ACCT REV 2

In what denomination are bonds typically issued?

$1,000 Bonds are normally issued in denominations of $1,000. The face value of the bond issue (number of bonds times the denomination of the bonds) is controlled by the issuer.

Saira's Maid Service began the year with total assets of $120,000 and stockholders' equity of $40,000. During the year the company earned $90,000 in net income and paid $20,000 in dividends. Total assets at the end of the year were $215,000. How much are total liabilities at the end of the year?

$105,000 First, determine the ending balance of stockholders' equity, which is the sum of the beginning balance of stockholders' equity plus net income less the dividends. $40,000 + $90,000 - $20,000 = $110,000 Then, determine total liabilities by subtracting ending stockholders' equity from total assets. Assets = Liabilities + Stockholders' Equity Liabilities = $215,000 - $110,000 = $105,000

Saira's Maid Service began the year with total assets of $120,000 and stockholders' equity of $40,000. During the year the company earned $90,000 in net income and paid $20,000 in dividends. Total assets at the end of the year were $215,000. How much was stockholders' equity at the end of the year?

$110,000 (The sum of the beginning balance of stockholders' equity ($40,000) plus net income ($90,000) less the dividends paid ($20,000) during the period results in the ending balance of $110,000.)

Kam Company has the following units and costs: Inventory, Jan. 1: 8,000 | $11 Purchase, June 19: 13,000 | 12 Purchase, Nov. 8 5,000 | 13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?

$113,000 Ending inventory under FIFO uses the most recent costs in computing ending inventory. Ending inventory = (5,000 × $13) + (4,000 × $12) = $113,000.

A company has the following asset account balances: Buildings and equipment $9,200,000 Accumulated depreciation 1,200,000 Patents 750,000 Land Improvements 1,000,000 Land 5,000,000 How much will be reported on the balance sheet under property, plant, & equipment?

$14,000,000 Buildings and equipment ($9,200,000-$1,200,000), land improvements ($1,000,000), and land ($5,000,000), less accumulated depreciation are included for a total of $14,000,000.

If you bought a new truck for $40,000 for your auto parts delivery service, and you estimated that the truck would last you 200,000 miles with a salvage value of $4,000, what would be your depreciation expense for the first year in which you used the truck for 12,500 miles?

$2,250 The depreciation rate per mile is $0.18, which is ($40,000 - $4,000) divided by 200,000 miles. Depreciation expense = $0.18 × 12,500 miles = $2,250.

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2017. This count did not take into consideration the following transactions: • Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. • Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.

$215,000 Inventory should include all goods owned by the company regardless of whether the company holds physical possession or not. The correct amount of inventory that should be reported by Railway should be the $180,000 cost of goods in possession plus the $35,000 of cost of the goods that are on consignment. The title to the goods in transit will transfer on January 3 and should not be reported on December 31, 2014. The correct balance = $180,000 + $35,000 = $215,000.

How much accrued interest should be reported on the payee's December 31 balance sheet on a $5,000, 8%, 9-month note receivable issued on June 1?

$233 Interest earned is calculated by multiplying the principal times the interest rate times the portion of the year that has passed since the note was issued ($5,000 × 8% × 7/12 = $233).

Corristan Company purchased equipment and incurred these costs: Cash price $24,000 Sales taxes 1,200 Insurance during transit 200 Annual maintenance costs ____400 Total costs $25,800 What amount should be recorded as the cost of the equipment?

$25,400 All costs necessary to get the asset ready to use should be included as part of the cost of the equipment because these are the costs that are necessary to acquire, safely transport, and prepare it for its intended use ($24,000 + $1,200 + $200 = $25,400). The annual maintenance costs are expensed, not capitalized.

A corporation has cumulative preferred stock on which it pays dividends of $20,000 per year. The dividends are in arrears for two years. If the corporation plans to distribute $90,000 as dividends in the current year, how much will the common stockholders receive?

$30,000 Preferred stockholders receive an allocation for each of the past two years and an allocation for the current year. The balance remaining goes to the common stockholders. Preferred dividends in arrears for two years ($20,000 × 2) = $40,000 Preferred for current year $20,000 Total dividends to preferred stockholders $60,000 Total dividends available (90,000) Dividends available to common stockholders $30,000

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, what is the cost of this purchase?

$4,074 The terms of 3% if paid within 10 days on the $4,200 invoice permits the buyer to take a discount of $126 on the invoice, $4,200 - (3% × $4,200) = $4,074

A purchase of equipment for $18,000 also involves freight charges of $500 and installation costs of $2,500. The estimated salvage value and useful life are $2,000 and 4 years, respectively. Under the straight-line method, how much is annual depreciation expense?

