Question 1

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. 
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.

Question 2

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. 
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.

Question 3

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. 
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.

Question 4

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

Question 5

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 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

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

Accepted Answer

A) True 
 B)False

Question 8

Collections from customers are cash flows from operating activities.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

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. 
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.

Question 11

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

Question 12

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. 
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.

Question 13

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. 
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.

Question 14

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. 
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.

Question 15

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

Question 16

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 17

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

Question 18

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

Question 19

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

Question 20

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. 
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.

The primary difference between revenues and gains is:

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?

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?

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.

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.

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

Collections from customers are cash flows from operating activities.

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?

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?

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?

Which of the following best describes the time period assumption?

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

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

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

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

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

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

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Exam 3: Operating Decisions and the Accounting System

The primary difference between revenues and gains is:

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?

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?

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.

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.

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

Collections from customers are cash flows from operating activities.

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?

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?

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?

Which of the following best describes the time period assumption?

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

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

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

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

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

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

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