Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is false?

Accepted Answer

A)  An expense is a cost incurred to generate revenues.
B)  Expenses are reported on the income statement as they are incurred.
C)  Revenues are reported on the income statement as they are earned.
D)  Revenues result in an increase in net assets, net income, and contributed capital.E) C) and D)
F) B) and D)

Question 3

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?

Accepted Answer

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

Question 4

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.

Accepted Answer

A)  Revenues are debited for $29,000.
B)  Cost of goods sold is credited for $20,000.
C)  Gain on sale of land is credited for $9,000.
D)  Operating income increases $29,000.E) B) and D)
F) A) and D)

Question 5

Which of the following statements is correct?

Accepted Answer

A)  Dividend income is a component of operating income.
B)  Operating income is decreased by the loss from the sale of plant assets.
C)  A gain on the sale of a stock investment doesn't increase operating income.
D)  Income before taxes doesn't change when a gain results from the sale of plant assets.E) All of the above
F) None of the above

Question 6

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

Accepted Answer

A)   Cash  \quad  Revenues
B)   Cash  \quad  Unearned revenues
C)   Unearned revenues  \quad  \quad  Cash
D)   Cash  \quad  Accounts receivable E) All of the above
F) C) and D)

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  Recording the sale of merchandise on credit as sales revenue.
B)  Recording rent received in advance as unearned rent revenue.
C)  Recording interest revenue when cash is collected rather than when earned.
D)  Reducing the unearned service revenue account for service revenue performed at the end of the accounting period.E) B) and C)
F) A) and C)

Question 10

Which of the following would lengthen the operating cycle?

Accepted Answer

A)  Faster collection of accounts receivables.
B)  Selling inventory in a shorter period of time.
C)  Increasing the number of customers who paid cash.
D)  Relaxing credit terms and allowing customers more time to pay.E) A) and C)
F) All of the above

Question 11

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?

Accepted Answer

A)  Operating expenses are increased.
B)  Retained earnings decreases.
C)  Operating income does not change.
D)  Total assets remain the same.E) None of the above
F) B) and C)

Question 12

Which of the following best describes the operating cycle?

Accepted Answer

A)  It is the length of the manufacturing process.
B)  It is the time that elapses from the purchase of inventory on account to the sale of inventory on account.
C)  It is the time that elapses from the completion of the manufacturing process to the cash collection from sale of the manufactured goods.
D)  It is the time that elapses from the cash payment to suppliers to collection of cash from customers.E) None of the above
F) A) and D)

Question 13

Which of the following statements is false?

Accepted Answer

A)  A liability is created when cash is received prior to delivery of the goods or services.
B)  Revenue is recognized at the time of delivery of the goods or services if cash is received.
C)  Revenue isn't recognized at the time of delivery of goods and services if cash is received after delivery of the goods and services.
D)  Collecting cash after delivery of a good or service does not create revenue on the income statement as of the date of collection.E) All of the above
F) B) and D)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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?

Accepted Answer

A)  $404,000
B)  $411,700
C)  $442,000
D)  $460,700E) A) and C)
F) A) and D)

Question 16

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

Accepted Answer

A)  The customer has paid for the goods or services.
B)  Delivery of goods or performance of service has occurred or is scheduled to occur.
C)  The price is fixed or determinable.
D)  The customer has signed a contract.E) B) and C)
F) None of the above

Question 17

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

Accepted Answer

A)   Insurance Expense  \quad  \quad  10,000  \quad  Insurance Payable  \quad  \quad  \quad  \quad  \quad  10,000
B)   Prepaid Insurance  \quad  \quad  \quad  10,000  \quad  Insurance Payable  \quad  \quad  \quad  \quad  \quad  \quad  10,000
C)   Prepaid Insurance  \quad  \quad  10,000  \quad  Cash  \quad  \quad  \quad  \quad  \quad  \quad  \quad  \quad  \quad  10,000
D)   Insurance Payable  \quad  \quad  10,000  \quad  Cash  \quad  \quad  \quad  \quad  \quad  \quad  \quad  \quad  \quad  10,000 E) A) and B)
F) None of the above

Question 18

Which of the following transactions would not be reported as cash flow from operations 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 dividendsE) None of the above
F) B) and D)

Question 19

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

Accepted Answer

A)  Salaries expense has been incurred but is unpaid.
B)  Cash was used to pay for salaries that were previously recorded as an expense.
C)  Cash was used to pay for salaries that were not previously recorded as an expense.
D)  Cash was used to prepay employee wages.E) A) and B)
F) A) and C)

Question 20

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 inventory was debited for $8,700.E) None of the above
F) B) and C)

Exam 3: Operating Decisions and the Income Statement

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.

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

Correct Answer
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Which of the following best describes the operating cycle?

Correct Answer
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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.

Correct Answer
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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?

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

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

Correct Answer
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On December 31,2010,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 would lengthen the operating cycle?

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

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

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

Correct Answer
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Which of the following statements is false?

Correct Answer
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Which of the following statements is correct?

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

Correct Answer
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Which of the following statements is false?

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

Correct Answer
verified

Exam 3: Operating Decisions and the Income Statement

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following best describes the operating cycle?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

On December 31,2010,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 would lengthen the operating cycle?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

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

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

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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