Question 1

Which of the following practices would not be considered ethical?

Accepted Answer

A)  Failing to record an expense even though cash has been paid. 
B)  Recording 31 days of sales in April. 
C)  Using the cash basis of accounting. 
D)  Adjusting the accounts after a trial balance has been prepared. 
A)  Failing to record an expense even though cash has been paid. 
B)  Recording 31 days of sales in April. 
C)  Using the cash basis of accounting. 
D)  Adjusting the accounts after a trial balance has been prepared.

Question 2

Customers made payments totaling $8,000 on their accounts.Which accounts are affected by this transaction?

Accepted Answer

A)  Service Revenue and Retained Earnings increase by $8,000. 
B)  Cash and Service Revenue increase by $8,000. Liabilities and Customer Expense increase by $8,000. 
C)  Cash increases by $8,000 and Accounts Receivable decreases by $8,000. Revenue and Retained Earnings are unchanged. 
D)  Cash and liabilities decrease by $8,000. 
A)  Service Revenue and Retained Earnings increase by $8,000. 
B)  Cash and Service Revenue increase by $8,000. Liabilities and Customer Expense increase by $8,000. 
C)  Cash increases by $8,000 and Accounts Receivable decreases by $8,000. Revenue and Retained Earnings are unchanged. 
D)  Cash and liabilities decrease by $8,000.

Question 3

To evaluate a company's net profit margin,it is best to compare it to another company in the same industry.

Accepted Answer

A) True 
 B)False

Question 4

Assume that a company uses accrual basis accounting.For each of the following,indicate the effect the situation would have on net income in the current period.
SITUATION
1._____ Recording prepaid costs as current expenses
2._____ Recording an expense at more than the actual cost
3._____ Failing to record the receipt of a payment by a customer on account
4._____ Failing to record some supplies received
5._____ Recording unearned revenue as revenue
6._____ Recording an expense as revenue
7._____ Failing to record the company issuing additional shares of its own common stock
IMPACT ON NET INCOME
O - Overstate net income
U - Understate net income
N/A - Not applicable; no effect on net income

Accepted Answer

1.U
2.U
3.

Question 5

The following account balances are taken from the December 31, 2015, financial statements of ABZ Advertising Company.The company uses accrual basis accounting.
   
The following activities occurred in 2016:
1.Performed advertising services on account, $55,000.
2.Received cash payments on account, $10,400.
3.Received deposits from customers for advertising services to be performed in 2017, $2,500.
4.Made payments to suppliers on account, $5,000.
5.Incurred $45,000 of operating expenses; $39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year.
-Use the information above to answer the following question.What is the balance in the Cash account at December 31,2016?

Accepted Answer

A)  $46,116. 
B)  $41,516. 
C)  $10,416. 
D)  $46,916. 
A)  $46,116. 
B)  $41,516. 
C)  $10,416. 
D)  $46,916.

Question 6

On June 30,a company paid a premium of $2,400 for one year of insurance coverage,which started on July 1.The company has a calendar year-end.Which of the following statements about this situation is correct?

Accepted Answer

A)  On June 30, Cash would be debited for $2,400. 
B)  Insurance Expense of $1,200 will be reported on the income statement for the year ending December 31. 
C)  Prepaid Insurance of $200 will be reported on the balance sheet at December 31. 
D)  Prepaid Insurance of $2,400 will be reported on the balance sheet at December 31. 
A)  On June 30, Cash would be debited for $2,400. 
B)  Insurance Expense of $1,200 will be reported on the income statement for the year ending December 31. 
C)  Prepaid Insurance of $200 will be reported on the balance sheet at December 31. 
D)  Prepaid Insurance of $2,400 will be reported on the balance sheet at December 31.

Question 7

Time Warner is a publishing and communications company,specializing in magazines,cable television operation,television program development,and other telecommunication services.Its financial statements show $37,666 in an account called Unearned Revenue,which represents amounts that customers have paid in advance of receiving magazines,cable television,and internet services.What type of account is this and on what statement is it reported?

