Question 1

Which of the following statements regarding the net profit margin ratio is false?

Accepted Answer

A)   The numerator is net income.
B)   The denominator is net sales or operating revenues.
C)  It measures how much of every sales dollar is gross profit.
D)  Financial analysts expect well-run businesses to maintain or improve their profit margin over time.E) A) and B)
F) A) and C)

Question 2

The trial balance needs to be prepared prior to preparation of the income statement.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is false?

Accepted Answer

A)   An expense is a cost incurred to generate revenues.
B)   Selling assets at a gain does not result in earning revenue.
C)  Revenues are reported on the income statement as they are earned.
D)  Revenues result in an increase in net income and additional paid-in capital.E) None of the above
F) C) and D)

Question 4

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

Accepted Answer

A)   The goods or services have been delivered.
B)   The selling price is fixed or determinable.
C)  Collection is reasonably assured.
D)  The cash payment has been receiveD.Under accrual accounting, the revenue realization principle states that revenues are recognized when goods or services are delivered, there is persuasive evidence of an arrangement for customer payment, the price is fixed or determinable, and collection is reasonably assured.E) A) and C)
F) A) and D)

Question 5

Which of the following accounts does not have a debit balance?

Accepted Answer

A)   Prepaid expenses.
B)   Insurance expense.
C)  Unearned revenue.
D)  Investments.E) B) and D)
F) A) and B)

Question 6

Which of the following journal entries correctly records the receipt of a utility bill, which will be paid for in later weeks? A. Utilities payable
 \quad Utilities expense
B. Utilities expense
 \quad Utilities payable
C. Utilities expense
 \quad Retained earnings
D. Retained earnings
 \quad Utilities payable

Accepted Answer

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

Question 7

Expenses are the result of decreases in assets or increases in liabilities incurred in order to generate revenues.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following describes the transaction resulting in a journal entry with a debit to Salaries payable and a credit to Cash?

Accepted Answer

A)   Salaries expense has been incurred but is unpaid.
B)   Cash was used to pay for salaries that were previously recorded as an expense.
C)  Cash was used to pay for salaries that were not previously recorded as an expense.
D)  Cash was used to prepay employee wages.E) All of the above
F) B) and C)

Question 9

Describe the debit and credit logic pertaining to items reported on the income statement.

Accepted Answer

Revenue and gain accounts have credit ba...

Question 10

Which of the following best describes the expense matching principle?

Accepted Answer

A)   It requires expenses to be recorded when they are paid for.
B)   It requires expenses to be recorded when incurred to generate revenues.
C)  It requires expenses to be recorded consistent with the cash basis of accounting.
D)  It does not allow expenses to be recorded if they are incurred prior to being paiD.The matching principle requires that expenses be recorded when incurred in earning revenue.E) None of the above
F) B) and D)

Question 11

When the board of directors declares a cash dividend, the retained earnings account is debited.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not a proper application of the revenue realization principle?

Accepted Answer

A)   Recording the sale of merchandise on credit as sales revenue.
B)   Recording rent received in advance as unearned rent revenue.
C)  Recording interest revenue when cash is collected rather than when earned.
D)  Reducing the unearned service revenue account for service revenue performed at the end of the accounting perioD.Revenue is recorded when earned, not upon the collection of cash.E) A) and D)
F) C) and D)

Question 13

The net profit margin ratio is calculated by dividing net sales by net income.

Accepted Answer

A) True 
 B)False

Question 14

A retail store would likely have a shorter operating cycle than an automotive manufacturer.

Accepted Answer

A) True 
 B)False

Question 15

A gain resulting from the sale of plant and equipment is not reported as operating income on the income statement.

Accepted Answer

A) True 
 B)False

Question 16

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

A)   Option A
B)   Option B
C)  Option C
D)  Option D E) All of the above
F) B) and C)

Question 17

Interest expense is reported on the income statement as an operating expense.

Accepted Answer

A) True 
 B)False

Question 18

Under accrual basis accounting, revenues are recognized when earned and expenses are recognized when incurred.

