completing the following sentence. Service Revenue would be ___ on the ___ side of the T-account, and Cash would be ___ on the ___ side of the T-account.

a

Cash basis accounting may be used by organizations that ______. a) do not need to report to external users b) are required to follow accrual accounting in accordance with Generally Accepted Accounting Principles c) are large publicly-traded corporations d) collect cash from customers in advance

c

Collecting cash from customers for services provided is a(n) ______ activity. a) investing b) financing c) operating

a c and f

Debits ______. (Check all that apply.) a) increase expense accounts b) increase revenue accounts c) increase asset accounts d) are entered on the right side of a T-account e) increase liability accounts f) are entered on the left side of a T-account

c

During the month of October, Pizza Company paid its employees $16,000 for wages earned in the last week of September and the first week of October. In September, $8,000 had been recorded as a liability in Wages Payable. Which of the following is the correct entry? a) Debit Cash for $8,000 and credit Wages Expense for $8,000 b) Debit Wages Expense for $8,000 and credit Wages Payable for $8,000 c) Debit Wages Payable for $8,000 and Wages Expense for $8,000 and credit Cash for $16,000 d) Debit Wages Expense for $16,000 and credit Cash for $16,000

d and e

On June 1, Pizza Company paid $100 for advertisements to be run on June 1. Pizza Company's entry to record this payment will include a $100 ______. (Check all that apply.) a) decrease in Advertising Expense b) increase in Unearned Advertising c) increase in Prepaid Advertising d) decrease in Cash e) increase in Advertising Expense

a

On May 1, Cut Above, Inc. collected $3,000 in advance from customers to mow their lawns in June. Under cash basis accounting, revenues in May will equal ______. a) $3,000 b) $1,500 c) $0

c and d

On May 10, BC Company ordered $500 of supplies, promising to pay for them in June. The supplies were received and recorded on May 15. BC paid the $500 on June 1. The journal entry that BC makes on June 1 would include a ______. (Check all that apply.) a) debit to Supplies of $500 b) debit to Cash of $500 c) debit to Accounts Payable of $500 d) credit to Cash of $500 e) credit to Accounts Payable of $500

b and e

On May 29, Lox, Stock & Bagel, Inc. received a $100 invoice for advertising run in May. The bill will be paid in June. The entry to record in May includes a $100 _____. (Select all that apply.) a) credit to Prepaid Advertising b) credit to Accounts Payable c) credit to Cash d) debit to Prepaid Advertising e) debit to Advertising Expense

c and d

On May 30, Blade for Blade, Inc. collected $10,000 from customers in advance. In June, it earned $2,000 of the amounts collected in advance. In June, ______. (Select all that apply.) a) Accounts Receivable is increased b) Cash is increased c) Unearned Revenue is decreased d) Revenue is increased e) Accounts Receivable is decreased f) Unearned Revenue is increased

b and d

On May 30, Blade for Blade, Inc. collected $10,000 from customers in advance. In June, it earned $2,000 of the amounts collected in advance. In June, ______. (Select all that apply.) a) Unearned Revenue is increased b) Revenue is increased c) Accounts Receivable is increased d) Unearned Revenue is decreased e) Cash is increased f) Accounts Receivable is decreased

b c d and f

On May 30, The Merchant of Tennis, Inc. collected $1,000 from customers in advance. In June, it earned $600 of the amounts collected in advance. What is the effect of these events on The Merchant of Tennis in May and June? (Select all that apply.) a) Revenue is increased in May b) Unearned Revenue is decreased in June c) Cash is increased in May d) Revenue is increased in June e) Cash is increased in June f) Unearned Revenue is increased in May

b and c

Pastabilities, Inc. paid $5,000 for advertising expenses incurred during the month. The journal entry to record this transaction includes the following ______. (Select all that apply.) a) debit to Cash b) debit to Advertising Expense c) credit to Cash d) debit to Prepaid Advertising e) debit to Accounts Payable f) credit to Advertising Expense

debited left credited right

Pauline Company provided $500 of services to its client, Republic Company and received cash immediately. Show how to record the transaction to the T-accounts of Pauline Company by completing the following sentence. (Enter one word per blank.) Cash would be ___ on the ___ side of the T-account and Services Revenue would be ___ on the ___ side of the T-account.

