ACC CHPT 3

Which of the following is not a proper application of the revenue principle?

Recording interest revenue when cash is collected rather than when earned.

Which of the following correctly applies the revenue recognition principle?

Recording revenue in December 2009 for units sold but not yet paid for in full.

Which of the following statements is correct?

Recording revenues results in an increase in assets or a decrease in liabilities.

Which of the following would lengthen the operating cycle?

Relaxing credit terms and allowing customers more time to pay.

Which of the following accounts doesn't have a credit balance?

Rent expense

Which of the following statements is false?

Revenues result in an increase in net assets, net income, and contributed capital.

Top Company's 2011 sales revenue was $200,000 and 2010 sales revenue was $180,000. Top's total assets as of December 31, 2011 were $150,000 and total assets as of January 1, 2011 were $130,000. What is Top's total asset turnover ratio?

1.43

Which of the following statements is correct?

A gain on the sale of a stock investment doesn't increase operating income.

Which of the following statements is false?

A prepaid expense account has a credit balance.

Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future?

Assets and liabilities increase.

Which of the following transactions would not be reported as cash flow from operations on a cash flow statement?

Cash paid for dividends

Which of the following transactions would be reported as cash flow from operations on a cash flow statement?

Cash paid for rent

Which of the following does not correctly describe the cash basis of accounting?

Cash payments for long-term assets are recognized as an expense at the time of payment.

Which of the following accounts normally have a debit balance?

Cash, utilities expense, and accounts receivable.

Interest expense is reported on the income statement as an operating expense.

FALSE

Investment income is reported on the income statement as operating revenues and therefore increases operating income.

FALSE

Purchasing a six-month insurance policy results in a debit to insurance expense and a credit to cash as of the date of purchase.

FALSE

Revenue is recognized at the time that cash is collected from a customer for services to be provided in the future.

FALSE

Salary expense is recognized on the income statement when the salaries are paid rather than when the employee provides the services.

FALSE

Using cash to purchase office supplies which will be consumed later results in an increase in expenses and a decrease in assets as of the time of purchase.

FALSE

When the board of directors declares a cash dividend either retained earnings or the dividends account can be debited,

FALSE

Which of the following is correct when land costing $20,000 is sold for $29,000? The land was a component of plant and equipment on the balance sheet.

Gain on sale of land is credited for $9,000.

Mama June Pizza Company sold land costing $39,000 for $51,000 cash. Which of the following statements concerning the land sale is correct?

Income before income taxes increased $12,000.

Which of the following expenses has no impact on operating income?

Income tax expense

Which of the following is not reported as an operating expense on the income statement?

Interest expense

Which of the following best describes the time period assumption?

It assumes we divide the long life of a business into a series of shorter time periods for accounting and reporting purposes.

Which of the following statements is inaccurate with respect to the total asset turnover ratio?

It is calculated as sales revenues divided by total assets at year-end.

Which of the following describes the reporting of interest expense on the income statement?

It is deducted from operating income.

Which of the following best describes the operating cycle?

It is the time that elapses from the cash payment to suppliers to collection of cash from customers.

Which of the following best describes the matching principle?

It requires expenses to be recorded when incurred to generate revenues.

Which of the following statements does not properly describe the accrual basis of accounting?

It should not be used when providing financial statements to external decision makers.

Which of the following statements is false?

Loss accounts have a credit balance.

Which of the following transactions will result in an increase in operating income as of the date of the transaction?

Providing a service to a customer on account.

Which of the following statements is false when Mama June Pizza Company paid $47,000 cash on accounts owed to suppliers?

Supplies expense was increased by $47,000.

Which of the following is not criteria pertaining to the revenue principle?

The cash payment has been received.

A company purchased $20,000 of inventory during February and will pay for it during March. Which of the following statements is false assuming the inventory was sold during March?

The income statement will report cost of goods sold of $20,000 during February.

The revenue principle requires four conditions to be met. Which of the following is one of the four conditions?

The price is fixed or determinable.

Which of the following best describes operating revenues?

They are increases in net assets as a result of ongoing operations.

Zeppelin Company received cash during January for services to be provided in February. Which of the following statements does not accurately describe the impact on the financial statements when Zeppelin provides the services during February?

Total assets will increase.

A company purchased supplies for cash which will be consumed during future months. Which of the following correctly describes the impact of the supplies purchase on the financial statements?

Total assets will remain unchanged.

A company purchased supplies for cash which will be consumed during future months. Which of the following does not correctly describe the impact on the financial statements when the supplies are used during future months?

Total assets will remain unchanged.

Which of the following accounts doesn't have a debit balance?

Unearned revenues

Which of the following liability accounts is likely to be satisfied without a future cash payment?