Accepted Answer

A)  Asset; Balance Sheet 
B)  Liability; Balance Sheet 
C)  Revenue; Balance Sheet 
D)  Revenue; Income Statement 
A)  Asset; Balance Sheet 
B)  Liability; Balance Sheet 
C)  Revenue; Balance Sheet 
D)  Revenue; Income Statement

Question 8

The following transactions occurred during July:
1.Received $800 cash for services performed during July.
2.Received $5,000 cash from the issuance of common stock to owners.
3.Received $400 from a customer as payment for services performed during June.
4.Billed $3,500 to customers for services performed on account in July.
5.Borrowed $2,500 from the bank and signed a promissory note.
6.Received $1,000 from a customer for services to be performed during August.
-Use the information above to answer the following question.As a result of these transactions,what is the amount of the increase to the Cash account?

Accepted Answer

A)  $9,700. 
B)  $13,200. 
C)  $2,200. 
D)  $7,200. 
A)  $9,700. 
B)  $13,200. 
C)  $2,200. 
D)  $7,200.

Question 9

During January 2015, the first month of operations, a consulting firm had following transactions:
1.Issued common stock to owners in exchange for $20,000 cash.
2.Purchased $5,000 of equipment, paying $1,000 cash and signing a promissory note for $4,000.
3.Received $9,000 in cash for consulting services performed in January.
4.Purchased $1,500 of supplies on account; all of the supplies were used in January.
5.Provided consulting services on account in the amount of $16,000.
6.Paid $750 on account.
7.Paid $3,000 to employees for work performed during January.
8.Received a bill for utilities for January of $3,400; the bill remains unpaid.
-Use the information above to answer the following question.What is subtotal of expenses that will be reported on the income statement for the month ended January 31?

Accepted Answer

A)  $3,750. 
B)  $7,900. 
C)  $8,150. 
D)  $4,500. 
A)  $3,750. 
B)  $7,900. 
C)  $8,150. 
D)  $4,500.

Question 10

Match the term and the definition.There are more definitions than terms.
TERM
1._____ Unearned Revenue
2._____ Revenue Recognition Principle
3._____ Accrual Basis
4._____ Time Period Assumption
5._____ Expense
6._____ Net Income
DEFINITION
A.To reduce the recorded value of an asset to better reflect its true market value.
B.Any outlay of money by a company for any purpose.
C.The practice of dividing the life of the business into months and years.
D.The concept that revenue and expenses should be recorded at the time received or paid.
E.The concept that revenue should be recorded when earned,not necessarily when payment is received.
F.Revenues should be recorded when they are earned and expenses when they are incurred.
G.Total revenue minus total expenses.
H.Any use or sacrifice of a company's resources to generate revenue.
I.The increase in value of financial assets held by a company.
J.Payments received for goods that have not yet been delivered or services that have not yet been performed.
K.The concept that a company should record revenue during the same period as expenses.

Accepted Answer

1.J
2.E
3.

Question 11

On the last day of the month,a company receives $8,000 of cash from customers.Of that amount,$1,000 was for services performed and $7,000 represented payments on account.The journal entry to record the $8,000 cash receipt would include a debit to:

Accepted Answer

A)  Accounts Receivable for $7,000, a debit to Service Revenue for $1,000, and a credit for $8,000 to Cash. 
B)  Cash for $8,000, a credit to Accounts Receivable for $7,000, and a credit to Service Revenue for $1,000. 
C)  Accounts Receivable for $7,000, a debit to Unearned Revenue for $1,000, and a credit to Cash for $8,000. 
D)  Cash for $8,000, a debit to Service Revenue for $1,000, and a credit to Accounts Receivable for $7,000. 
A)  Accounts Receivable for $7,000, a debit to Service Revenue for $1,000, and a credit for $8,000 to Cash. 
B)  Cash for $8,000, a credit to Accounts Receivable for $7,000, and a credit to Service Revenue for $1,000. 
C)  Accounts Receivable for $7,000, a debit to Unearned Revenue for $1,000, and a credit to Cash for $8,000. 
D)  Cash for $8,000, a debit to Service Revenue for $1,000, and a credit to Accounts Receivable for $7,000.