a and e

Paying cash for an expense incurred in the same period has what affect on the accounting equation? (Select all that apply.) a) assets decrease b) assets increase c) liabilities decrease d) stockholders' equity increase e) stockholders' equity decreases f) liabilities increase

d

Pizza Aroma delivered $500 of pizzas to the local high school, but hasn't received payment yet. Pizza Aroma will report ______. a) Accounts Payable of $500 b) nothing, because payment hasn't been received yet c) Cash of $500, because the school will pay for the pizzas eventually d) Accounts Receivable of $500

c and e

Pizza Company prepaid 3 months' store rent. The journal entry to record this transaction includes a ______. (Check all that apply.) a) debit to Rent Expense b) credit to Rent Expense c) credit to Cash d) debit to Cash e) debit to Prepaid Rent f) credit to Prepaid Rent

cash accounts receivable

Pizza Company sold pizzas on account in May. The journal entry to record the collection of the cash in June will include a debit to ___ and a credit to ___ ___.

a and e

Pizza Company sold pizzas on account. The journal entry to record the sales will include a ______. (Check all that apply.) a) credit to Sales Revenue b) debit to Cash c) credit to Unearned Revenue d) debit to Sales Revenue e) debit to Accounts Receivable f) debit to Accounts Payable

c

Receiving cash from a customer for payment on account for a sale that was recorded previously will ______. a) increase total assets b) increase stockholders' equity c) have no effect on total assets d) decrease total liabilities

cash

Reporting revenues only when cash is received and expenses only when cash is paid is called the ___ basis accounting

c

Revenues ______ stockholders' equity, so revenues are recorded with a ______. a) decrease; credit b) increase; debit c) increase; credit d) decrease; debit

c

Russell's Consulting Services provided $1,000 of services to the local college and immediately collected $700, but the college wants to pay the rest next month. Record this transaction in the accounting equation of Russell by ______. a) decreasing Cash; and increasing both Accounts Receivable and Common Stock b) increasing both Cash and Accounts Receivable; and decreasing Revenues c) increasing both Cash and Accounts Receivable; and increasing Revenues d) increasing Cash and Accounts Payable; and increasing Revenues

true

True or false: A multiple step income statement displays subtotals that indicate multiple steps before reaching net income at the bottom.

a c and d

T-accounts (general ledger) show ______. (Check all that apply.) a) the prior period ending balances as beginning balances for all balance sheet accounts b) the prior period ending balances as beginning balances for all income statement accounts c) the activity for the current period d) beginning balances of zero for all income statement accounts e) beginning balances of zero for all balance sheet accounts

c

The Accounts Payable account is a(n) ______ account. a) asset b) revenue c) liability d) expense

net profit

The ___ ___ margin ratio is calculated by dividing Net Income by Net Sales.

c

The business earns $2,800 cash for services performed. How would this receipt affect the total stockholders' equity of a business? a) Revenues is decreased which causes stockholders' equity to increase. b) Revenue is decreased which causes stockholders' equity to decrease. c) Revenue is increased which causes stockholders' equity to increase. d) There is no affect on total stockholders' equity.

b c d e and f

The five elements of the accounting equation include ______. (Select all five.) a) general journals b) revenues c) stockholders' equity d) liabilities e) expenses f) assets g) general ledgers

c

The net profit margin ratio is calculated by dividing Net Income by ______. a) Average Total Assets b) Total Assets c) Net Sales d) Total Liabilities

a

The trial balance at year end shows ______. a) the ending balance in each T-account b) only increases in T-accounts c) only decreases in T-accounts

investing

These activities are the acquiring and disposing of assets that an organization uses in its business.

operating

These activities are the every day activities that occur in running a business, selling a product or providing a service.

financing

These activities provide the cash needed to pay for resources.

debit increase

To enter transactions on the left side of a T-account means you will ___ the account and will cause a(n) ___ in an asset account.

false

True or false: All expenditures are expenses.

