Accounting Ch. 3 Assignments

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. $1,500 b. $3,000 c. $0

b. $3,000

The net profit margin ratio is calculated by dividing net income by _____. a. total assets b. average total assets c.sales revenue d. total liabilities

c.sales revenue

Assets, on the balance sheet, provide future benefits for a company, while _______, on the income statement, are used-up benefits. (Enter one word per blank)

expenses

Under the accrual basis of accounting, the _______ recognition (matching) principle requires that expenses be recognized in the same period as the related revenues. (ass only one word per blank)

expense

A seller records an increase to the asset account called _______ _______ when it sells to a customer on credit. (Enter one word per blank)

Accounts Receivable

When a company receives cash from a customer in advance of performing the service, the company will debit _______ and credit ________ _______. (Enter one word per blank)

Cash; Unearned Revenue

True or false: A company generates Retained Earnings by operating profitably.

True Retained Earnings is the accumulated earnings the company has NOT distributed to stockholders.

When a company collects cash in advance from customers it records a liability called _______ ______. (Enter one word per blank)

Unearned Revenue

During the year, Pizza Company, Inc. had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends. Net income equals _________. a. $60,000 b. $63,000 c. $100,000 d. $57,000

a. $60,000

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 advance b. Cash is paid in he same accounting period as the services were performed c. Cash is paid in the following accounting period of when the services were performed

a. Cash is paid in advance

In its 1st year of operation, Jerway Airlines paid Salaries Expense of $40 million. On December 31, it is recorded an entry for additional Salaries Expense of $2 million that will be paid at the beginning of the 2nd year. What should Jetway report in the income statement and balance sheet for its first year ended December 31? a. Income statement: Salaries Expense $42 million; Balance sheet; Salaries Payable $2 million b. Income statement: Salaries Expense $40 million; Balance sheet; Salaries Payable $2 million c. Income statement: Salaries Expense $40 million; Balance sheet: Salaries Payable $0

a. Income statement: Salaries Expense $42 million; Balance sheet; Salaries Payable $2 million

Which of the following is correct? a. Measurement of net income involves estimations b. Net income equals the amount of cash generated by the business during the reporting period c. Net income represents the change in the market value of the company's stock during the period

a. Measurement of net income involves estimations

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 be too high b. Net income will be too low c. Net income will not be affected by this error

a. Net income will be too high

Which activities are part of the operating cycle? (Check all that apply) a. Paying cash to suppliers b. Collecting cash from customers c. Buying property, plant, and equipment d. Buying goods and services e. Issuing new shares

a. Paying cash to suppliers b. Collecting cash from customers d. Buying goods and services

Which of the following would increase the net profit margin ratio in the current year? a. Postpone routine maintenance work that was to be done this year b. Postpone the purchase of land c. Postpone the payment of its Accounts Payable

a. Postpone routine maintenance work that was to be done this year The payment of bills does not affect net income or the net profit margin (=Net Income/Revenues). When payment are made for items purchased on account, a debit to Account Payable (-L) and a credit to Cash (-A) is recorded

Which of the following accounts will be found on the income statement? (Check all that apply) a. Sales Revenue b. Advertising Expense c. Accounts Receivable d. Prepaid Advertising e. Accounts Payable f. Unearned Revenue

a. Sales Revenue b. Advertising Expense

Cash basis accounting does not measure financial performance very well when transactions are conducted using _____. a. credit rather than cash b. expense recognition c. debit rather than credit d. revenue recognition

a. credit rather than cash

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 Accounts Payable b. debit to Advertising Expense c. credit to Prepaid Advertising d. debit to Prepaid Advertising e. credit to Cash

a. credit to Accounts Payable b. debit to Advertising Expense

Bank 'n' Rolls, Inc. pays its employees once a month and records the expense at the time of payment. On May 31, Bank 'n' Roll, Inc. paid its employees $10,000 for work preformed in May. The entry to record the payment includes a _______ for $10,000. (Check all that apply) a. debit to Wages Expense b. credit to Wages Payable c. credit to Cash d. credit to Wages Expense e. debit to Cash

a. debit to Wages Expense c. credit to Cash

Net income appears on the _________. (Select all that apply) a. income statement b. balance sheet c. statement of retained earnings

a. income statement c. statement of retained earnings

The net profit margin ratio ____. (Check all that apply) a. indicates how well expenses are controlled b. means weaker performance if it increases c. measures the percentage of assets financed by debit d. means improves performance if it increases

a. indicates how well expenses are controlled d. means improves performance if it increases

Cash basis accounting may distort net income when a company _____. (Check all that apply) a. makes credit sales b. pays for expenses in advance of when the resources are used c. pays for expenses in the same period as when the resources are used d. pays for expenses in a later accounting period than when the resources are used e. makes cash sales f. collects cash in advance of providing services to customers

a. makes credit sales b. pays for expenses in advance of when the resources are used d. pays for expenses in a later accounting period than when the resources are used f. collects cash in advance of providing services to customers

Accounts Payable _______. (Check all that apply) a. represents amounts owed b. is a liability c. represents amounts not yet collected d. is an asset

a. represents amounts owed b. is a liability

Which of the following are found on an income statement? (Check all that apply) a. revenue b. net income c. dividends d. expenses

a. revenue b. net income d. expenses

Diving the long life of a company into shorter periods such as months, quarters, or years for reporting purposes is called the ____. a. time period assumption b. accounting equation c. cost principle d. expense recognition (matching) principle

a. time period assumption

Reporting revenues when they are earned and expenses when they are incurred is called _________ basis accounting. (Enter one word per blank)

accrual

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 b. $1,000 of revenue should be recorded in June c. $500 of revenue should be recorded in May and $500 in June

b. $1,000 of revenue should be recorded in June

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 Accounts Receivable c. Debit Cash and credit Sales Revenue

b. Debit Cash and credit Accounts Receivable

True or false: Financing activities are the primary source of revenues and expenses a. True b. False

b. False Operating activities are the primary source of revenues and expenses

On May 25, Dew Drop Inn purchased $500 of supplies on account. In June, $300 of supplies was used and $400 was paid to the supplier. Which of the following are true statements? (Check all that apply) a. In May, Supplies Expense of $500 is recorded b. In June, Supplies Expense of $300 is recorded c. In May, the assets, Supplies, is increased by $500 d. In June, Supplies Expense of $400 is recorded

b. In June, Supplies Expense of $300 is recorded c. In May, the assets, Supplies, is increased by $500

