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Exam 3: Operating Decisions and the Income Statement

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Question 41

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

A) The land account was credited for $51,000.
B) The revenue account was debited for $51,000.
C) Operating income increased $12,000.
D) Income before income taxes increased $12,000.

E) A) and B)
F) B) and D)

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Question 42

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Which of the following is an example of revenue or expense to be recognized in the current period's income statement?

A) Cash received from a client before the service is provided.
B) Inventory being held by a retail store.
C) Wages owed to employees who worked during the period.
D) Cash collected from an accounts receivable.

E) A) and B)
F) A) and C)

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Question 43

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Describe the transaction which created the following journal entries (amounts omitted): 1. Cash Unearned revenue 2. Utilities expense Utilities payable 3. Accounts receivable Sales Revenue 4. Salaries expense Cash 5. Unearned Revenue Sales revenue

A company purchased $20,000 of inventory during February and will pay for it during March.Which of the following statements is false assuming the inventory was sold during March?

The statement of stockholders' equity links the income statement to the balance sheet.

Recording revenues on the income statement which were previously reported as unearned revenues on the balance sheet results in a decrease in liabilities and an increase in net income,retained earnings and stockholders' equity.

Which of the following journal entries correctly records a transaction where services were provided to a customer on account?

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

Which of the following statements is correct?

The following accounts for Carthage Enterprises,Inc.are listed randomly.Enter the number associated with each transaction to identify the accounts that would be used in the journal entry for each transaction given below. $\begin{array} { l l l l } \text { 1. } & \text { Accounts payable } & 9 . & \text { Income taxes payable } \\\text { 2. } & \text { Accounts receivable } & 10 . & \text { Prepaid expenses } \\\text { 3. } & \text { Supplies } & 11 . & \text { Operating expenses } \\\text { 4. } & \text { Building } & 12 . & \text { Prepaid insurance } \\\text { 5. } & \text { Cash } & 13 . & \text { Retained earnings } \\6 . & \text { Contributed capital } & 14 . & \text { Service revenue } \\\text { 7. } & \text { Dividends } & 15 . & \text { Unearned revenue } \\8 . & \text { Income tax expense } & &\end{array}$

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?

Describe transactions which have an impact on the statement of stockholders' equity.

During 2010,Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid during 2011.Which of the following is correct for the 2010 year-end balance sheet?

Which of the following best describes the time period assumption?

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

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 plant 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. How much was Lantz's income before income taxes?

Salary expense is recognized on the income statement when the salaries are paid rather than when the employee provides the services.

A gain resulting from the sale of plant and equipment does not create operating income on the income statement.

Which of the following statements is correct?

The following information has been provided by Flatiron Company for the year ended December 31,2011: Net income was $71,000; Income tax expense was $47,000; Dividends declared and paid totaled $7,500; Interest expense was $8,700; Loss on sale of plant assets was $15,000; Operating expenses totaled $91,000; Cash collected from customers was $220,000. How much was Flatiron's operating income?