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Exam 3: Operating Decisions and the Accounting System

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Question 21

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

A) True
B) False

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Question 22

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Which of the following best describes the expense matching principle?

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) A) and B)

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Question 23

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

Which of the following statements is false?

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

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

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

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

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

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?

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

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

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

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

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

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

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

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

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