Accepted Answer

A) True 
 B)False

Question 19

Colby Company has provided the following selected information for the year ended December 31, 2014:
Cash collected from customers was $392,000.
Cash received from stockholders in exchange for stock totaled $46,000.
Cash paid to suppliers was $183,000.
Cash paid to employees was $102,000.
Cash received from a long-term bank loan was $75,000.
Cash paid to stockholders for dividends was $17,000.
Cash received from sale of a building was $125,000.
Cash paid for rent was $19,000.
Cash received for interest and dividends was $4,000.
Cash paid for income taxes was $28,000.
Based on the selected information provided, how much was Colby's cash flow from operating activities?

Accepted Answer

Cash flow from operating activ...

Question 20

Cash received prior to the providing of the goods or service results in an increase in both assets and liabilities.

Accepted Answer

A) True 
 B)False

Exam 3: Operating Decisions and the Accounting System

Which of the following describes the transaction resulting in a journal entry with a debit to Salaries payable and a credit to Cash?

Correct Answer
verified

The trial balance needs to be prepared prior to preparation of the income statement.

Correct Answer
verified

Which of the following best describes the expense matching principle?

Correct Answer
verified

Interest expense is reported on the income statement as an operating expense.

Correct Answer
verified

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

Correct Answer
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Which of the following accounts does not have a debit balance?

Correct Answer
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Describe the debit and credit logic pertaining to items reported on the income statement.

Correct Answer
verified
Revenue and gain accounts have credit ba...
View Answer

Under accrual basis accounting, revenues are recognized when earned and expenses are recognized when incurred.

Correct Answer
verified

Correct Answer
verified
Cash flow from operating activ...
View Answer

A retail store would likely have a shorter operating cycle than an automotive manufacturer.

Correct Answer
verified

Expenses are the result of decreases in assets or increases in liabilities incurred in order to generate revenues.

Correct Answer
verified

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

Correct Answer
verified

Which of the following is not a proper application of the revenue realization principle?

Correct Answer
verified

Which of the following statements regarding the net profit margin ratio is false?

Correct Answer
verified

Which of the following statements is false?

Correct Answer
verified

When the board of directors declares a cash dividend, the retained earnings account is debited.

Correct Answer
verified

A gain resulting from the sale of plant and equipment is not reported as operating income on the income statement.

Correct Answer
verified

The net profit margin ratio is calculated by dividing net sales by net income.

Correct Answer
verified

Correct Answer
verified

Cash received prior to the providing of the goods or service results in an increase in both assets and liabilities.

Correct Answer
verified

Exam 3: Operating Decisions and the Accounting System

Which of the following describes the transaction resulting in a journal entry with a debit to Salaries payable and a credit to Cash?

Correct AnswerverifiedShow Answer

The trial balance needs to be prepared prior to preparation of the income statement.

Correct AnswerverifiedShow Answer

Which of the following best describes the expense matching principle?

Correct AnswerverifiedShow Answer

Interest expense is reported on the income statement as an operating expense.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following accounts does not have a debit balance?

Correct AnswerverifiedShow Answer

Describe the debit and credit logic pertaining to items reported on the income statement.

Correct AnswerverifiedRevenue and gain accounts have credit ba...View AnswerShow Answer

Under accrual basis accounting, revenues are recognized when earned and expenses are recognized when incurred.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedCash flow from operating activ...View AnswerShow Answer

A retail store would likely have a shorter operating cycle than an automotive manufacturer.

Correct AnswerverifiedShow Answer

Expenses are the result of decreases in assets or increases in liabilities incurred in order to generate revenues.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a proper application of the revenue realization principle?

Correct AnswerverifiedShow Answer

Which of the following statements regarding the net profit margin ratio is false?

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

When the board of directors declares a cash dividend, the retained earnings account is debited.

Correct AnswerverifiedShow Answer

A gain resulting from the sale of plant and equipment is not reported as operating income on the income statement.

Correct AnswerverifiedShow Answer

The net profit margin ratio is calculated by dividing net sales by net income.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Cash received prior to the providing of the goods or service results in an increase in both assets and liabilities.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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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

Correct Answer
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Correct Answer
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Correct Answer
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Revenue and gain accounts have credit ba...
View Answer

Correct Answer
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Correct Answer
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Cash flow from operating activ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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