Question 12

When a company pays cash in advance for rent that is to be used over the next two years,the company records a debit to ______ and a credit to ______:
Prepaid

Accepted Answer

A)  Rent; Cash Rent 
B)  Expense; Cash 
C)  Cash; Prepaid Rent 
D)  Prepaid Rent; Accounts Receivable 
A)  Rent; Cash Rent 
B)  Expense; Cash 
C)  Cash; Prepaid Rent 
D)  Prepaid Rent; Accounts Receivable

Question 13

Which of the following is an expense of this period?

Accepted Answer

A)  Costs of items used up this period but paid for next period 
B)  Costs of items paid for in this period but used up next period 
C)  Cost of land purchased and paid for this period 
D)  Repayment of debt from a loan in a prior period 
A)  Costs of items used up this period but paid for next period 
B)  Costs of items paid for in this period but used up next period 
C)  Cost of land purchased and paid for this period 
D)  Repayment of debt from a loan in a prior period

Question 14

The following account balances are taken from the December 31, 2015, financial statements of ABZ Advertising Company.The company uses accrual basis accounting.
   
The following activities occurred in 2016:
1.Performed advertising services on account, $55,000.
2.Received cash payments on account, $10,400.
3.Received deposits from customers for advertising services to be performed in 2017, $2,500.
4.Made payments to suppliers on account, $5,000.
5.Incurred $45,000 of operating expenses; $39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year.
-Use the information above to answer the following question.Which of the following is the journal entry that will be used to record activity #4?

Accepted Answer

A)  Debit Operating Expense and credit Cash for $5,000 
B)  Debit Accounts Payable and credit Cash for $5,000 
C)  Debit Accounts Payable and credit Operating Expense for $5,000 
D)  Debit Cash and credit Accounts Payable for $5,000 
A)  Debit Operating Expense and credit Cash for $5,000 
B)  Debit Accounts Payable and credit Cash for $5,000 
C)  Debit Accounts Payable and credit Operating Expense for $5,000 
D)  Debit Cash and credit Accounts Payable for $5,000

Question 15

During 2015, Maverick Law Firm had the following transactions with it clients (customers):
-On February 1, 2015, the company received cash of $5,000 from clients in payment of their account balances as of December 31, 2014.
-On November 1, 2015, the company received $2,000 cash as payments in advance for law services to be performed in 2016.
-The company received a total of $13,000 in cash for law services that were performed during 2015.
-The company sent bills totaling $4,000 to clients for services performed during 2015; this amount was unpaid as December 31, 2015.
-Use the information above to answer the following question.Based on the activities above,as a result of these transactions during 2015,the law firm's stockholders' equity will:

Accepted Answer

A)  increase by $20,000. 
B)  decrease by $5,000. 
C)  increase by $17,000. 
D)  decrease by $2,000. 
A)  increase by $20,000. 
B)  decrease by $5,000. 
C)  increase by $17,000. 
D)  decrease by $2,000.

Question 16

This month,Grass is Greener Lawn Service pays cash for $4,000 of grass fertilizer to be used two months from now.What journal entry will Grass is Greener record this month?

Accepted Answer

A)  Debit Cash and credit Supplies Expense for $4,000. 
B)  Debit Supplies Expense and credit Accounts Payable for $4,000. 
C)  Debit Supplies and credit Cash for $4,000. 
D)  Debit Retained Earnings and credit Accounts Payable for $4,000. 
A)  Debit Cash and credit Supplies Expense for $4,000. 
B)  Debit Supplies Expense and credit Accounts Payable for $4,000. 
C)  Debit Supplies and credit Cash for $4,000. 
D)  Debit Retained Earnings and credit Accounts Payable for $4,000.

Question 17

Which of the following statements about the income statement is not correct?

