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Exam 3: Operating Decisions and the Accounting System

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Question 31

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Purchasing a six-month insurance policy results in a debit to insurance expense and a credit to cash at the date of purchase.

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Question 32

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Which of the following best describes operating revenues?

A) They are increases in assets or increases in liabilities as a result of peripheral transactions.
B) They are decreases in assets or decreases in liabilities as a result of central ongoing operations.
C) They are increases in assets or decreases in liabilities as a result of central ongoing operations.
D) They are decreases in assets or increases in liabilities as a result of peripheral transactions.

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Question 33

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Which of the following costs is most likely to be the largest expense reported on the income statement of a merchandiser such as Wal-Mart Stores?

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. • Supplies expense was $336,000. • Rent expense for the store was $36,000. • Wages expense was $49,000. • Other operating expenses totaled $79,000. • Unearned revenue was $4,000. What is the amount of Lantz's income from operations (operating income) ?

Cash paid to suppliers for inventory is an investing activity.

An income statement with each line divided by net sales and shown as a percentage is called a common statement.

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

Which of the following accounts normally have a credit balance?

Which of the following is not a step pertaining to the revenue recognition principle beginning in year 2018, for more complex customer contracts, according to both U.S. GAAP and to International Financial Reporting Standards (IFRS) ?

The following information has been provided by Hable Company: • Advertising expense $9,900 • Interest expense $3,700 • Rent expense for store $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 total expenses in calculating operating income?

Interest revenue is reported as operating revenue and therefore increases operating income.

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

Colby Company has provided the following selected information for the year ended December 31, 2016: 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. Required: Based on the selected information provided, calculate Colby's cash flow from operating activities.

Boone's Cleaning Service performed cleaning services during December 2016, but had not collected any cash from its customers as of December 31, 2016. What impact did performing these services have on the accounting equation?

Which of the following journal entries is correct when a company has incurred an expense for work performed but has not yet paid for theses wages to employees?

A company receives a $50,000 cash deposit from a customer on October 15 but will not deliver the goods until November 20. Which of the following statements is true?

The revenue recognition principle recognizes revenue when the goods or services are transferred to customers, regardless of the timing of the cash collection from customers.

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?

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

Mama June Pizza Company sold land costing $39,000 for $51,000 cash. Which of the following statements concerning the land sale is correct?