Question 1

The period of time between buying assets to be sold to customers and collecting cash from customers is the operating cycle.

Accepted Answer

A) True 
 B)False

Question 2

The net profit margin:

Accepted Answer

A) measures how much profit from each dollar of revenue. 
B) means improved performance if it decreases. 
C) means weaker performance if it increases. 
D) measures the percentage of assets financed by debt. 
A) measures how much profit from each dollar of revenue. 
B) means improved performance if it decreases. 
C) means weaker performance if it increases. 
D) measures the percentage of assets financed by debt.

Question 3

The following transactions occurred during July: 1.Received $1,600 cash for services performed during July.
2.Received $10,000 cash from the issuance of common stock to owners.
3.Received $800 from a customer as payment for services performed during June.
4.Billed $7,000 to customers for services performed on account in July.
5.Borrowed $5,000 from the bank and signed a promissory note.
6.Received $2,000 from a customer for services to be performed during August.
Which of the following statements about the recording of these transactions is correct?

Accepted Answer

A) Transaction #1 would include a debit to Service Revenue. 
B) Transaction #3 would include a debit to Accounts Receivable. 
C) Transaction #4 would include a debit to Accounts Receivable. 
D) Transaction #6 would include a debit to Deferred Revenue. 
A) Transaction #1 would include a debit to Service Revenue. 
B) Transaction #3 would include a debit to Accounts Receivable. 
C) Transaction #4 would include a debit to Accounts Receivable. 
D) Transaction #6 would include a debit to Deferred Revenue.

Question 4

The following account balances are taken from the December 31,2018,financial statements of ABZ Advertising Company.The company uses accrual basis accounting. $\begin{array}{lr}
\text { Advertising Revenue } & 46,482 \
\text { Cash } & 41,516 \
\text { Accounts Receivable } & 7,296 \
\text { Interest Expense } & 2,299 \
\text { Accounts Payable } & 5,000 \
\text { Operating Expenses } & 37,460 \
\text { Deferred Revenue } & 1,178 \
\text { Equipment } & 18,048 \
\text { Income Tax Expense } & 2,326
\end{array}$ The following activities occurred in 2019:
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 2020,$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.
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 5

The following account balances are taken from the December 31,2018,financial statements of ABZ Advertising Company.The company uses accrual basis accounting. $\begin{array}{lr}
\text { Advertising Revenue } & 46,482 \
\text { Cash } & 41,516 \
\text { Accounts Receivable } & 7,296 \
\text { Interest Expense } & 2,299 \
\text { Accounts Payable } & 5,000 \
\text { Operating Expenses } & 37,460 \
\text { Deferred Revenue } & 1,178 \
\text { Equipment } & 18,048 \
\text { Income Tax Expense } & 2,326
\end{array}$ The following activities occurred in 2019:
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 2020,$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.
Which of the following is the journal entry that will be used to record activity #3?

Accepted Answer

A) Debit Cash and credit Deferred Revenue for $2,500. 
B) Debit Deferred Revenue and credit Advertising Revenue for $2,500. 
C) Debit Cash and credit Accounts Receivable for $2,500. 
D) Debit Deferred Revenue and credit Receivable for $2,500. 
A) Debit Cash and credit Deferred Revenue for $2,500. 
B) Debit Deferred Revenue and credit Advertising Revenue for $2,500. 
C) Debit Cash and credit Accounts Receivable for $2,500. 
D) Debit Deferred Revenue and credit Receivable for $2,500.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

When a company makes a payment for amounts owed from prior purchases,it will record a debit to ________ and a credit to ________.

Accepted Answer

A) Accounts Payable;Cash 
B) an expense;Cash 
C) Accounts Payable;Retained Earnings 
D) Cash;an expense 
A) Accounts Payable;Cash 
B) an expense;Cash 
C) Accounts Payable;Retained Earnings 
D) Cash;an expense

Question 8

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

Accepted Answer

A) Deferred Revenue 
B) Prepaid Rent 
C) Accounts Payable 
D) Service Revenue 
A) Deferred Revenue 
B) Prepaid Rent 
C) Accounts Payable 
D) Service Revenue

Question 9

A company's revenue recognition policy:

Accepted Answer

A) affects the income statement but not the balance sheet. 
B) defines when its revenue should be collected. 
C) is usually described in the notes to a company's financial statements. 
D) states that revenues should not be recorded until payments are received from customers. 
A) affects the income statement but not the balance sheet. 
B) defines when its revenue should be collected. 
C) is usually described in the notes to a company's financial statements. 
D) states that revenues should not be recorded until payments are received from customers.

