Exam 3: Operating Decisions and the Accounting System

Why might managers be tempted to violate the revenue recognition principle and the expense recognition principle when preparing an income statement?

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Question 1

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Managers want their companies to appear successful when financial statements are issued. When revenues are as high as possible and expenses as low as possible, net income will be maximized. Managers might be tempted to report revenues even though the revenue recognition process is not complete. Also, if some expenses can be put off until a later time, net income will appear larger. Many times manager bonuses are calculated based on net income. In addition, earnings expectations in the marketplace create tremendous pressures for those expectations to be met. Lower net income could cause an adverse reaction in the market place regarding stock prices.

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?

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Question 2

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Reporting revenues on the income statement that were previously reported as unearned revenues on the balance sheet results in a decrease in liabilities and an increase in net income, retained earnings, and stockholders' equity.

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Question 3

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Which of the following journal entries is correct assuming that Mama June Pizza Company received cash for interest earned on investments?

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Question 4

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

(True/False)

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Question 5

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

(True/False)

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Question 6

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

(Multiple Choice)

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Question 7

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

(Multiple Choice)

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Question 8

Colby Corporation has provided the following information: • Operating revenues from customers were $199,700. • Operating expenses for the store 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. What is the amount of Colby's operating revenues?

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Question 9

Which of the following does not correctly describe the cash basis of accounting?

(Multiple Choice)

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Question 10

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

(Multiple Choice)

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Question 11

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

(Multiple Choice)

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Question 12

June's Printing Shop had the following information for office supplies: • Ordered $1,200 of supplies March 3 • Received half the order of supplies on March 16 • Used one-third of the supplies during March What is the total amount that should be reported as supplies expense for the month of March?

(Multiple Choice)

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Question 13

Which of the following accounts normally have a debit balance?

(Multiple Choice)

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Question 14

Using cash to purchase office supplies, which will be consumed later, results in an increase in expenses and a decrease in assets at the time of purchase.

(True/False)

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Question 15

Describe the difference between operating revenues and gains from the sale of plant and equipment while providing examples of each.

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Question 16

A landlord collected $5,000 cash from a tenant for December 2016'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 using generally accepted accounting principles?

(Multiple Choice)

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Question 17

The core revenue recognition principle has two requirements for recognizing revenue. Which of the following is one of these requirements?

(Multiple Choice)

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Question 18

Describe the difference(s) with respect to the cash basis of accounting and the accrual basis of accounting.

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Question 19

Yelena Company received cash from a customer in advance of providing the service to the customer. Which of the following does not accurately describe the impact on the financial statements when Yelena later provides the service?

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Question 20

Showing 1 - 20 of 128

Why might managers be tempted to violate the revenue recognition principle and the expense recognition principle when preparing an income statement?

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?

Reporting revenues on the income statement that were previously reported as unearned revenues on the balance sheet results in a decrease in liabilities and an increase in net income, retained earnings, and stockholders' equity.

Which of the following journal entries is correct assuming that Mama June Pizza Company received cash for interest earned on investments?

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

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

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

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

Which of the following does not correctly describe the cash basis of accounting?

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

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

Which of the following accounts normally have a debit balance?

Using cash to purchase office supplies, which will be consumed later, results in an increase in expenses and a decrease in assets at the time of purchase.

Describe the difference between operating revenues and gains from the sale of plant and equipment while providing examples of each.

A landlord collected $5,000 cash from a tenant for December 2016'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 using generally accepted accounting principles?

The core revenue recognition principle has two requirements for recognizing revenue. Which of the following is one of these requirements?

Describe the difference(s) with respect to the cash basis of accounting and the accrual basis of accounting.

Yelena Company received cash from a customer in advance of providing the service to the customer. Which of the following does not accurately describe the impact on the financial statements when Yelena later provides the service?

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 Bond Securities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

PPA: Reporting and Interpreting Investments in Other Corporations

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