$4,750 The cost of the equipment is $18,000 plus the freight costs of $500 and the installation costs of $2,500 for a total of $21,000. Depreciation expense = ($21,000 - $2,000)/4 = $4,750 per year.

A corporation shows the following account balances: Retained earnings $300,000 Treasury stock 10,000 Dividends payable 20,000 Paid-in capital in excess of par value 55,000 Common stock 200,000 How much is total stockholders' equity?

$545,000 Retained earnings - treasury stock + paid-in capital in excess of par value + common stock = total stockholders' equity: $300,000 - $10,000 + $55,000 + $200,000 = $545,000

On June 15, Kersee Company sold merchandise on account to Eng Co. for $1,000, terms 2/10, n/30. On June 20, Eng Co. returns merchandise worth $300 to Kersee Company. On June 24, payment is received from Eng Co. for the balance due. What is the amount of cash received on June 24?

$686. The amount received on June 24 is $686. Because payment is made within the discount period of 10 days, the amount received is $700 ($1,000 - return of $300) minus the discount of $14 ($700 × 2%), for a cash amount of $686.

Sales revenue total to $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. How much is net sales?

$8500 Net sales is sales revenue ($10,000) less both sales returns and allowances ($500) and sales discounts ($1,000), for a net sales total of $8,500.

Coronado Company purchased land for $80,000. The company also paid $12,000 in accrued taxes on the property, incurred $5,000 to remove an old building, and received $2,000 from the salvage of the old building. At what amount will the land be recorded in the accounting records?

$95,000 ALL COSTS necessary to get the land READY TO USE should be capitalized as part of the cost of the land. Coronado should include the purchase price of $80,000, the accrued taxes of $12,000, the cost of razing the old building of $5,000 less the payment received for the salvaged materials in the amount of $2,000. This results in an acquisition cost of $95,000.

Common types of current assets are

(1) cash, (2) investments (such as short-term U.S. government securities), (3) receivables (accounts receivable, notes receivable, and interest receivable), (4) inventories, and (5) prepaid expenses (insurance and supplies). Companies list current assets in the order in which they expect to convert them into cash.

Stockholders' equity is comprised of two parts

(1) common stock and (2) retained earnings.

For what reason might a company acquire treasury stock?

1)To reissue the shares to officers and employees under bonus and stock compensation plans 2) To increase trading of the company's stock in the securities market. Companies expect that buying their own stock will signal that management believes the stock is underpriced, which they hope will enhance its market price. 3) To have additional shares available for use in acquiring other companies. 4) To reduce the number of shares outstanding and thereby increase earnings per share.

When credit terms of 1/15, n/60 are offered, how long is the discount period?

15 days

What journal entry is recorded as a result of issuing stock to investors for cash? A debit to Cash and a credit to Common Stock A debit to Cash and a credit to Retained Earnings A credit to Cash and a debit to Retained Earnings A debit to Common Stock and a credit to Cash

A debit to Cash and a credit to Common Stock Issuing stock for cash is recorded by debiting Cash and crediting Common Stock.

Tanner, Inc. issued a 10%, 5-year, $100,000 bond when the market rate of interest was 12%. At what value will the bond sell? A discount Par A premium Face value

A discount Since the contractual interest rate is less than the market interest rate, the bond will sell at a discount.

What type of receivable is evidenced by a formal instrument and normally requires the payment of interest?

A note receivable A note receivable represent claims for which formal instruments of credit are issued as evidence of the debt. The note normally requires the payment of the principal and interest on a specific date.

Which one of the following is a major disadvantage of a corporation? Additional taxes Transferable ownership rights Limited life Limited liability of stockholder

Additional taxes While often referred to as double taxation, the corporation pays income taxes on its profits, and then when distributed, the stockholders pay income taxes on the amounts received as dividends.

Which of the following is the correct sequence of events? Analyze a transaction; record it in the journal; post it to the ledger Record a transaction in the journal; analyze the transaction; post it to the ledger Analyze a transaction; post it to the ledger; record it in the journal

Analyze a transaction; record it in the journal; post it to the ledger

Resources owned by a business are referred to as

Assets

When is a physical inventory usually taken?

At the end of the company's fiscal year.

Which of the following represents the maximum number of shares a corporation can issue? Authorized shares Treasury shares Outstanding shares Issued shares

Authorized shares

RyTronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?

Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200 Allowance for Doubtful Accounts needs an ending credit balance of 4% of $100,000 or $4,000. To increase the current credit balance of $800 to the required amount of $4,000, the account requires a credit of $3,200. The entry to estimate bad debts is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $3,200.

When using the straight-line depreciation method, which of the following is not a factor affecting the computation of depreciation? Salvage value Cost Useful life Book value

Book value Book value is equal to acquisition cost less accumulated depreciation. The factors affecting the computation of depreciation include acquisition cost, useful life, and salvage value.

In what order are current assets listed?

By liquidity Current assets should be listed in order of liquidity which is the order of how quickly they are expected to be converted into cash.

Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March 1 with credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to record receipt of the payment?

Cash 1,274 Sales Discount 26 Accounts Receivable 1,300 This entry correctly accounts for the check Oscar would be writing for this invoice after adjustment for the returned merchandise and the discount. ($1,800 - $500) - [($1,800 - $500) × 2%] = $1,274.

Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. At the end of the accounting period, which of the following parties includes in its inventory the consigned goods?

Cecil Ownership remains with Cecil, so Cecil reports the goods as assets.

Dynatech issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, which accounts are credited? Common Stock $10,000 and Gain on Stock Sale $2,000 Common Stock $12,000 Common Stock $10,000 and Retained Earnings $2,000 Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000

Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000 The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 1,000 × $12 = $12,000 Credit to Common stock = 1,000 × $10 = $10,000 Credit to Paid-in capital in excess of par value = 1,000 × ($12 - $10) = $2,000

Which of the following statements about a periodic inventory system is true? The periodic system provides better control over inventories than a perpetual system. The increased use of computerized systems has increased the use of the periodic system. Companies determine cost of goods sold only at the end of the accounting period. Companies continuously maintain detailed records of the cost of each inventory purchase and sale.

Companies determine cost of goods sold only at the end of the accounting period.

Which of the following was not a result of the Sarbanes-Oxley Act? Companies must file financial statements with the Internal Revenue Service. The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity. All publicly traded companies must maintain adequate internal controls. Corporate executives and board of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.

Companies must file financial statements with the Internal Revenue Service. The Sarbanes-Oxley Act requires all publicly traded U.S. companies to maintain an adequte system of internal controls. Corporate executives and boards of directors must ensure that these controls are reliable and effective. Companies that fail to comply are subject to fines and company officers can be imprisoned. The Act does not address reporting to the IRS. In addition this Act created the Public Company Accounting Oversight Board to establish auditing standards and regulate auditor activity.

What type of accounts are Sales Returns and Allowances and Sales Discounts?

Contra revenue accounts

The three forms of business organization

Corporation Sole proprietorship Partnership

Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21? Credit to Cash for $1,600 Credit to Accounts Payable for $1,600 Debit to Accounts Payable for $2,000 Debit to Cash for $1,600

Credit to Cash for $1,600 Since the bill is paid after the discount period, the balance due is $2,000 less the returned goods of $400, or $1,600. The entry will debit Accounts Payable and credit Cash.

DT Inc. issued 3,000 shares of $5 par value common stock for $6 per share. Which of the following is one part of the journal entry to record the issuance? Credit to Common Stock for $18,000 Debit to Paid-in Capital in Excess of Par Value for $3,000 Debit to Cash for $15,000 Credit to Common Stock for $15,000

Credit to Common Stock for $15,000 The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 3,000 × $6 = $18,000 Credit to Common stock = 3,000 × $5 = $15,000 Credit to Paid-in capital in excess of par value = 3,000 × ($6 - $5) = $3,000

When there is a change in estimated depreciation

Current and future years' depreciation should be revised. When estimated depreciation changes, the changes should be reflected in the current and future years, not in prior years.

In a classified balance sheet, how are assets usually classified?

Current assets; long-term investments; property, plant, and equipment; and intangible assets

On which date are entries for cash dividends required?

Declaration date and the payment date Entries for cash dividends are required on the declaration date and the payment date, but not on the record date.

shown on the retained earnings statement and the statement of cash flows because it relates to ownership rather than operations.

Dividends paid

Ownership passes to the buyer when purchased goods are received from a public carrier if the goods are shipped

FOB destination. Under FOB destination, title transfers when the buyer receives the purchased goods from the public carrier, not when the public carrier accepts them from the seller.

On the date a 90-day note is honored, how much cash will the payee receive? Face value Maturity value less the face value Maturity value plus 90 days of interest Face value plus 90 days of interest

Face value plus 90 days of interest The maturity value is equal to face value of the note (the principal) plus interest accrued for the 90-day term of the note.

