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Which of the following statements does not properly describe the accrual basis of accounting?


A) Expenses are recognized when incurred regardless of the timing of cash flows.
B) Revenues are recognized when earned regardless of the timing of cash flows.
C) Generally accepted accounting principles require use of the accrual basis.
D) It should not be used when providing financial statements to external decision makers.

E) B) and D)
F) B) and C)

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The following information has been provided by Flatiron Company for the year ended December 31, 2014: 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?

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Step 1: Net income ($71,000) + Income ta...

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


A) It is not accepted for external reporting purposes.
B) Revenues are recognized when cash is collected from customers.
C) Expenses are recognized when they are paid for.
D) Cash payments for long-term assets are recognized as an expense at the time of payment.

E) None of the above
F) All of the above

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Which of the following is correct when land costing $20,000 is sold for $29,000? The land was a component of property and equipment on the balance sheet.


A) Revenues are debited for $29,000.
B) Cost of goods sold is credited for $20,000.
C) Gain on sale of land is credited for $9,000.
D) Operating income increases $29,000.

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

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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. 1. Accounts payable 9. Income taxes payable 2. Accounts receivable 10. Prepaid expenses 3. Supplies 11. Operating expenses 4. Building 12. Prepaid insurance 5. Cash 13. Retained earnings 6. Common stock 14. Service revenue 7. Dividends 15. Unearned revenue 8. Income tax expense \begin{array} { | l | l | l | l | } \hline 1 . & \text { Accounts payable } & 9 . & \text { Income taxes payable } \\\hline 2 . & \text { Accounts receivable } & 10 . & \text { Prepaid expenses } \\\hline 3 . & \text { Supplies } & 11 . & \text { Operating expenses } \\\hline 4 . & \text { Building } & 12 . & \text { Prepaid insurance } \\\hline 5 . & \text { Cash } & 13 . & \text { Retained earnings } \\\hline 6 . & \text { Common stock } & 14 . & \text { Service revenue } \\\hline 7 . & \text { Dividends } & 15 . & \text { Unearned revenue } \\\hline 8 . & \text { Income tax expense } & & \\\hline\end{array} 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 | } \hline 1 . & \text { Accounts payable } & 9 . & \text { Income taxes payable } \\ \hline 2 . & \text { Accounts receivable } & 10 . & \text { Prepaid expenses } \\ \hline 3 . & \text { Supplies } & 11 . & \text { Operating expenses } \\ \hline 4 . & \text { Building } & 12 . & \text { Prepaid insurance } \\ \hline 5 . & \text { Cash } & 13 . & \text { Retained earnings } \\ \hline 6 . & \text { Common stock } & 14 . & \text { Service revenue } \\ \hline 7 . & \text { Dividends } & 15 . & \text { Unearned revenue } \\ \hline 8 . & \text { Income tax expense } & & \\ \hline \end{array}

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11eac058_1426_2354_a0f2_2d306fcc8bed_TB4663_00

Which of the following best describes the operating cycle?


A) It is the length of the manufacturing process.
B) It is the time that elapses from the purchase of inventory on account to the sale of inventory on account.
C) It is the time that elapses from the completion of the manufacturing process to the cash collection from sale of the manufactured goods.
D) It is the time that elapses from the cash payment to suppliers to collection of cash from customers.

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

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Describe the difference between operating revenues and gains from the sale of plant and equipment while providing examples of each.

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Operating revenues result from ongoing o...

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Due to the relationship of financial statements, the statement of retained earnings links the income statement to the balance sheet.

A) True
B) False

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Earnings per share must be either reported on the income statement or disclosed in the notes to the financial statements.

A) True
B) False

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A company purchased supplies for cash, which will be consumed during future months. Which of the following does not correctly describe the impact on the financial statements when the supplies are used during future months?


A) Total assets will remain unchanged.
B) Total assets will decrease.
C) Operating expenses will increase.
D) Operating income will decrease.

E) A) and D)
F) None of the above

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A

Which of the following statements is false when Mama June Pizza Company paid $47,000 cash on accounts owed to suppliers?


A) The cash account was credited for $47,000.
B) Accounts payable was debited for $47,000.
C) Supplies expense was increased by $47,000.
D) Operating income was not changed by the payment to the suppliers.

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

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Which of the following expenses does not affect operating income?


A) Income tax expense.
B) Cost of goods sold.
C) Depreciation expense.
D) Rent expense.

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

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Which of the following statements is correct?


A) Dividend income is a component of operating income.
B) Operating income is decreased by the loss from the sale of plant assets.
C) A gain on the sale of a stock investment does not increase operating income.
D) Income before taxes does not change when a gain results from the sale of plant assets.

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

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McNeil Company owed its employees for services performed and recorded a liability for the wages owed the employees. Which of the following correctly describes the impact on the financial statements when the employee wages are subsequently paid?


A) Operating expenses are increased.
B) Retained earnings decreases.
C) Operating income does not change.
D) Total assets remain the same.

E) None of the above
F) A) and B)

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Which of the following statements is false?


A) The income statement covers a period of time.
B) A loss on the sale of plant and equipment is considered a peripheral activity and is not reported on the income statement.
C) Rent expense is a component of operating income.
D) Interest expense is not a component of operating income.

E) B) and D)
F) None of the above

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B

Which of the following statements is false?


A) The unearned revenue account has a credit balance.
B) The revenue account has a credit balance.
C) An expense account has a debit balance.
D) A prepaid expense account has a credit balance.

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

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Which of the following statements is false?


A) Expense accounts have a debit balance.
B) Revenue accounts have a credit balance.
C) Gain accounts have a credit balance.
D) Loss accounts have a credit balance.

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

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The operating cycle is the time that elapses between a company's cash payment to suppliers for inventory purchases and the collection of cash from sale of inventory to customers.

A) True
B) False

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

A) True
B) False

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Cash paid to suppliers for inventory is an investing activity.

A) True
B) False

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