Sample Chapter

INSTANT DOWNLOAD COMPLETE TEST BANK WITH ANSWERS

 

Test Bank For Financial Accounting 4th Edition by Robert Libby, Patricia Libby , Daniel G Short, Daniel Short

 

 

 

SAMPLE QUESTIONS

 

ch01

Student:                                                                                                                                                       

 

  1. Accounting is a system that collects and processes financial information about an organization and reports that information to decision

True    False

  1. The purpose of the statement of financial position is to report the financial position (amount of assets, liabilities, and shareholders’ equity) of an accounting entity at a particular point in

True    False

  1. In accounting and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its

True    False

  1. The debts of a corporation can be generally viewed as debts of its owners. True False
  2. A balance sheet should be dated for a period (such as “For the year ended December 31, 20A”), whereas an income statement should be dated at a point in time (such as “December 31, 20A”).

True    False

  1. The accounting period in which service revenue is recognized (i.e., revenue for services rendered) is generally the period in which the cash is

True    False

  1. If expenses are understated on the income statement, shareholders’ equity is overstated on the balance sheet.

True    False

  1. Total assets are $60,000, total liabilities, $30,000, and share capital is $20,000; therefore, retained earnings is $5,000.

True    False

  1. Assets are measured and reported on the balance sheet at their current market value at the date of the balance

True    False

  1. The payment of a cash dividend to shareholders reduces shareholders’ equity. True False
  2. The report of management indicates management’s primary responsibility for financial statement information and the steps to ensure the accuracy of the company’s

True    False

  1. The organization for which financial data are to be collected and reported is called an accounting entity.

True    False

  1. The accounting model for the balance sheet is: Assets + Liabilities – Shareholders’ Equity. True False
  2. One feature of the cash flow statement is to show the change in cash for the period. True False

 

  1. Profit (also called net income or net earnings) is the excess of total revenues over total expenses incurred to generate revenue during a specific

True    False

  1. The financial statements prepared by a corporation include a balance sheet, income statement, cash flow statement, and statement of

True    False

  1. A banker who is considering making a loan to a corporation would be one of the corporation’s internal decision

True    False

  1. Assets are economic resources controlled by the entity as a result of past business events and from which future economic benefits can be

True    False

  1. The financial statement that shows an entity’s economic resources and its liabilities is the statement of retained

True    False

  1. The statement of comprehensive income reports the change in shareholders’ equity during a period from business activities other than investments by shareholders or distributions to

True    False

  1. A note payable is a borrowing instrument that generally does not involve the payment of interest. True False
  2. If a corporation does not pay its obligations when they are due, its creditors may be able to force the sale of the business’s assets to pay their

True    False

  1. When a company ships products to a customer and bills the customer, the company should recognize revenue as

True    False

  1. The amount of cash paid by a business for office rent would be reported on the cash flow statement as a financing

True    False

  1. Repayment of a bank loan is classified on the cash flow statement as an operating activity. True False
  2. Liabilities are the entity’s legal obligations that result from past business events. True False
  3. International Financial Accounting Standards are produced by the International Accounting Standards Board (IASB), which is an independent standard-setting board consisting of 15 members from nine countries.

True    False

  1. Accounting is based on man-made rules that sometimes undergo change. True False
  2. Primary responsibility for the information in the financial statements lies with management. True False
  3. The AcSB is currently the body responsible for establishing accounting standards. True False

 

 

 

ch03

 

Student: ___________________________________________________________________________

 

  1. The operating cycle is the time it takes for a company to purchase goods, pay for the goods, sell them to customers, and collect the cash from the customers.

True   False

 

  1. According to the periodicity assumption, to measure and report financial information periodically, we assume the long life of the company can be cut into shorter periods.

True   False

 

  1. The operating cycle is of a similar duration for most companies. True False

 

  1. The division of business activities into a series of equal periods for accounting purposes is known as the periodicity assumption.

True   False

 

  1. The income statement provides investors with information about a company’s investing activities. True False

 

  1. A Taco Bell restaurant would most likely have a longer operating cycle than Walmart. True False

 

  1. When a growing company finds they need to buy more inventory before cash has been collected from customers, they often use short term credit such as accounts or notes payable to finance the inventory purchases.