Which of the following should not be included in the physical inventory of a company? All of the answer choices are correct Goods shipped on consignment to another company Goods in transit from another company shipped FOB shipping point Goods held on consignment from another company

Goods held on consignment from another company Inventory should include all goods owned by the company regardless of whether the company holds physical possession or not. Goods held on consignment are owned by others and should not be included.

On July 1, Mesa Verde, Inc. purchased a 6-month insurance policy for $12,600. Prepaid Insurance was debited for the entire amount. The adjusting entries to recognize the expired cost were made each month. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be

Insurance Expense $2,100 Prepaid Insurance $2,100 This entry correctly adjusts the accounts to recognize for the 6-month policy. Insurance Expense needs to be debited to recognize the expense and Prepaid Insurance needs to be credited to reduce the asset accordingly for $2,100 ($12,600 / 6).

On August 1, Luang Corporation signed a $30,000, 14%, 2-year note to help finance renovations being made to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry for the first year would be

Interest Expense $1,750 Interest Payable $1,750 This entry correctly adjusts the accounts and interest incurred for a five-month period of $1,750 or ((($30,000 X .14)/12) X 5).

A corporation issued a $50,000, 9%, 4-month note on July 1. The corporation's year-end is September 30. Which one of the following is the adjusting entry for interest on September 30?

Interest Expense 1,125 Interest Payable 1,125 Interest is calculated by multiplying the principal times the annual interest rate times the time period the note is outstanding: $50,000 × 9% × 3/12 = $1,125.

Butte Co. loaned $25,000 to Beavis Co. on June 1, at 12% interest for 3 months. What adjusting entry will Butte Co. have to make on June 30 before preparing the financial statements on June 30?

Interest Receivable 250 Interest Revenue 250 Interest earned is calculated by multiplying the principal times the interest rate times the portion of the year that has passed since the note was issued ($25,000 × 12% × 1/12 = $250).

Appear on the income statement

Interest expense Net income Service revenue

three primary business activities?

Investing Financing Operating

Which one of the following does not affect retained earnings Issuance of common stock Dividends Net income Net loss

Issuance of common stock Net income causes an increase in retained earnings, while a net losses and dividends cause decreases. Issuance of common stock has no impact on retained earnings.

Which of the following is true of the FIFO inventory method? It assumes that the cost of the earliest units purchased are the first to be allocated to the ending inventory. It assumes that the cost of the earliest units purchased are the last to be allocated to cost of goods sold. It assumes that the cost of the earliest units purchased are the last to be allocated to the beginning inventory. It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold. FIFO assumes the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

Which is true about a wholesaler? It sells only to manufacturing companies. It sells to another business, which will sell to a consuming customer. It is a company that sells to consumers at a discount. It conducts large sales for consumers on a recurring basis.

It sells to another business, which will sell to a consuming customer. A wholesaler is the intermediary. It buys from one business and sells to another business that will resell to customers.

Which of the following would most likely employ the specific identification method of inventory costing? Jewelry store Grocery store Hardware store Gasoline station

Jewelry store Jewelry stores use the specific identification method because of the high value and uniqueness of many of the inventory items.

Which of the following is not a depreciable asset? Land improvements Equipment Buildings Land

Land Land is not a depreciable asset. Land improvements, equipment, and buildings are depreciated to allocate their costs to the fiscal periods in which they render a benefit.

What are the acceptable inventory costing methods

Last-in, first-out (LIFO) First-in, first-out (FIFO) Average cost

Assets =

Liabilities + Stockholders' Equity

What type of account is unearned revenue? Asset Revenue Expense Liability

Liability The unearned revenue account is classified as a liability. Unearned revenues are payments for future services to be performed or goods to be delivered. Until a company performs the services or delivers the goods, the amount is owed to the party that made the payment.

In periods of rising prices, what will LIFO produce? The same net income as FIFO Lower net income than FIFO Higher net income than average costing Higher net income than FIFO

Lower net income than FIFO Because cost of good sold includes the most recent costs which are the highest costs, net income under LIFO will be the lowest.

Which one of the following is not a typical current liability? Interest payable Current maturities of long-term debt Mortgages payable Salaries payable

Mortgages payable Mortgages are long-term liabilities as they are typically paid over 15 to 30 years.

The three components of the fraud triangle are

Opportunity, financial pressure, and rationalization.

Which types of accounts will appear in the post-closing trial balance?

Permanent accounts.

