Question 1

Which of the following statements does not properly describe the accrual basis of accounting?

Accepted Answer

The statement that the accrual basis of accounting should not be used when providing financial statements to external decision makers is not correct. In fact, the accrual basis is the preferred method of accounting for financial reporting purposes and is mandated by generally accepted accounting principles (GAAP) in many cases. Therefore, option D is the correct answer.

Question 2

Which of the following journal entries is prepared by an auto repair shop when a customer will pay cash subsequent to delivery of goods or services? A. Accounts receivable
$\quad$Revenues
B. Cash
$\quad$Unearned revenues
C. Unearned revenues
$\quad$Cash
D. Revenues
$\quad$Accounts receivable

Accepted Answer

When a customer will pay cash after delivery of goods or services, the auto repair shop records the transaction as Accounts Receivable (asset) and Revenues (income) to reflect the earned revenue and the amount owed by the customer.

Question 3

Which of the following statements is false?

Accepted Answer

Revenues result in an increase in net income, but not additional paid-in capital. Additional paid-in capital results from issuing new shares of stock at a price higher than the par value.

Question 4

Colby Corporation has provided the following information: Operating revenues were $199,700.
Operating expenses 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.
How much was Colby's net income?

Accepted Answer

The answer of Colby Corporation has provided the following information:...

Question 5

Which of the following journal entries is prepared when cash is received from a customer prior to delivery of the goods or services? A. Cash
$\quad$Revenues
B. Cash
$\quad$Unearned revenues
C. Unearned revenues
$\quad$Cash
D. Cash
$\quad$Accounts receivable

Accepted Answer

When cash is received before delivering goods or services, it is recorded as a liability called "Unearned Revenues" until the goods or services are delivered.

Question 6

Which of the following statements is false?

Accepted Answer

Revenue is recognized at the time of delivery of goods and services regardless of when cash is received. Therefore, statement C is false.

Question 7

A landlord collected $5,000 cash from a tenant for December 2015'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?

Accepted Answer

$8,000 would appear on the income statement as rent revenue earned.

Question 8

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

Accepted Answer

Cash payments for long-term assets are not recognized as an expense at the time of payment under the cash basis of accounting. Instead, they are recognized as an asset on the balance sheet and depreciated over the useful life of the asset.

Question 9

Which of the following statements is correct?

Accepted Answer

A gain on the sale of a stock investment is considered non-operating income and does not affect operating income, which is derived from primary business activities.

Question 10

Lantz Company has provided the following information: Cash sales totaled $255,000.
Credit sales totaled $479,000.
Cash collections from customers for services yet to be provided totaled $88,000.
A $22,000 loss from the sale of property and equipment occurred.
Interest income was $7,700.
Interest expense was $19,900.
Cost of goods sold was $336,000.
Rent expense was $36,000.
Salaries expense was $49,000.
Other operating expenses totaled $79,000.
Unearned revenue was $4,000.
How much was Lantz's operating income?

Accepted Answer

The answer of Lantz Company has provided the following information:...

Question 11

Which of the following transactions will result in an increase in operating income as of the date of the transaction?

Accepted Answer

Providing a service to a customer on account increases operating income because it recognizes revenue earned from services provided, even if cash has not yet been received.

Question 12

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?

Accepted Answer

The answer of Yelena Company received cash from a customer...

Question 13

Smith Corporation has provided the following information: Cash sales totaled $125,000.
Credit sales totaled $279,000.
Cash collections from customers for services yet to be provided totaled $38,000.
An $11,000 gain from the sale of property and equipment occurred.
Interest income totaled $7,700.
How much were Smith's operating revenues?

Accepted Answer

Operating revenues include cash sales and credit sales. Therefore, Smith's operating revenues are $125,000 (cash sales) + $279,000 (credit sales) = $404,000. The other items listed are not part of operating revenues.

Question 14

Which of the following is not reported as an operating expense on the income statement?

Accepted Answer

Interest expense is the result of borrowing money and not of day-to-day operations of making and/or selling products and/or services. Therefore, interest expense is not listed as an operating expense.

Question 15

Which of the following best describes operating revenues?

Accepted Answer

Operating revenues are revenues that result from a company's ongoing operations, such as sales of goods or services. These revenues increase assets or decrease liabilities as a result of ongoing operations, making option C the correct choice. Options A and D describe peripheral transactions, which are not related to the company's primary operations. Option B describes decreases in assets or liabilities, which is not what operating revenues represent.

Question 16

Which of the following is not a criterion pertaining to the revenue realization principle?

Accepted Answer

The cash payment has been received is not a criterion pertaining to the revenue realization principle. Collection being reasonably assured is the criterion that ensures that the payment will be received, but the actual receipt of cash is not necessary for recognition of revenue.

