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Exam 3: Reporting Operating Results on the Income Statement

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Question 51

True/False

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When accrual basis accounting is used,net income equals the amount of cash generated by the business.

A) True
B) False

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Question 52

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Which of the following statements about revenue and expense accounts is correct?

A) Revenue accounts are a subset of assets, and expense accounts are subcategories of liabilities.
B) Both revenue accounts and expense accounts are subcategories of assets.
C) Both revenue accounts and expense accounts are subcategories of Retained Earnings.
D) Revenue accounts are a subcategory of Cash and expense accounts are a subcategory of Accounts Payable.

E) A) and D)
F) B) and C)

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Question 53

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Which of the following September transactions would impact the September income statement?

An increase in revenue always:

Sparkling Pools performed $1,600 of pool maintenance services during July; the customers had paid in advance for these services in June.The company performed $1,000 of pool maintenance services during July and collected payment from those customers in August.Also,during July,the company accepted an order to perform $500 of pool maintenance services in August; the customers will pay for these services in August.The company uses accrual basis accounting.The Service Revenue account should be credited for:

The following activities took place during the month of November at a corporation that operates a clothing store. 1.Salaries and wages in the amount of $33,000 are paid to employees. 2.On the last day of November,the company acquires equipment on account of $55,000. 3.Payment of $375 made on account to a consulting firm for services received from that firm during October. 4.Payment of $12,000 made at the beginning of November for six months of rent; the period covered by the payment begins in November. 5.Utility bills in the amount of $125 arrive in the mail; the bills will not be paid until December. Required: For each activity,indicate the amount of expense that would be recorded in November.

The entry recorded by a law firm when it provides the service it previously recorded as Unearned Revenue includes a:

Which of the following accounts does not have a normal credit balance?

Assume accrual basis accounting is used.Which of the following statements about income statement accounts is correct?

Quartz Instruments had Retained Earnings of $145,000 at December 31,2015.Net income for 2016 was $90,000,and dividends for 2016 were $30,000.What amount of Retained Earnings should be reported at December 31,2016?

The Metropolitan Bakery paid $12,000 in advance for six months of rent.Which of the following records this transaction?

Accounts Receivable had beginning balance of $4,210 and an ending balance of $3,495,and collections on account were $9,600.What was the amount of services that were performed on account?

Assume that accrual basis accounting is used.Which of the following errors would most likely lead to an overstatement of net income in the current year?

Revenues are increased with:

Your company contracted for a 30-second commercial (an advertisement) that aired during the Super Bowl at a cost of $1.2 million.It is legally obligated to pay for the commercial,but has not yet done so.How is your company's balance sheet affected on the day the commercial aired?

Which of the following statements about cash basis accounting and accrual basis accounting is correct?

The journal entry that records the collection of cash from a customer for payment on account for a sale that was recorded previously includes a debit to:

A company entered into the following transactions during April. A.Signed a lease and made a payment of $4,500 to the landlord comprised of the current month's rent of $1,500 and the required $3,000 security deposit. B.Purchased equipment on account for $35,000. C.Purchased supplies for $6,500 on account. D.Performed services and received cash of $57,000. E.Performed services on account for $28,000. F.Received a payment of $24,000 for services to be performed in the future. G.Collected $14,000 from customers on account. H.Paid employees $11,000 for work done during the month. I.Made a $35,000 payment on account for equipment that was purchased above. J.Made a payment of $6,500 on account for the supplies purchased above. K.Received bills for the current month from telephone and electricity companies totaling $3,800; payments will be made next month. Required: Prepare journal entries for the transactions set forth above.

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 of Accounts Receivable at December 31,2016?

Match the letter and the blank in each transaction description to complete the analysis.Not all terms will be used and some terms may be used more than once. TRANSACTION 1.A company pays wages.This is recorded as a(n)________ to Cash and a(n)________ to Salaries and Wages Expense. 2.A company is paid for a job completed last month.This is recorded as a debit to ________ and a credit to ________. 3.A restaurant buys and immediately uses ingredients.This is recorded as a(n)________ to an expense account and a(n)________ to Cash. 4.A customer pays in advance for services to be performed during the next month.This is recorded as a ________ to Cash and a ________ to ________. 5.A company receives cash for a job that was completed during the current month.This is recorded as a debit to ________ and a credit to ________. TERM A.debit B.credit C.Accounts Payable D.Accounts Receivable E.Cash F.Notes Payable G.Service Revenue H.Supplies I.Unearned Revenue