 

True   False

 

  1. Revenues are decreases in assets or settlements of liabilities from ongoing operations. True False

 

  1. The net income of a business is computed by subtracting revenues from expenses. True False

 

  1. Losses are decreases in assets or increases in liabilities from peripheral activities. True False

 

  1. Income tax expense will appear on the balance sheet. True False

 

  1. A common source of revenue for a restaurant chain such as Arby’s is franchise royalties and fees. True False

 

  1. A gain causes an increase in income as a result of normal operating activities. True False

 

  1. Cost of sales is usually the largest expense for manufacturing or merchandising companies. True False

 

  1. Accrual basis accounting records revenues when earned and expenses when incurred, regardless of when the related cash is received or paid.

True   False

 

  1. Using the accrual basis of accounting, a company recognizes expenses when they are paid. True False

 

  1. The revenue principle recognizes revenues when the earnings process is complete or nearly complete, an exchange has taken place, and collection is probable.

True   False

 

  1. Cash basis accounting is often adequate for very small businesses such as a small retail store or a doctor’s office.

True   False

 

  1. Accrual basis accounting recognizes revenues when cash is received from the customer. True False

 

  1. Expenses incurred, but not yet paid, create a receivable (i.e., an asset) until payment occurs. True False

 

  1. Accrued in the case of expenses means paid in advance, and deferred in the case of expenses means not yet paid.

True   False

 

  1. Deferred in the case of revenues means collected in advance of being earned and accrued in the case of revenues means not yet collected.

True   False

 

  1. Expenses are recognized when an exchange takes place of productive assets, the earnings process is complete or nearly complete, and collection is likely.

True   False

 

  1. The matching process recognizes liabilities when incurred in earning revenue. True False

 

  1. Transactions where cash is received before being earned often result in adjusting entries at the end of the period to record income in the proper period.

True   False

 

  1. The revenue principle recognizes revenue from the sale of goods when ownership passes from the seller to the buyer. In the sale of services, revenue is recognized when the services are completed.

True   False

 

  1. The sale of merchandise on credit and the collection from the customer ten days later constitutes one transaction for accounting purposes.

True   False

 

  1. Revenue recognition most commonly occurs at the point of delivery of goods or services to the customer.

True   False

 

  1. A company that ships product to its customers in January 20B but records them as revenue in December 20A has not violated the revenue principle because they were manufactured and ready for sale before the accounting year end.

 

True   False

 

  1. We record insurance as an expense when we pay for a three year policy. True False

 

  1. Shareholders’ equity is increased by investments of the owners and is decreased by net income. True False

 

  1. Revenue collected in advance of being earned represents a liability until it is earned. True False

 

  1. Utilities expense and wages payable are both elements of the income statement. True False

 

  1. The sale of merchandise for cash usually will increase assets. True False

 

  1. Revenues increase shareholders’ equity, so they are recorded with credits. True False

 

  1. Revenues earned decrease assets and shareholders’ equity. True False

 

  1. Expenses incurred but not paid decrease assets and shareholders’ equity. True False

 

  1. The balance sheet is affected by the sale of merchandise for cash. True False

 

  1. An increase in revenue represents an increase in shareholders’ equity. True False

 

  1. An increase in expenses represents an increase in shareholders’ equity. True False

 

  1. When the board of directors declares a cash dividend to be paid to shareholders, shareholders’ equity increases.

True   False

 

  1. Revenue accounts normally have debit balances because they represent assets received while expense accounts normally have credit balances because they represent assets used.

True   False

 

  1. Usually, the market price of shares is not adversely affected by lower than expected quarterly earnings.

True   False

 

  1. Collection of a customer’s account has an impact on total assets. True False

 

  1. The income statement reports income or loss at a point in time. True False

 

  1. A company can experience difficulty even if it does not report a loss. True False

 

  1. Unadjusted financial statements do not reflect revenues earned or expenses incurred in the accounting period if the receipt or payment of cash occurs in a different period.

True   False

 

  1. Profit differs from cash flow from operations because the revenue recognition and matching processes result in the recognition of revenues and related expenses that are independent of the timing of cash receipts and payments.

 

True   False

 

  1. A high asset turnover signifies efficient management of assets; a low asset turnover ratio signifies less efficient management.

True   False

 

  1. In a well-run business, creditors expect the total asset turnover ratio to fluctuate due to seasonal upswings and downturns.