Question 10

Which of the following is always true?

Accepted Answer

A) Net income is the amount of cash generated by a business. 
B) Net income represents the change in the company's value during the period. 
C) The measurement of income involves only counting. 
D) Net income results when revenues exceed expenses. 
A) Net income is the amount of cash generated by a business. 
B) Net income represents the change in the company's value during the period. 
C) The measurement of income involves only counting. 
D) Net income results when revenues exceed expenses.

Question 11

Which of the following expressions correctly describes when revenues and expenses are recognized under accrual basis accounting?

Accepted Answer

A) Revenues when cash is received;expenses when cash is paid. 
B) Revenues when cash is received;expenses when the expense is incurred. 
C) Revenues when the performance obligation is satisfied;expenses when the expense is incurred. 
D) Revenues when the performance obligation is satisfied;expenses when cash is paid. 
A) Revenues when cash is received;expenses when cash is paid. 
B) Revenues when cash is received;expenses when the expense is incurred. 
C) Revenues when the performance obligation is satisfied;expenses when the expense is incurred. 
D) Revenues when the performance obligation is satisfied;expenses when cash is paid.

Question 12

The ________ takes stock of what exists at a point in time whereas the ________ depicts a flow of what happened over a period of time.

Accepted Answer

A) income statement;balance sheet 
B) balance sheet;income statement 
C) statement of cash flows;balance sheet 
D) statement of retained earnings;income statement 
A) income statement;balance sheet 
B) balance sheet;income statement 
C) statement of cash flows;balance sheet 
D) statement of retained earnings;income statement

Question 13

In September,a customer signed a contract to have his house painted and paid for the job in October.The painting company bought the paint in August on account and paid for it in September.The painting company painted the house in November.Assuming accrual basis accounting is used,the painting company should record the:

Accepted Answer

A) revenues in November and the expenses in September. 
B) revenues and the expenses in September. 
C) revenues and the expenses in November. 
D) revenues in September and the expenses in August. 
A) revenues in November and the expenses in September. 
B) revenues and the expenses in September. 
C) revenues and the expenses in November. 
D) revenues in September and the expenses in August.

Question 14

Cobalt Co.'s income statement shows Service Revenue of $64,000,Salaries and Wages Expense of $40,000 and net income of $1,600.The other expenses on Cobalt's income statement must equal:

Accepted Answer

A) $22,400. 
B) $24,000. 
C) $105,600. 
D) $25,600. 
A) $22,400. 
B) $24,000. 
C) $105,600. 
D) $25,600.

Question 15

Which of the following statements about the income statement of a company that was formed 10 years ago is correct?

Accepted Answer

A) Reports a Net Loss for the year if expenses are more than revenues. 
B) Reports the financial effects of activities that have occurred since the company's inception. 
C) Reports the amount of the increase in stockholders' equity this year as a result of the company's operations. 
D) Reports Net Income,which is an account in the ledger. 
A) Reports a Net Loss for the year if expenses are more than revenues. 
B) Reports the financial effects of activities that have occurred since the company's inception. 
C) Reports the amount of the increase in stockholders' equity this year as a result of the company's operations. 
D) Reports Net Income,which is an account in the ledger.

Question 16

Swift Company paid $18,650 in advance for six months of rent.What journal entry will Swift prepare to record this transaction?

Accepted Answer

A) Debit Cash and credit Deferred Rent for $18,650. 
B) Debit Prepaid Rent and credit Cash for $18,650. 
C) Debit Cash and credit Prepaid Rent for $18,650. 
D) Debit Rent Expense and credit Cash for $18,650. 
A) Debit Cash and credit Deferred Rent for $18,650. 
B) Debit Prepaid Rent and credit Cash for $18,650. 
C) Debit Cash and credit Prepaid Rent for $18,650. 
D) Debit Rent Expense and credit Cash for $18,650.