Question 17

The following information has been provided by Hable Company: Advertising expense $9,900;
Interest expense $3,700;
Rent expense $12,000;
Loss on sale of property and equipment $5,700;
Cost of goods sold $21,300;
Depreciation expense $7,100;
Prepaid insurance expense $1,000.
How much were Hable's operating expenses?

Accepted Answer

Operating expenses include advertising, rent, depreciation, and prepaid insurance expenses. Adding these: $9,900 + $12,000 + $7,100 + $1,000 = $30,000. Interest expense and loss on sale are not operating expenses.

Question 18

Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future?

Accepted Answer

The answer of Which of the following correctly describes the...

Question 19

Lantz Company has provided the following information: Cash sales totaled $255,000.
Credit sales totaled $479,000.
Cash collections from customers for services yet to be provided totaled $88,000.
A $22,000 loss from the sale of property and equipment occurred.
Interest income was $7,700.
Interest expense was $19,900.
Cost of goods sold was $336,000.
Rent expense was $36,000.
Salaries expense was $49,000.
Other operating expenses totaled $79,000.
Unearned revenue was $4,000.
How much was Lantz's income before income taxes?

Accepted Answer

Lantz's income before income taxes is calculated as follows: Total sales (cash + credit) = $255,000 + $479,000 = $734,000. Subtract cost of goods sold ($336,000) and operating expenses (rent $36,000 + salaries $49,000 + other $79,000) = $164,000. Subtract interest expense ($19,900) and add interest income ($7,700). Subtract the loss from the sale of property and equipment ($22,000). The calculation is: $734,000 - $336,000 - $164,000 - $19,900 + $7,700 - $22,000 = $199,800.

Question 20

Which of the following expenses does not affect operating income?

Accepted Answer

Income tax expense is not an operating expense and is not included in the calculation of operating income. Instead, it is deducted after operating income is calculated to arrive at net income.

Quiz 3: Operating Decisions and the Accounting System

Which of the following statements does not properly describe the accrual basis of accounting?

Which of the following journal entries is prepared by an auto repair shop when a customer will pay cash subsequent to delivery of goods or services? A. Accounts receivable $\quad$ Revenues B. Cash $\quad$ Unearned revenues C. Unearned revenues $\quad$ Cash D. Revenues $\quad$ Accounts receivable

Which of the following statements is false?

Which of the following journal entries is prepared when cash is received from a customer prior to delivery of the goods or services? A. Cash $\quad$ Revenues B. Cash $\quad$ Unearned revenues C. Unearned revenues $\quad$ Cash D. Cash $\quad$ Accounts receivable

Which of the following statements is false?

A landlord collected $5,000 cash from a tenant for December 2015'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?

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

Which of the following statements is correct?

Which of the following transactions will result in an increase in operating income as of the date of the transaction?

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?

Which of the following is not reported as an operating expense on the income statement?

Which of the following best describes operating revenues?

Which of the following is not a criterion pertaining to the revenue realization principle?

Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future?

Which of the following expenses does not affect operating income?

Quiz 3: Operating Decisions and the Accounting System

Which of the following statements does not properly describe the accrual basis of accounting?

Which of the following journal entries is prepared by an auto repair shop when a customer will pay cash subsequent to delivery of goods or services? A. Accounts receivable \quad Revenues B. Cash \quad Unearned revenues C. Unearned revenues \quad Cash D. Revenues \quad Accounts receivable

Which of the following statements is false?

Which of the following journal entries is prepared when cash is received from a customer prior to delivery of the goods or services? A. Cash \quad Revenues B. Cash \quad Unearned revenues C. Unearned revenues \quad Cash D. Cash \quad Accounts receivable

Which of the following statements is false?

A landlord collected $5,000 cash from a tenant for December 2015'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?

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

Which of the following statements is correct?

Which of the following transactions will result in an increase in operating income as of the date of the transaction?

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?

Which of the following is not reported as an operating expense on the income statement?

Which of the following best describes operating revenues?

Which of the following is not a criterion pertaining to the revenue realization principle?

Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future?

Which of the following expenses does not affect operating income?

Which of the following journal entries is prepared by an auto repair shop when a customer will pay cash subsequent to delivery of goods or services? A. Accounts receivable $\quad$ Revenues B. Cash $\quad$ Unearned revenues C. Unearned revenues $\quad$ Cash D. Revenues $\quad$ Accounts receivable

Which of the following journal entries is prepared when cash is received from a customer prior to delivery of the goods or services? A. Cash $\quad$ Revenues B. Cash $\quad$ Unearned revenues C. Unearned revenues $\quad$ Cash D. Cash $\quad$ Accounts receivable