Question 1

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?

Accepted Answer

A)   The company's accounts payable will include the $20,000 on the February month-end balance sheet.
B)   The statement of cash flows will report an operating cash outflow of $20,000 during March.
C)  The income statement will report cost of goods sold of $20,000 during February.
D)  The company's inventory will include the $20,000 on the February month-end balance sheet.E) A) and B)
F) C) and D)

Question 2

The primary difference between revenues and gains is:

Accepted Answer

A)   Gains are increases in net assets from peripheral activities while revenues are increases from ongoing activities.
B)   Revenues increase operating income and gains have no impact on net income.
C)  Revenues cause increases in net assets as a result of peripheral activities and gains cause increases through ongoing activities.
D)  Gains result in an increase in operating income whereas revenues do not impact operating income.E) A) and B)
F) C) and D)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Which of the following journal entries is correct when a company has incurred an expense for work performed but has not yet paid for theses salaries to employees? A. Salaries expense
 \quad Operating income
B. Salaries expense
 \quad Accrued expenses payable
C. Accrued expenses payable 
 \quad Cash
D. Retained earnings
 \quad Salaries expense

Accepted Answer

A)   Option A
B)   Option B
C)  Option C
D)  Option D E) All of the above
F) A) and D)

Question 5

During 2014, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid during 2015. Which of the following is correct for the 2014 year-end balance sheet?

Accepted Answer

A)   Stockholders' equity decreases $75,000 and assets decrease $75,000.
B)   Assets decrease $100,000 and stockholders' equity decreases $100,000.
C)  Assets decrease $100,000, liabilities increase $25,000, and stockholders' equity decreases $100,000.
D)  Stockholders' equity decreases $100,000, assets decrease $75,000, and liabilities increase $25,000.E) B) and D)
F) A) and B)

Question 6

What is the operating cycle? Describe a business entity with an operating cycle of less than six months and a business with an operating cycle of more than one year.

Accepted Answer

The operating cycle is the time that ela...

Question 7

Garret Company has provided the following selected information for the year ended December 31, 2014: Cash collected from customers was $783,000.
Cash received from stockholders in exchange for common 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 operating activities?

Accepted Answer

A)   $131,000.
B)   $98,000.
C)  $381,000.
D)  $222,000.E) A) and C)
F) A) and B)

Question 8

Which of the following best describes the time period assumption?

Accepted Answer

A)   It assumes we value a business as of the end of every month.
B)   It is the cutoff point for asset and liability recognition.
C)  It implies that financial statements are prepared at the end of a business entity's operating cycle.
D)  It assumes we divide the long life of a business into a series of shorter time periods for accounting and reporting purposes.E) B) and C)
F) A) and D)

Question 9

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?

Accepted Answer

A)   Cost of goods sold was debited for $8,700.
B)   Operating expenses increased $8,700.
C)  Operating income decreased $8,700.
D)  Supplies was debited for $8,700.E) C) and D)
F) All of the above

Question 10

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?

Accepted Answer

A)   Unearned revenues decreased and were debited.
B)   Revenues increased and were credited.
C)  Stockholders' equity will increase.
D)  Total assets will increase.E) C) and D)
F) A) and C)

Question 11

Revenue accounts have credit balances because they increase stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)   Wages payable.
B)   Unearned subscriptions revenue.
C)  Accounts payable.
D)  Taxes payable.E) C) and D)
F) B) and C)

Question 13

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.
Prepaid rent expense was $5,000.
How much was Colby's net income?

Accepted Answer

A)   $39,100.
B)   $48,300.
C)  $52,700.
D)  $46,800.E) B) and C)
F) A) and D)

Question 14

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

Accepted Answer

A)   It is reported as an operating expense.
B)   It is a component of operating income.
C)  It is deducted from operating income.
D)  It is added to operating income.E) All of the above
F) B) and C)

Question 15

On December 31, 2014, Avery Corporation paid $10,000 for next year's insurance policy. This transaction should be recorded as follows by Avery:

Accepted Answer

A)   Option A
B)   Option B
C)  Option C
D)  Option DE) B) and C)
F) B) and D)

Question 16

A landlord collected $5,000 cash from a tenant for December 2015'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?