Question 17

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

Accepted Answer

A) credit to Service Revenue. 
B) debit to Cash. 
C) credit to Accounts Receivable. 
D) credit to Deferred Revenue. 
E) credit to Cash. 
A) credit to Service Revenue. 
B) debit to Cash. 
C) credit to Accounts Receivable. 
D) credit to Deferred Revenue. 
E) credit to Cash.

Question 18

During September,the Bug-B-Gone Company buys and pays for a six-month supply of pesticides in order to receive a bulk discount.The company uses accrual basis accounting.The cost of the pesticides is recorded:

Accepted Answer

A) immediately as an expense. 
B) as a liability,which will later be reduced as the pesticides are used. 
C) partially as an expense and partially as a liability. 
D) as an asset,which will later be reduced as the pesticides are used. 
A) immediately as an expense. 
B) as a liability,which will later be reduced as the pesticides are used. 
C) partially as an expense and partially as a liability. 
D) as an asset,which will later be reduced as the pesticides are used.

Question 19

Dividing up the continuing life of a company into shorter periods is called the time period assumption.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

The period of time between buying assets to be sold to customers and collecting cash from customers is the operating cycle.

The net profit margin:

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

When a company makes a payment for amounts owed from prior purchases,it will record a debit to and a credit to .

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

A company's revenue recognition policy:

Which of the following is always true?

Which of the following expressions correctly describes when revenues and expenses are recognized under accrual basis accounting?

The takes stock of what exists at a point in time whereas the depicts a flow of what happened over a period of time.

Cobalt Co.'s income statement shows Service Revenue of $64,000,Salaries and Wages Expense of $40,000 and net income of $1,600.The other expenses on Cobalt's income statement must equal:

Which of the following statements about the income statement of a company that was formed 10 years ago is correct?

Swift Company paid $18,650 in advance for six months of rent.What journal entry will Swift prepare to record this transaction?

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

During September,the Bug-B-Gone Company buys and pays for a six-month supply of pesticides in order to receive a bulk discount.The company uses accrual basis accounting.The cost of the pesticides is recorded:

Dividing up the continuing life of a company into shorter periods is called the time period assumption.

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

Business Decisions and Financial Accounting

The Balance Sheet

Adjustments,Financial Statements,and Financial Results

Fraud,Internal Control,and Cash

Merchandising Operations and the Multistep Income Statement

Inventory and Cost of Goods Sold

Receivables,Bad Debt Expense,and Interest Revenue

Long-Lived Tangible and Intangible Assets

Liabilities

Stockholders Equity

Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

Exam 3: The Income Statement

The period of time between buying assets to be sold to customers and collecting cash from customers is the operating cycle.

The net profit margin:

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

When a company makes a payment for amounts owed from prior purchases,it will record a debit to ________ and a credit to ________.

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

A company's revenue recognition policy:

Which of the following is always true?

Which of the following expressions correctly describes when revenues and expenses are recognized under accrual basis accounting?

The ________ takes stock of what exists at a point in time whereas the ________ depicts a flow of what happened over a period of time.

Cobalt Co.'s income statement shows Service Revenue of $64,000,Salaries and Wages Expense of $40,000 and net income of $1,600.The other expenses on Cobalt's income statement must equal:

Which of the following statements about the income statement of a company that was formed 10 years ago is correct?

Swift Company paid $18,650 in advance for six months of rent.What journal entry will Swift prepare to record this transaction?

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

During September,the Bug-B-Gone Company buys and pays for a six-month supply of pesticides in order to receive a bulk discount.The company uses accrual basis accounting.The cost of the pesticides is recorded:

Dividing up the continuing life of a company into shorter periods is called the time period assumption.

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

Business Decisions and Financial Accounting

The Balance Sheet

Adjustments,Financial Statements,and Financial Results

Fraud,Internal Control,and Cash

Merchandising Operations and the Multistep Income Statement

Inventory and Cost of Goods Sold

Receivables,Bad Debt Expense,and Interest Revenue

Long-Lived Tangible and Intangible Assets

Liabilities

Stockholders Equity

Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

When a company makes a payment for amounts owed from prior purchases,it will record a debit to and a credit to .

The takes stock of what exists at a point in time whereas the depicts a flow of what happened over a period of time.