Exam 3: Operating Decisions and the Accounting System

Complete the chart below for McRae Corporation by entering check marks in the appropriate spaces. *Assume a cash transaction unless otherwise stated

Revenue collected in advance of being earned represents a liability until it is earned.

In a well-run business,creditors expect the total asset turnover ratio to fluctuate due to seasonal upswings and downturns.

Explain why a $500 revenue collected in advance for service would be recorded as a debit to cash and a credit to a liability account.

The revenue principle recognizes revenue from the sale of goods when ownership passes from the seller to the buyer.In the sale of services,revenue is recognized when the services are completed.

Which of the following is not considered an asset?

What would be the effect on December's income statement of a utility bill received on December 27,2011 but which will not be paid until January 10,2012?

Tony's Tune-Up Shop Ltd.follows the revenue recognition principle.Tony services a car on May 31.The customer picks up the vehicle on June 1 and mails the payment to Tony on June 5.Tony receives the cheque in the mail on June 6.When should Tony show that the revenue was earned?

We record insurance as an expense when we pay for a three year policy.

Cash receipts from interest are classified as

A company receives a $25,000 cash deposit from a customer on March 15 but will not deliver the goods until April 20.Which of the following statements is false?

Indicate the sequential order of the following steps in the accounting information processing cycle by entering numbers to the left.The earliest step will be 1 and the last step will be 6. ____ Analyzing transactions ____ Preparing financial statements ____ Developing a trial balance ____ Collecting original data ____ Posting to the accounts ____ Journalizing transactions

On June 1,20A,Global Services,Inc.,was started with $50,000 invested by the owners as share capital.On June 30,the accounting records contained the following amounts: Prepare an income statement for the month ended June 30,20A.

Unadjusted financial statements do not reflect revenues earned or expenses incurred in the accounting period if the receipt or payment of cash occurs in a different period.

Collection of a customer's account has an impact on total assets.

Calculate the effective tax rate for a company that reports an income tax expense of $3.0 million,profit of $7.5 million,and income before taxes of $10.5 million.

When the board of directors declares a cash dividend to be paid to shareholders,shareholders' equity increases.

Financial analysts look to the income statement to determine which of the following?

Revenues increase shareholders' equity,so they are recorded with credits.

Which of the following activities will most likely result in a reported loss on the income statement?