Accepted Answer

A)  Amounts received from customers for services performed in the current month would be revenues on the income statement. 
B)  Costs incurred in the current month but not paid as of the end of the month would be expenses on the income statement for the current month. 
C)  Amounts received from customers in payment of their accounts arising from service in the prior period would be revenues in the income statement for the current period. 
D)  Amounts received from customer as deposits for services to be rendered next month will not be recorded as revenues on the income statement for the current month. 
A)  Amounts received from customers for services performed in the current month would be revenues on the income statement. 
B)  Costs incurred in the current month but not paid as of the end of the month would be expenses on the income statement for the current month. 
C)  Amounts received from customers in payment of their accounts arising from service in the prior period would be revenues in the income statement for the current period. 
D)  Amounts received from customer as deposits for services to be rendered next month will not be recorded as revenues on the income statement for the current month.

Question 18

GAAP does not allow cash basis accounting to be used in external financial reports.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following line items appear on an income statement?

Accepted Answer

A)  Accounts Receivable 
B)  Cash 
C)  Supplies Expense 
D)  Salaries and Wages Payable 
A)  Accounts Receivable 
B)  Cash 
C)  Supplies Expense 
D)  Salaries and Wages Payable

Question 20

During May,Sea the World Cruises,Inc.collected $1,000 cash from a customer for services to be provided during June.Which of the following statements about this transaction is correct?

Accepted Answer

A)  $1,000 of revenue should be recorded in May. 
B)  $500 of revenue should be recorded in May and $500 in June. 
C)  $1,000 of revenue should be recorded in June. 
D)  No revenue should be recorded for these events because they relate only to the balance sheet. 
A)  $1,000 of revenue should be recorded in May. 
B)  $500 of revenue should be recorded in May and $500 in June. 
C)  $1,000 of revenue should be recorded in June. 
D)  No revenue should be recorded for these events because they relate only to the balance sheet.

Which of the following practices would not be considered ethical?

Customers made payments totaling $8,000 on their accounts.Which accounts are affected by this transaction?

To evaluate a company's net profit margin,it is best to compare it to another company in the same industry.

On June 30,a company paid a premium of $2,400 for one year of insurance coverage,which started on July 1.The company has a calendar year-end.Which of the following statements about this situation is correct?

On the last day of the month,a company receives $8,000 of cash from customers.Of that amount,$1,000 was for services performed and $7,000 represented payments on account.The journal entry to record the $8,000 cash receipt would include a debit to:

When a company pays cash in advance for rent that is to be used over the next two years,the company records a debit to and a credit to : Prepaid

Which of the following is an expense of this period?

This month,Grass is Greener Lawn Service pays cash for $4,000 of grass fertilizer to be used two months from now.What journal entry will Grass is Greener record this month?

Which of the following statements about the income statement is not correct?

GAAP does not allow cash basis accounting to be used in external financial reports.

Which of the following line items appear on an income statement?

During May,Sea the World Cruises,Inc.collected $1,000 cash from a customer for services to be provided during June.Which of the following statements about this transaction is correct?

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

Exam 3: Reporting Operating Results on the Income Statement

Which of the following practices would not be considered ethical?

Customers made payments totaling $8,000 on their accounts.Which accounts are affected by this transaction?

To evaluate a company's net profit margin,it is best to compare it to another company in the same industry.

On June 30,a company paid a premium of $2,400 for one year of insurance coverage,which started on July 1.The company has a calendar year-end.Which of the following statements about this situation is correct?

On the last day of the month,a company receives $8,000 of cash from customers.Of that amount,$1,000 was for services performed and $7,000 represented payments on account.The journal entry to record the $8,000 cash receipt would include a debit to:

When a company pays cash in advance for rent that is to be used over the next two years,the company records a debit to ______ and a credit to ______: Prepaid

Which of the following is an expense of this period?

This month,Grass is Greener Lawn Service pays cash for $4,000 of grass fertilizer to be used two months from now.What journal entry will Grass is Greener record this month?

Which of the following statements about the income statement is not correct?

GAAP does not allow cash basis accounting to be used in external financial reports.

Which of the following line items appear on an income statement?

During May,Sea the World Cruises,Inc.collected $1,000 cash from a customer for services to be provided during June.Which of the following statements about this transaction is correct?

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

When a company pays cash in advance for rent that is to be used over the next two years,the company records a debit to and a credit to : Prepaid