Question 1

The net profit margin ratio is calculated by dividing net sales by net income.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements regarding the net profit margin ratio is false?

Accepted Answer

A)  The numerator is net income. 
B)  The denominator is net sales or operating revenues. 
C) It measures how much of every sales dollar is gross profit. 
D) Financial analysts expect well-run businesses to maintain or improve their profit margin over time. 
A)  The numerator is net income. 
B)  The denominator is net sales or operating revenues. 
C) It measures how much of every sales dollar is gross profit. 
D) Financial analysts expect well-run businesses to maintain or improve their profit margin over time.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Which of the following best describes the expense matching principle?

Accepted Answer

A)  It requires expenses to be recorded when they are paid for. 
B)  It requires expenses to be recorded when incurred to generate revenues. 
C) It requires expenses to be recorded consistent with the cash basis of accounting. 
D) It does not allow expenses to be recorded if they are incurred prior to being paiD.The matching principle requires that expenses be recorded when incurred in earning revenue. 
A)  It requires expenses to be recorded when they are paid for. 
B)  It requires expenses to be recorded when incurred to generate revenues. 
C) It requires expenses to be recorded consistent with the cash basis of accounting. 
D) It does not allow expenses to be recorded if they are incurred prior to being paiD.The matching principle requires that expenses be recorded when incurred in earning revenue.

Question 6

When the board of directors declares a cash dividend, the retained earnings account is debited.

Accepted Answer

A) True 
 B)False

Question 7

Describe the debit and credit logic pertaining to items reported on the income statement.

Accepted Answer

Revenue and gain accounts have credit ba

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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. 
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.

Question 10

Which of the following accounts does not have a debit balance?

Accepted Answer

A)  Prepaid expenses. 
B)  Insurance expense. 
C) Unearned revenue. 
D) Investments. 
A)  Prepaid expenses. 
B)  Insurance expense. 
C) Unearned revenue. 
D) Investments.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

A gain resulting from the sale of plant and equipment is not reported as operating income on the income statement.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not a criterion pertaining to the revenue realization principle?

Accepted Answer

A)  The goods or services have been delivered. 
B)  The selling price is fixed or determinable. 
C) Collection is reasonably assured. 
D) The cash payment has been receiveD.Under accrual accounting, the revenue realization principle states that revenues are recognized when goods or services are delivered, there is persuasive evidence of an arrangement for customer payment, the price is fixed or determinable, and collection is reasonably assured. 
A)  The goods or services have been delivered. 
B)  The selling price is fixed or determinable. 
C) Collection is reasonably assured. 
D) The cash payment has been receiveD.Under accrual accounting, the revenue realization principle states that revenues are recognized when goods or services are delivered, there is persuasive evidence of an arrangement for customer payment, the price is fixed or determinable, and collection is reasonably assured.

Question 14

Colby Company has provided the following selected information for the year ended December 31, 2014:
Cash collected from customers was $392,000.
Cash received from stockholders in exchange for stock totaled $46,000.
Cash paid to suppliers was $183,000.
Cash paid to employees was $102,000.
Cash received from a long-term bank loan was $75,000.
Cash paid to stockholders for dividends was $17,000.
Cash received from sale of a building was $125,000.
Cash paid for rent was $19,000.
Cash received for interest and dividends was $4,000.
Cash paid for income taxes was $28,000.
Based on the selected information provided, how much was Colby's cash flow from operating activities?

Accepted Answer

Cash flow from operating activ

Question 15

Which of the following statements is false?

Accepted Answer

A)  An expense is a cost incurred to generate revenues. 
B)  Selling assets at a gain does not result in earning revenue. 
C) Revenues are reported on the income statement as they are earned. 
D) Revenues result in an increase in net income and additional paid-in capital. 
A)  An expense is a cost incurred to generate revenues. 
B)  Selling assets at a gain does not result in earning revenue. 
C) Revenues are reported on the income statement as they are earned. 
D) Revenues result in an increase in net income and additional paid-in capital.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not a proper application of the revenue realization 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.Revenue is recorded when earned, not upon the collection of cash. 
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.Revenue is recorded when earned, not upon the collection of cash.

Question 19

Which of the following journal entries correctly records the receipt of a utility bill, which will be paid for in later weeks? A. Utilities payable
$\quad$Utilities expense
B. Utilities expense
$\quad$Utilities payable
C. Utilities expense
$\quad$Retained earnings
D. Retained earnings
$\quad$Utilities payable

Accepted Answer

A)  Option A 
B)  Option B 
C) Option C 
D) Option D 
A)  Option A 
B)  Option B 
C) Option C 
D) Option D

Question 20

Which of the following journal entries is prepared by an auto repair shop when a customer will pay cash subsequent to delivery of goods or services? A. Accounts receivable
$\quad$Revenues
B. Cash
$\quad$Unearned revenues
C. Unearned revenues
$\quad$Cash
D. Revenues
$\quad$Accounts receivable

Accepted Answer

A)  Option A 
B)  Option B 
C) Option C 
D) Option D 
A)  Option A 
B)  Option B 
C) Option C 
D) Option D

The net profit margin ratio is calculated by dividing net sales by net income.

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

Which of the following statements regarding the net profit margin ratio is false?

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

Which of the following best describes the expense matching principle?

When the board of directors declares a cash dividend, the retained earnings account is debited.

Describe the debit and credit logic pertaining to items reported on the income statement.

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

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

Which of the following accounts does not have a debit balance?

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

A gain resulting from the sale of plant and equipment is not reported as operating income on the income statement.

Which of the following is not a criterion pertaining to the revenue realization principle?

Which of the following statements is false?

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

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

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

Which of the following journal entries is prepared by an auto repair shop when a customer will pay cash subsequent to delivery of goods or services? A. Accounts receivable $\quad$ Revenues B. Cash $\quad$ Unearned revenues C. Unearned revenues $\quad$ Cash D. Revenues $\quad$ Accounts receivable

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

Filters

Exam 3: Operating Decisions and the Accounting System

The net profit margin ratio is calculated by dividing net sales by net income.

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

Which of the following statements regarding the net profit margin ratio is false?

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

Which of the following best describes the expense matching principle?

When the board of directors declares a cash dividend, the retained earnings account is debited.

Describe the debit and credit logic pertaining to items reported on the income statement.

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

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

Which of the following accounts does not have a debit balance?

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

A gain resulting from the sale of plant and equipment is not reported as operating income on the income statement.

Which of the following is not a criterion pertaining to the revenue realization principle?

Which of the following statements is false?

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

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

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

Which of the following journal entries is prepared by an auto repair shop when a customer will pay cash subsequent to delivery of goods or services? A. Accounts receivable \quad Revenues B. Cash \quad Unearned revenues C. Unearned revenues \quad Cash D. Revenues \quad Accounts receivable

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

Filters

Which of the following journal entries is prepared by an auto repair shop when a customer will pay cash subsequent to delivery of goods or services? A. Accounts receivable $\quad$ Revenues B. Cash $\quad$ Unearned revenues C. Unearned revenues $\quad$ Cash D. Revenues $\quad$ Accounts receivable