True   False

 

  1. The periodicity assumption is the basis for which of the following?
    1. dividing the activities of a business into a series of time periods for accounting and reporting purposes.
    2. the cut-off of revenue recognition only.

 

  1. keeping the company’s transactions separate from the owners’ transactions.

 

  1. the cut-off of expense recognition only.

 

  1. Financial analysts look to the income statement to determine which of the following?
    1. whether the company has generated income from operations

 

  1. if the company has invested too much cash in its inventory

 

  1. whether the company has generated sufficient cash to pay its bills

 

  1. if the company is collecting its receivables on time

 

  1. The operating cycle of a business is best defined as which of the following?
    1. the period of time for which we prepare our financial statements

 

B.the length of time over which our plant and equipment assets are expected to be used by the company in generating revenues

 

Cthe time it takes for a company to purchase and pay for goods or services from suppliers, sell those . goods or services to customers and collect cash from the customers

  1. one year

 

  1. Which of the following businesses would most likely have the shortest operating cycle?
    1. A retail chain such as Walmart

 

  1. A jewellery manufacturer such as Mappins

 

  1. A grocery chain such as Loblaws
  2. A pizza franchise such as Pizza Pizza

 

  1. If total revenues are the same as total expenses, then a company has which of the following?
    1. a net loss.
    2. a net profit.

 

  1. neither a profit nor a loss.

 

  1. negative net income.

 

  1. Which of the following costs is most likely to be the largest expense item on the income statement of a merchandising chain such as Walmart?
    1. Wage, salary and benefits expense

 

  1. Advertising

 

  1. Cost of Sales
  2. Income tax expense

 

  1. Which of the following is not considered an asset?
    1. Equipment
    2. Dividends

 

  1. Accounts receivable

 

  1. Inventory

 

  1. Calculate the effective tax rate for a company that reports an income tax expense of $3.0 million, net income of $7.5 million, and income before taxes of $10.5 million.
    1. 5%

 

  1. 35%

 

  1. 40%
  2. It cannot be computed with the above information

 

  1. Which of the following activities will most likely result in a reported loss on the income statement?
    1. The sale of inventory to customers
    2. The sale of old equipment

 

  1. The wages and benefits paid to employees

 

  1. Interest expense

 

  1. Which of the following expenses is usually listed last on the income statement?
    1. Advertising expense
    2. Cost of sales

 

  1. General administrative expenses

 

  1. Income tax expense

 

  1. Why is the cash basis of accounting not appropriate for use by publicly traded corporations?
    1. the OSC (Ontario Securities Commission) does not allow its use

 

B.no assets or liabilities other than cash would ever appear on the balance sheet, giving a distorted picture of financial position

 

Cthe income reported could not be distorted if a large customer paid for goods in advance or we . postponed paying for goods or services until the next accounting period

  1. the cash basis is not permitted for tax purposes

 

  1. The matching principle states that expenses should be matched with revenues because
    1. efforts should be matched with accomplishments.

 

  1. dividends should be matched with shareholder investments.

 

  1. cash payments should be matched with cash receipts.

 

  1. assets should be matched with liabilities.

 

  1. During 20B, New Company earned service revenues amounting to $200,000, of which $120,000 were collected in cash; the balance will be collected in January 20C. The 20B income statement of the company should report which of the following amounts for service revenues?

 

  1. $80,000.
  2. $120,000.

 

  1. $200,000.

 

  1. $320,000.

 

  1. At the end of December, the owner of an apartment complex realized that the December rent had not been collected from one of the tenants. December 31 was the end of the accounting year; therefore, the owner made the appropriate adjusting entry at that time. When the December rent was collected in January of the following year, the entry made by the apartment owner should include which of the following?

 

  1. debit to Rent revenue receivable.
  2. credit to Rent revenue receivable.

 

  1. debit to Rent revenue collected in advance.

 

  1. credit to Rent revenue.

 

  1. Under the accrual basis of accounting
    1. cash must be received before revenue is recognized.

 

  1. net earnings are calculated by matching cash outflows against cash inflows.

 

C the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are

.  prepared under generally accepted accounting principles.

D events that change a company’s financial statements are recognized in the period they occur rather than

.  in the period in which cash is paid or received.

 

  1. Accrued expenses which must be recorded in adjusting entries represent which of the following?
    1. expenses incurred but not yet paid.

 

  1. expenses incurred but not recorded or paid.

 

  1. expenses paid in advance.

