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Exam 3: Reporting Operating Results on the Income Statement

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Question 71

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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?

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.

E) A) and D)
F) None of the above

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Question 72

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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

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

E) None of the above
F) A) and D)

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Question 73

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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?

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?

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

Which of the following practices would not be considered ethical?

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:

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

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?

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

Which of the following is an expense of this period?

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?

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

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

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.

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?

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?

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?

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:

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