Net income

Revenue - expenses

Which one of the following will result in gross profit? Sales revenue less cost of goods sold Operating expenses less cost of goods sold Sales revenue less operating expenses Operating expenses less net income

Sales revenue less cost of goods sold Cost of goods sold is subtracted from net sales to calculate gross profit.

Aptara Construction Supplies has a cashier who is also the accounts receivable clerk for the company. Which INTERNAL CONTROL PRINCIPLE is violated?

Segregation of duties The cashier maintaining the books violates segregation of duties because she also receives, records, and deposits cash.

Which account will have a zero balance after a company has journalized and posted closing entries?

Service Revenue.

Paying interest expense and receiving interest revenue are examples of

Since paying interest and receiving interest revenue are usually part of the everyday operations of the company, they are OPERATING ACTIVITIES.

The owners' claim to assets is called

Stockholders Equity

Ignatenko Company purchased office supplies costing $5,000 and debited Supplies for the full amount. Supplies on hand at the end of the accounting period were $1,300. The appropriate adjusting journal entry to be made would be:

Supplies Expense $3,700 Supplies $3,700 This entry correctly adjusts supplies to a balance of $1,300 and records the expense for the period of $3,700 ($5,000-$1,300).

Cuso Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, what does this indicate?

The contractual interest rate exceeds the market interest rate. When bonds are sold at a premium, the contractual interest rate is higher than the market interest rate.

A corporation sold 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $12.00 per share. Which of the following will be debited to record the repurchase of the 100 shares? Cash for $1,200 Treasury Stock for $1,200 Treasury Stock for $200 Common Stock for $1,200

Treasury Stock for $1,200 The journal entry will increase the treasury stock account (a contra stockholders' equity account) and will decrease the cash account for the total cost to acquire.

Which statement is true when recording the sale of goods for cash in a perpetual inventory system? Only one journal entry is necessary. It will record the receipt of cash and sales revenue. Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory. Two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the the cost of goods sold and sales revenue. Only one journal entry is necessary. It will record cost of goods sold and reduce of inventory.

Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory. Two entries are required. One will record the sale with a debit to cash and a credit to sales revenue. The second entry is to reduce the inventory: debit cost of goods sold and credit inventory.

The Jacksonville Jaguars sell season tickets to NFL football games. There are 10 home games during the season, which runs from August through December. During February, 65,000 season tickets were sold for $12,000,000 cash. Which account will be credited by the Jacksonville Jaguars upon receipt of the $12,000,000? Ticket Revenue Prepaid Tickets Unearned Ticket Revenue Tickets Receivable

Unearned Ticket Revenue Since the tickets are for future performances, it should be credited to Unearned Ticket Revenue by the Jaguars team.

When is a receivable recorded by a service organization?

When service is provided on account A receivable is recorded when the service is performed, not at some other specific date.

Financial statements can be prepared directly from the adjusted trial balance. post-closing trial balance. reversing trial balance. trial balance.

adjusted trial balance.

The closing entry process consists of closing

all temporary accounts. The closing process closes all temporary or nominal accounts such as revenues, expenses, and dividends. Real or permanent accounts such as assets, liabilities, stock, and retained earnings accounts are not closed.

Current Assets

assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer.

If an expense is paid with cash

assets will decrease.

A corporation issues $1,000,000 of 8%, 5-year bonds. The 8% rate of interest is called the __________ rate.

contractual, face, or stated rate. The interest rate printed on the bonds is the contractual, face, or stated rate. Yield, effective, and market rates are different terms to describe the interest rate that an investment can earn in the market.

Payment of a dividend

decreases cash; decreases retained earnings.

Issuing new shares of common stock will

increase common stock.

retained earnings

net income retained in the corporation

When recording payroll, net pay is recorded as salaries and wages expense. payroll deductions are recorded as liabilities. net pay is recorded as salaries and wages expense and payroll deductions are recorded as liabilities. gross earnings are recorded as salaries and wages payable.

payroll deductions are recorded as liabilities. Payroll deductions are recorded as liabilities. Gross earnings are recorded as salaries and wages expenses. Net pay is recorded as salaries and wages payable.

In 2017, Costello Company performs work for a customer and bills the customer $10,000; it also pays expenses of $3,000. The customer pays Costello in 2018. If Costello uses the accrual-basis of accounting, then Costello will report

revenue of $10,000 in 2017. The accrual-basis of accounting records revenues when the performance obligation is satisfied and expenses when incurred. Cash movement is not necessary.

The generally accepted accounting principle which dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied is the

revenue recognition principle

Net income will result during a time period when

revenues exceed expenses.

common stock results when

the company sells new shares of stock