Unearned subscriptions revenue

Which of the following is an example of revenue or expense to be recognized in the current period's income statement?

Wages owed to employees who worked during the period.

The primary difference between revenues and gains is

gains are increases in net assets from peripheral activities while revenues are increases from ongoing activities.

On January 1, 2011 Gucci Brothers Inc. had a $500,000 credit balance in retained earnings and $600,000 balance in contributed capital. During 2011, the company earned net income of $100,000, declared a dividend of $15,000, and issued additional stock for $25,000. What is total stockholders' equity on December 31, 2011?

$1,210,000

Garret Company has provided the following selected information for the year ended December 31, 2011: Cash collected from customers was $783,000. Cash received from stockholders in exchange for stock totaled $91,000. Cash paid to suppliers was $361,000. Cash paid to employees was $204,000. Cash to stockholders for dividends was $33,000. Cash received from sale of a building was $250,000. Cash paid for rent was $39,000. Cash received for interest and dividends was $7,000. Cash paid for income taxes was $55,000. Based on the selected information provided, how much was Garret's cash flow from operations?

$131,000

Beemer Corporation has provided the following information pertaining to the year ended December 31, 2011: Stockholders' equity as of January 1 was $789,000. Dividends declared during the year totaled $71,000 of which $60,000 were paid during the year. Stockholders invested $113,000 cash into the business in exchange for new shares of stock. Stockholders' equity as of December 31 was $1,030,000. How much was Beemer's 2011 net income?

$199,000

Lantz Company has provided the following information: Cash sales totaled $255,000. Credit sales totaled $479,000. Cash collections from customers for services yet to be provided totaled $88,000. A $22,000 loss from the sale of plant and equipment occurred. Interest income was $7,700. Interest expense was $19,900. Cost of goods sold was $336,000. Rent expense was $36,000. Salaries expense was $49,000. Other operating expenses totaled $79,000. How much was Lantz's operating income?

$234,000

On January 1, 2010, Denmark Inc., started the year with a $200,000 credit balance in its retained earnings account. During 2010, the company earned net income of $70,000 and declared and paid dividends of $10,000. Also, the company received cash of $15,000 as an additional investment by its owners. What is the balance in retained earnings on December 31, 2010?

$260,000

Smith Corporation has provided the following information: Cash sales totaled $125,000. Credit sales totaled $279,000. Cash collections from customers for services yet to be provided totaled $38,000. An $11,000 gain from the sale of plant and equipment occurred. Interest income totaled $7,700. How much were Smith's operating revenues?

$404,000

Colby Corporation has provided the following information: Operating revenues were $199,700. Operating expenses were $111,000. Interest expense was $9,200. Gain from sale of plant and equipment was $3,300. Dividend payments to Colby's stockholders were $7,700. Income tax expense was $36,000. How much was Colby's net income?

$46,800

Lantz Company has provided the following information: Cash sales totaled $255,000. Credit sales totaled $479,000. Cash collections from customers for services yet to be provided totaled $88,000. A $22,000 loss from the sale of plant and equipment occurred. Interest income was $7,700. Interest expense was $19,900. Cost of goods sold was $336,000. Rent expense was $36,000. Salaries expense was $49,000. Other operating expenses totaled $79,000. How much was Lantz's income before income taxes?

$465,800

The following information has been provided by Hable Company: Advertising expense $9,900;Interest expense $3,700; Rent expense $12,000;Loss on sale of plant and equipment $5,700; Cost of goods sold $21,300; Depreciation expense $7,100. How much were Hable's operating expenses?

$50,300

During 2010, Sigma Company earned service revenues amounting to $700,000, of which $630,000 was collected in cash; the balance will be collected in January 2011. What amount should the 2010 income statement report for service revenues?

$700,000

A landlord collected $5,000 cash from a tenant for December 2011's rent but the tenant's rent for December is $8,000. Which of the following is true with respect to the landlord's financial statements?

$8,000 would appear on the income statement as rent revenue earned.

Blazon Corporation's retained earnings increased $79,000 during 2011. Blazon declared $19,000 of dividends and paid $15,000 of the dividends declared during 2011. How much was Blazon's 2011 net income assuming that Blazon's stockholders invested an additional $30,000 during 2011?

$98,000

Which of the following businesses would most likely not report cost of goods sold on their income statement?

A law firm

A company receives a $50,000 cash deposit from a customer on October 15 but will not deliver the goods until November 20. Which of the following statements is true?

A liability will be reported on the balance sheet at the end of October.

Which of the following statements is false?

A loss on the sale of plant and equipment is considered a peripheral activity and is not reported on the income statement

Yelena Company received cash from a customer in advance of providing the service to the customer. Which of the following does not accurately describe the impact on the financial statements when Yelena later provides the service?