If a company INCORRECTLY records cash received for services to be provided in the future with a debit to Cash and a credit to Sales Revenue, how will this error affect net income for the current period? a. Net income will be too high in the following period b. Net income will be too high c. Net income will not be affected by this error d. Net income will be too low

b. Net income will be too high

The correct journal entry to record a transaction that involves paying cash for an expense incurred in the same period is _________. a. debit cash and credit an expense b. debit an expense and credit cash c. debit a prepaid asset and credit cash

b. debit an expense and credit cash

The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a _______. (Check all that apply) a. debit to Cash b. debit to Account Receivable c. credit to Unearned Revenue d. credit to Service Revenue e. credit to Accounts Payable f. debit to Account Payable

b. debit to Account Receivable d. credit to Service Revenue

Expenses are increased with __________. a. credits because they increase stockholders' equity b. debits because they decrease stockholders' equity c. credits because they decrease stockholders' equity d. debits because they increase stockholders' equity

b. debits because they decrease stockholders' equity

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

b. have no effect on total assets The entry to record receiving cash for payment on account includes a debit to Cash (+A) and a credit to Accounts Receivable (-A). Cash and Accounts Receivable are both assets and offset each other causing total assets to remain the same

Revenue is recognized when __________. (Check all that apply) a. borrowing money from a bank, if using accrual basis accounting b. services are provided even if cash has not yet been collected, if using accrual basis accounting c, borrowing money from a bank, if using cash basis accounting d. cash is collected from customers, if using cash basis accounting

b. services are provided even if cash has not yet been collected, if using accrual basis accounting d. cash is collected from customers, if using cash basis accounting

After increases and decreases in an account are recorded, the amount remaining in the account is its ending _________. (Enter one word per blank)

balance

On July 1, 2018, a firm prepaid $200,000 for 2 years' rent of an office building beginning on July 1. What amount will be shown for Prepaid Rent one and one-half years later on the December 31, 2019 balance sheet? a. $200,000 b. $150,000 c. $50,000 d. $100,000

c. $50,000

Stockholders' equity consists of _______, which is the amount contributed, and _________, which is generated from profitable operations (i.e., from revenues being greater than expenses). a. Liabilities; Commom Stock b. Assets; Common Stock c. Common Stock; Retained Earnings d. Liabilities; Retained Earnings e. Assets; Liabilities

c. Common Stock; Retained Earnings

In January, Pizza Company bouhght pizza ingredients on account for $100, with payment due to the supplier in 90 days. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense? a. April b. February c. January d. March

c. January

Morris Lest, Inc. received and paid a $500 electric bill in June for electricity used in May. In which month should Morris Lest record the expense in accordance with Generally Accepted Accounting Principles? a. June b. Half in May and half in June c. May

c. May The expense recognition (matching) principle requires expenses be recorded in the period incurred, regardless of whether the expense has been paid. Since the electrical services related to May, the expense should be recorded in May, not in June when it is paid. Even if the bill has not yet been received, management must use historical information to estimate the amount of the expense

The entry to record the sale of services for cash includes a __________. (Check all that apply) a. debit to Accounts Receivable b. debit to Sales Revenue c. credit to Service Revenue d. debit to Cash e. debit to Deferred Revenue f. credit to Cash

c. credit to Service Revenue d. debit to Cash

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. debit to Prepaid Rent d. debit to Cash e. credit to Prepaid Rent f. credit to Cash

c. debit to Prepaid Rent f. credit to Cash

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. credit to Advertising Expense b. debit to Accounts Receivable c. credit to Prepaid Advertising d. debit to Advertising Expense e. credit to Cash f. debit to Cash g. credit to Unearned Advertising

d. debit to Advertising Expense e. credit to Cash

Accounts Receivable arise when a company _________. a. collects cash in advance and is a liability b. sells on credit and is a liability c. sells on a credit and is a stockholders' equity account d. sells on credit and is an asset e. collects cash in advance and is an asset

d. sells on credit and is an asset

The totals on a trial balance reveal whether the total _________ equal the total _________. (Enter one word per blank)

debits; credits

Accounts Receivable arises when a company _______. a. collects cash in advance and is a liability b. sells on credit and is a liability c.sells on credit and is a stockholders' equity account d. collect cash in advance and is a stockholders' equity account e. sells on credit and is an asset f. collect cash in advance and is an asset

e. sells on credit and is an asset

The balance sheet the company's assets, liabilities, and stockholders' equity at a specific point in time. The _________ statement describes the revenue and expense items that affected net income over an interval of time (Enter one word per blank)

income

If revenues are greater than expanses, the company generated net incomes. If expenses are greater than revenues, the company generated a net _______. (Enter one word per blank)

loss

Investing activities are concerned with acquiring long-term assets; financing activities provide the money needed to operate the business and to provide the capital for investing activities; and _________ activities are involving with providing goods and services to the customer. *Enter only one word per blank)

operating

Increases to stockholders' equity are recorded on the _____ side of the T-account. (Enter one word per blank)

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