Accepted Answer

A)   $8,000 would be reported on the statement of cash flows.
B)   $8,000 would appear on the balance sheet as rent receivable.
C)  $8,000 would appear on the income statement as rent revenue earned.
D)  $5,000 would appear on the balance sheet as prepaid rent.E) A) and B)
F) B) and D)

Question 17

Collections from customers are cash flows from operating activities.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)   Cash collected from customers.
B)   Cash paid to suppliers.
C)  Cash paid for employee wages.
D)  Cash paid for dividends to the company's stockholders.E) A) and C)
F) All of the above

Question 19

Toy Shop Inc. has provided the following income statements:  Requirement:
(1) Compute net profit margin for each year.
(2) Discuss some of the events that could have caused the changes to the net profit margin based on the income statement information above.

Accepted Answer

(1) In 2015, (3.8%); in 2014, 4.5%; and ...

Question 20

During 2014, Sigma Company earned service revenues amounting to $700,000, of which $630,000 was collected in cash; the balance will be collected in January, 2015. Also in 2014 there were collections of cash prior to the delivery of goods/services totaling $10,000. What amount should the 2014 income statement report for service revenues?

Accepted Answer

A)   $630,000.
B)   $700,000.
C)  $70,000.
D)  $570,000.E) A) and D)
F) A) and B)

Exam 3: Operating Decisions and the Accounting System

What is the operating cycle? Describe a business entity with an operating cycle of less than six months and a business with an operating cycle of more than one year.

Correct Answer
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The operating cycle is the time that ela...
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Correct Answer
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Correct Answer
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Which of the following describes the reporting of interest expense on the income statement?

Correct Answer
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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?

Correct Answer
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On December 31, 2014, Avery Corporation paid $10,000 for next year's insurance policy. This transaction should be recorded as follows by Avery:

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

Correct Answer
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Which of the following transactions would not be reported as cash flow from operating activities on a cash flow statement?

Correct Answer
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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?

Correct Answer
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During 2014, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid during 2015. Which of the following is correct for the 2014 year-end balance sheet?

Correct Answer
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The primary difference between revenues and gains is:

Correct Answer
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Which of the following best describes the time period assumption?

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

Correct Answer
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A landlord collected $5,000 cash from a tenant for December 2015'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?

Correct Answer
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Collections from customers are cash flows from operating activities.

Correct Answer
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Toy Shop Inc. has provided the following income statements: Requirement: (1) Compute net profit margin for each year. (2) Discuss some of the events that could have caused the changes to the net profit margin based on the income statement information above.

Correct Answer
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(1) In 2015, (3.8%); in 2014, 4.5%; and ...
View Answer

Revenue accounts have credit balances because they increase stockholders' equity.

Correct Answer
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Correct Answer
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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?

Correct Answer
verified

Exam 3: Operating Decisions and the Accounting System

What is the operating cycle? Describe a business entity with an operating cycle of less than six months and a business with an operating cycle of more than one year.

Correct AnswerverifiedThe operating cycle is the time that ela...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

On December 31, 2014, Avery Corporation paid $10,000 for next year's insurance policy. This transaction should be recorded as follows by Avery:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

During 2014, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid during 2015. Which of the following is correct for the 2014 year-end balance sheet?

Correct AnswerverifiedShow Answer

The primary difference between revenues and gains is:

Correct AnswerverifiedShow Answer

Which of the following best describes the time period assumption?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A landlord collected $5,000 cash from a tenant for December 2015'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?

Correct AnswerverifiedShow Answer

Collections from customers are cash flows from operating activities.

Correct AnswerverifiedShow Answer

Toy Shop Inc. has provided the following income statements: Requirement: (1) Compute net profit margin for each year. (2) Discuss some of the events that could have caused the changes to the net profit margin based on the income statement information above.

Correct Answerverified(1) In 2015, (3.8%); in 2014, 4.5%; and ...View AnswerShow Answer

Revenue accounts have credit balances because they increase stockholders' equity.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct Answer
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The operating cycle is the time that ela...
View Answer

Correct Answer
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(1) In 2015, (3.8%); in 2014, 4.5%; and ...
View Answer

Correct Answer
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