Assets are increased.

Which of the following describes the transaction resulting in a journal entry with a debit to Salaries payable and a credit to Cash?

Cash was used to pay for salaries that were previously recorded as an expense.

Which of the following costs is most likely to be the largest expense reported on the income statement of a merchandiser such as Wal-Mart?

Cost of goods sold

Which of the following statements is correct?

Loss accounts result in decreases in net income and stockholders' equity and therefore have debit balances.

Which of the following accounts normally have a credit balance?

Notes payable; Retained earnings; Revenues.

McNeil Company owed its employees for services performed and recorded a liability for the wages owed the employees. Which of the following correctly describes the impact on the financial statements when the employee wages are subsequently paid?

Operating income does not change.

Which of the following journal entries is correct assuming that Mama June Pizza Company received cash for interest earned on investments?

Option A

Which of the following journal entries correctly records the receipt of a utility bill which will be paid for in later weeks?

Option B

Which of the following journal entries is correct when a company has incurred interest expense but has not yet paid the interest?

Option B

Which of the following journal entries is prepared when a customer pays cash prior to delivery of the goods or services?

Option B

On December 31, 2010, Avery Corporation paid $10,000 for next year's insurance policy. This transaction should be recorded as follows by Avery:

Option C

Which of the following journal entries correctly records a transaction where services were provided to a customer on account?

Option C

Which of the following journal entries is prepared when a customer pays cash subsequent to delivery of goods or services?

Option D

Which of the following statements is false?

Revenue isn't recognized at the time of delivery of goods and services if cash is received after delivery of the goods and services.

During 2010, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid during 2011. Which of the following is correct for the 2010 year-end balance sheet?

Stockholders' equity decreases $100,000, assets decrease $75,000, and liabilities increase $25,000.

Mama June Pizza Company determined that dough, sauce, cheese and other ingredients costing $8,700 were used to make pizzas during July. Which of the following statements is false with respect to the use of the ingredients?

Supplies inventory was debited for $8,700.

A gain resulting from the sale of plant and equipment does not create operating income on the income statement.

TRUE

A retail store would likely have a shorter operating cycle than an automotive manufacturer.

TRUE

An example of operating revenues would be the revenue created by the sale of an automobile by a car dealership.

TRUE

Application of generally accepted accounting principles requires that the accrual basis of accounting be used for reporting revenues and expenses on the income statement.

TRUE

Cash collected prior to the providing of the good or service results in an increase in both assets and liabilities.

TRUE

Earnings per share must be either reported on the income statement or disclosed in the notes to the financial statements.

TRUE

Expense accounts have debit balances because they result in decreases in net income, retained earnings and stockholders' equity.

TRUE

Expenses are decreases in assets or increases in liabilities incurred in order to generate revenues.

TRUE

Recording revenues on the income statement which were previously reported as unearned revenues on the balance sheet results in a decrease in liabilities and an increase in net income, retained earnings and stockholders' equity.

TRUE

Revenue accounts have credit balances because they result in increases in stockholders' equity.

TRUE

Selling inventory to a customer on account results in an increase in both assets and revenues.

TRUE

The income statement needs to be prepared prior to preparation of the balance sheet.

TRUE

The matching principle requires expenses to be recorded on the income statement when incurred in generating revenues.

TRUE

The operating cycle is the time that elapses between a company's cash payment to suppliers for inventory purchases and the collection of cash from sale of inventory to customers.

TRUE

The revenue principle recognizes revenue from the sale of goods when ownership passes from the seller to the buyer regardless of the timing of the cash collection from customers.

TRUE

The statement of cash flows is prepared last and is the only financial statement which shows the cash inflows and outflows from transactions.

TRUE

The statement of stockholders' equity links the income statement to the balance sheet.

TRUE

The time period assumption implies that the life of a business entity can be reported in time periods such as quarters and years.

TRUE

The total asset turnover ratio is computed by dividing sales revenue by average total assets.

TRUE

The total asset turnover ratio measures sales dollars generated per dollar of assets and is a measure of efficient management of assets.

TRUE

Under accrual accounting, interest expense would be recognized on the income statement when the interest has accrued with the passage of time even though cash has not been paid.

TRUE

Under accrual accounting, revenues are recognized when earned and expenses are recognized when incurred.

TRUE

Unearned revenues are reported as liabilities on the balance sheet.

TRUE

Boone's Cleaning Service performed cleaning services during December, 2010, but had not collected any cash from its customers as of December 31, 2010. What impact did performing these services have on the accounting equation?

The service increased assets and increased stockholders' equity.