c

When AppGame Company delivers pizza to customers on account and bills its customer accounts, it should record a debit to ______ and a credit to ______. a) Cash; Sales Revenue b) Accounts Payable; Sales Revenue c) Accounts Receivable; Sales Revenue d) Accounts Receivable; Unearned Revenue

c

When Pizza Company delivers pizza to customers and bills its customer accounts, it should record a debit to ______ and a credit to ______. a) Cash; Revenue b) Accounts Payable; Revenue c) Accounts Receivable; Revenue d) Accounts Receivable; Unearned Revenue

b

When a company makes a payment for amounts owed from prior purchases, it will record a debit to ______ and a credit to ______. a) Expenses; Cash b) Accounts Payable; Cash c) Accounts Payable; Retained Earnings d) Cash; an expense

a

When a company pays cash in advance for rent that is to be used over the next 2 years, the company records a debit to ______ and a credit to ______. a) Prepaid Rent; Cash b) Rent Expense; Cash c) Prepaid Rent; Accounts Receivable d) Cash; Prepaid Rent

a

When accrual basis accounting is used and an expense is debited, then ____________ was credited. a) cash, a payable and/or a prepaid expense b) cash, accounts receivable and/or unearned revenue c) only cash d) revenue

a

When cash is received from customers paying on their accounts, Total assets on the balance sheet ______. a) remains the same b) decreases c) increases

c

When expenses are recognized in the same period as the related cash is paid, the expense amount will be ______ accrual versus cash basis accounting. a) higher under b) lower under c) the same under both

a

When payments are made for amounts owed for purchases made or expenses incurred in the prior period, the entry recorded is debit to _____ a) a payable account and credit to Cash b) Cash and credit to a payable account c) an expense account and credit to Cash

a and d

Which are the 2 accounting principles underlying accrual accounting. (Check all that apply.) a) Expense recognition b) Historical cost c) Earnings per share d) Revenue recognition e) Cash basis

c and f

Which are the sections found in a classified income statement? (Check all that apply.) a) Noncurrent assets b) Current assets c) Income before income taxes d) Current liabilities e) Noncurrent liabilities f) Income from operations

a and c

Which of the following accounts are examples of operating expenses? (Check all that apply.) a) Supplies Expense b) Accounts Payable c) Rent Expense d) Dividends

d and e

Which of the following are not used in the calculation of operating income? (Check all that apply.) a) Cost of sales b) General and administrative expenses c) Sales d) Interest expense e) Gain on sale of land

a and c

Which of the following are operating expenses on the income statement of a merchandising company? (Check all that apply.) a) Supplies expense b) Accounts receivable c) Salaries expense d) Supplies e) Salaries payable

a and b

Which of the following are subtotals found on a multiple step income statement? (Select all that apply.) a) Income before income taxes b) Income from operations c) Current assets d) Current liabilities

a

Which of the following are the five elements of the accounting equation? a) Assets, Liabilities, Stockholders' Equity, Revenues, Expenses b) Liabilities, Stockholders' Equity, Revenues, Dividends, Expenses c) Assets, Liabilities, Revenues, Expenses, Dividends d) Cash, Liabilities, Stockholders' Equity, Revenues, Expenses

d

Which of the following causes retained earnings to increase? a) A debit to Expenses b) A credit to Accounts Receivable c) A credit to Unearned Revenue d) A credit to Revenues

a

Which of the following financial statement line items is not an expense? a) Prepaid Rent b) Advertising Expense c) Salaries and Wages Expense d) Rent Expense

c

Which of the following increases Retained Earnings? a) Additional Paid-in Capital b) Common Stock c) Net Income d) Dividends

a and c

Which of the following would appear only on accrual-based, and not on cash-based, financial statements? (Check all that apply.) a) Accounts receivable on the balance sheet b) Sales on the income statement c) Unearned revenue on the balance sheet d) Cash collected from customers on the statement of cash flows

b c and d

Which of the following would be reported on an income statement as an operating expense? (Select all that apply.) a) Salaries and wages payable b) Supplies expense c) Rent expense d) Depreciation expense e) Prepaid insurance f) Supplies

b

Which one of these activities is part of the operating cycle? a) Issuing new shares b) Selling goods and services c) Buying property, plant and equipment

unearned

___ Revenue arises when a business receives cash in one period, but does not earn all of it until a later period

accounts receivable

___ ___ is the account debited when a service is provided to a customer on account.

expenses

___ are the costs of operating a business that are incurred to generate revenues in the period covered by the income statement

salaries and wages expense

amount employees worked to generate sales for the period

accrued expenses payable

amounts owed for services received

supplies expense

amounts used to produce and sell products

equipment

an asset with future economic benefit

depreciation expense

cost of long term assets used during the period