Question 1

On Time Computer Repair uses accrual basis accounting.A computer was repaired on May 15.The customer picked up the computer on June 1 and mailed the payment on June 5.On Time Computer Repair received the check in the mail on June 10.The revenue should be recognized as earned on which date?

Accepted Answer

The answer of On Time Computer Repair uses accrual basis...

Question 2

Expenses include all of the following except:

Accepted Answer

The answer of Expenses include all of the following except:
...

Question 3

Melody's Piano School operations for the month of May were limited to the following transactions:
-Provided $400 of piano lessons to students who paid in cash.
-Provided $100 of piano lessons on account.
-Collected $300 from students who took piano lessons during April.
-Paid April's piano rental bill of $100.
-Received May's piano rental bill of $150 and set it aside for payment in June.
-Use the information above to answer the following question.Assuming that the company uses cash basis accounting,what is net income for May?

Accepted Answer

The answer of Melody's Piano School operations for the month...

Question 4

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?

Accepted Answer

Recording an expense when paid next year although it is incurred this year (B) would lead to an understatement of expenses and an overstatement of net income in the current year. The other choices either correctly record revenue earned in the current year or adjust for unearned revenue in the current year.

Question 5

Melody's Piano School operations for the month of May were limited to the following transactions:
-Provided $400 of piano lessons to students who paid in cash.
-Provided $100 of piano lessons on account.
-Collected $300 from students who took piano lessons during April.
-Paid April's piano rental bill of $100.
-Received May's piano rental bill of $150 and set it aside for payment in June.
-Use the information above to answer the following question.Assuming the company uses accrual basis accounting,what is net income for May?

Accepted Answer

The $400 of cash received for piano lessons is revenue for May.
The $100 of piano lessons on account is also revenue for May (even though payment has not yet been received).
The $300 received from students who took piano lessons during April is not revenue for May, as it pertains to the previous month's operations.
The rental expense of $100 for April is an expense for May.
The May's piano rental bill of $150 is not an expense for May, as it will be paid in June.
Therefore, the net income for May is $400 (cash revenue) + $100 (accounts receivable revenue) - $100 (rental expense) = $400 + $100 - $100 = $350.

Question 6

Somerdale Corp.received an order from a customer on November 10.It manufactured the ordered items on November 15,shipped the goods on November 17,and received payment on December 2.Under the accrual basis of accounting,Somerdale should record revenue on:

Accepted Answer

The answer of Somerdale Corp.received an order from a customer...

Question 7

During June,the Grass is Greener Company mows 100 lawns a week and is paid in July by those customers.The company uses the accrual basis of accounting.Which financial statement is impacted by these transactions?

Accepted Answer

Under the accrual basis of accounting, revenue is recognized when it is earned, not when payment is received. Therefore, the income statement will reflect the revenue from mowing lawns in June, even though payment is received in July.

Question 8

The expense recognition principle indicates:

Accepted Answer

The expense recognition principle specifies when costs incurred by a company should be recognized as expenses on the income statement. This principle dictates that expenses should be recognized when they are incurred, regardless of when the cash is paid.

Question 9

Which of the following statements about accrual basis accounting is not correct?

Accepted Answer

Accrual basis accounting does not require the timing of cash receipts to be in the same period as revenues are recognized. In fact, under accrual accounting, revenue is recognized when it is earned, regardless of whether cash has been received or not. Similarly, expenses are recognized when they are incurred, regardless of whether cash has been paid or not. This is in contrast to cash basis accounting, which recognizes revenue and expenses only when cash is received or paid, respectively.

Question 10

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

Accepted Answer

Amounts received from customers in payment of their accounts arising from service in the prior period would be revenues on the income statement for the prior period, not the current period. The income statement reflects revenues and expenses for a specific period of time, typically a month or a year. It does not consider amounts received or paid outside of that time period. Therefore, revenues from prior periods would be included in the income statement for the period in which they were earned, not the period in which they were received.

Question 11

Your company receives advance payment in October for services that are provided during November.Which of the following statements is correct?

Accepted Answer

Advance payment received in October represents a liability because the company owes the customer a service to be provided in November. Therefore, the liability will be recorded in October, and revenue will be recorded in November when the service is provided.

Question 12

The expense recognition principle ("matching")matches:

Accepted Answer

The expense recognition principle, also known as the matching principle, dictates that expenses should be matched with the revenues they helped to generate. This means that when revenue is earned, the expenses incurred to generate that revenue should be recognized in the same period. Therefore, option B is the correct answer as it states that expenses should be matched with the revenues they relate to.

Question 13

Which of the following is an expense of this period?

Accepted Answer

Costs of items used up during the current period, regardless of when they are paid for, are considered expenses of the current period. The other options are either costs incurred for future periods (B and C) or costs incurred for prior periods (D).

Question 14

During April,the Grass is Greener Company buys and pays for a six-month supply of fertilizer in order to receive a bulk discount.The company uses accrual basis accounting.The cost of fertilizer recorded:

Accepted Answer

Since the Grass is Greener Company uses accrual basis accounting, the cost of the six-month supply of fertilizer should be recorded as an asset on the balance sheet. This asset will be later reduced as the fertilizer is used, and the corresponding expense will be recorded on the income statement. This method of recording the cost of the fertilizer matches the principle of matching expenses with revenues, which is a key aspect of accrual accounting.

Question 15

This month,a company performed $517,000 of services and incurred total expenses of $438,000.The company was paid in cash for all its services and paid cash for all its expenses.These transactions would cause:

Accepted Answer

The company performed services worth $517,000 and received cash for it, therefore, its revenues would increase by $517,000. The company also incurred expenses worth $438,000 and paid cash for it, therefore, its expenses would increase by $438,000. As the company paid for all expenses in cash, the cash balance would decrease otherwise, but in this case, the company received cash for all its services so the cash balance would increase by $517,000. Hence, Choice C is the correct answer.

Question 16

The prepayment of rent for the next three months (not including this month):

Accepted Answer

Prepayment of rent is recorded as a prepaid expense, which is an asset. Therefore, it does not affect the total assets immediately; it just changes the composition of assets.

Question 17

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:

Accepted Answer

The answer of Sparkling Pools performed $1,600 of pool maintenance...

Question 18

A dance studio accepts $1,500 to provide a series of dance lessons to a youth group during the month of July.The studio decides to record the revenue in July.The studio incurs rent,utilities,and salaries expenses in July.The studio decides to record those expenses in August,when it pays for them.One or both of these decisions:

Accepted Answer

The decision to record expenses in August, when they are paid, violates the expense recognition principle, which states that expenses should be recorded in the period in which they are incurred, not when they are paid.

Question 19

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

Accepted Answer

In accrual basis accounting, net income is calculated as the difference between total revenues and total expenses, but there is no specific "Net Income" account on the income statement.

Question 20

When cash is paid for something that provides benefits only in future periods:

Accepted Answer

When cash is paid for something that provides future benefits, it is recorded as an asset because it represents a future economic benefit to the company.

Quiz 3: Reporting Operating Results on the Income Statement