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Exam 3: The Income Statement

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Question 41

True/False

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When a business uses up its resources to generate revenues for the period,it reports an expense only when it pays for them.

A) True
B) False

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Question 42

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Operating cycle is the time period from buying raw material to provide goods and services to customers through to collecting cash from them.

A) True
B) False

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Question 43

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This month,Grass is Greener Lawn Service pays cash for $4,000 of grass fertilizer to be used two months from now.What journal entry will Grass is Greener record this month?

On the last day of the current month,a company paid $12,000 to its suppliers,of which $2,000 was for supplies received on the last day of the current month and $10,000 was for supplies received during the previous month.The $12,000 payment would be recorded as a:

Which of the following statements is true?

Which of the following is most likely to be reported as an accrued liability?

The Jolly Company made purchased supplies,with cash,in the amount of $550.The junior accounting clerk posted the transaction as a debit of $550 to supplies and a $55 credit to cash.As a result of the post,the unadjusted trial balance will no longer balance.What is the value of the discrepancy leading to debits not equaling credits.Is it the debit column or credit column that contains this value?

In January,a company pays for advertising space in the local paper for ads to be run during the months of January,February,and March at $1,500 a month.The payment would be recorded in January as a:

Galvan Corporation (GC) capitalized a $20,000 automobile.Which of the following is true?

In October,your company prepays rent of $7,000 for November and December.Which of the following describes the effects of this transaction in October?

Recording a Debit in an expense account will reduce expenses.

Which of the following items is $\bold{not}$ a specific account in a company's chart of accounts?

Prepare an income statement for Pet Sitters,Inc.,using the following data for the year ending December 31,2017.Show proper order of accounts and operating income and net income. $\begin{array}{c}\begin{array}{|l|}\hline \text { Income Tax Expense} \\\hline \text { Wages Expense } \\\hline \text {Operating and Administrative } \\\hline \text { Expense } \\\hline\end{array}\begin{array}{r|}\hline\$637,900\\\hline5,986,000\\\hline531,800\\\hline\\\hline\end{array}\begin{array}{r|}\hline \text {Sales Revenue}\\\hline \text {Depreciation Expense}\\\hline \text {Interest Expense}\\\hline \text {}\\\hline\end{array}\begin{array}{r|}\hline\$8,964,500\\\hline375,400\\\hline268,400\\\hline\\\hline\end{array}\end{array}$

Which of the following represents a subtotal rather than an account?

Indicate whether a debit (dr)or credit (cr)would be used to increase each of the following accounts. _____ prepaid expenses. _____ rental revenue. _____ salaries and wages expense. _____ service revenue. _____ property and equipment. _____ wages expense. _____ retained earnings. _____ loss on sale of property. _____ supplies expense.

The balances for each account reported on an unadjusted trial balance are determined by adding the amounts on the "+" side and subtracting the amounts on the "-" side of each ledger or T-account.

One of the ways companies can mislead investors is by inappropriately capitalizing costs.When is it appropriate to capitalize costs?

A firm accumulated expenses of $8,700,$600 and $400 throughout the period and realized $15,500 in revenues over the same time frame.The owner is curious about how much profit is earned from each dollar of revenue.You're asked to calculate this for him.

For each of the following events,indicate the accounts affected,whether they would increase or decrease,and the amount by which they would change.Also demonstrate that the accounting equation will remain in balance after these effects are reported.If the event should not to be recorded as a transaction,state so. A.Borrowed $7,000,000 cash,signing a promissory note. B.Bought a factory for $800,000,paying $200,000 in cash and signing a promissory note for $600,000. C.Rented equipment for $10,000 a month and made a payment for six months in advance. D.Paid $104,000 for insurance coverage that will begin next month. E.Purchased $30,000 of supplies on account,of which $10,000 is intended for use next month,and the remainder in later months. F.Hired 20 workers at $500 a week each and paid all 20 workers for the four weeks of work done during the month. G.Raised prices by 10%. H.Received a 50% prepayment from a customer on a $20,000 order to be filled next month.

Which of the following is an example of an error that would not cause the trial balance to be out of balance?