 

  1. expenses paid in advance and not recorded.

 

  1. Revenue is always recognized when which of the following occurs?
    1. expenses are paid.

 

  1. cash is collected.

 

  1. it is earned.
  2. the end of the period arrives.

 

  1. Which of the following is not an example of the application of the revenue principle?
    1. Recording the sale of merchandise on credit in sales revenue.
    2. Recording rent received in advance in unearned rent revenue.

 

  1. Recording interest collected on unearned rent revenue.

 

D.Reducing the service revenue account for service revenue collected but not yet performed at the end of the accounting period.

 

  1. In applying the revenue principle to a given transaction, the most important moment or period in time is when which of the following happens?
    1. related cash inflows occur.

 

  1. related expenses are incurred.
  2. sales transaction is completed (i.e., ownership passes) or services are rendered.

 

  1. the service contract is signed regarding service to be performed.

 

  1. Which principle holds that all of the expenses incurred in earning revenue should be identified with the revenue recognized and reported for the same period?
    1. revenue principle.

 

  1. matching principle.

 

  1. timing principle.

 

  1. liability principle.

 

  1. During the accounting period, Luxor Company had the following data:

 

Sales of products:

 

Expenses:

This is the first year of business.

 

 

 

 

What were the sales revenue and expenses?

  1. Choice A

 

  1. Choice B

 

  1. Choice C

 

  1. Choice D

 

  1. Which of the following is not normally a condition that must be met for revenue to be recognized (recorded) under the revenue principle?
    1. The earnings process is complete or nearly complete

 

  1. The promise to perform an exchange in the future has been made
  2. Collection of receivables from credit sales is reasonably assured

 

  1. All cash must be received in advance of exchanging the goods

 

  1. Which of the following liability accounts is likely to be satisfied with other than payment of cash?
    1. Wages payable

 

  1. Deferred subscriptions revenue

 

  1. Accounts Payable

 

  1. Income taxes payable

 

  1. Tony’s Tune-Up Shop Ltd. follows the revenue recognition principle. Tony services a car on May 31. The customer picks up the vehicle on June 1 and mails the payment to Tony on June 5. Tony receives the cheque in the mail on June 6. When should Tony show that the revenue was earned?

 

  1. May 31
  2. June 5

 

  1. June 1

 

  1. June 6

 

  1. A company receives a $25,000 cash deposit from a customer on March 15 but will not deliver the goods until April 20. Which of the following statements is false?
    1. Cash will be reported on the statement of cash flows for the month of March

 

  1. Revenue will be recorded and reported on the income statement for April

 

  1. A liability will be reported on the balance sheet at the end of March

 

  1. Revenue will be recorded and reported on the income statement for March

 

  1. Which of the following activities does not violate the revenue recognition principle?
    1. Recording revenue in December 2009 for units manufactured but not yet sold to customers

 

  1. Recording cash received in advance from customers as revenue when the product is not yet shipped

 

  1. Not recording interest earned in 2009 until the cash is received in 2010
  2. Recording cash received in advance from customers as a liability when the product is not yet shipped

 

  1. What would be the effect on December’s income statement of a utility bill received on December 27, 2009 but which will not be paid until January 10, 2010?
    1. No expense will be recognized until the bill is paid in January

 

  1. We would cause an increase in income by recording the expense in December

 

  1. Recording the expense in December when it is incurred will increase expenses

 

  1. Income will be decreased when we pay the bill in January

 

  1. Which group of accounts contains only those that normally have a debit balance?
    1. Accounts receivable; Accumulated depreciation; Fees earned.

 

  1. Bond investment; Cash; Share capital.

 

  1. Cash; Inventory; Prepaid insurance.
  2. Notes receivable; Wages payable; Operating expenses.

 

  1. During 20B, Blue Corporation incurred operating expenses amounting to $100,000, of which $75,000 were paid in cash; the balance will be paid in January 20C. Transaction analysis of operating expenses for 20B, should reflect which of the following?

 

  1. decrease shareholders’ equity, $75,000; decrease assets, $75,000.

 

  1. decrease assets, $100,000; decrease shareholders’ equity, $100,000.

 

  1. decrease assets, $100,000; increase liabilities, $25,000; decrease shareholders’ equity, $100,000.

 

  1. decrease shareholders’ equity, $100,000; decrease assets, $75,000; increase liabilities, $25,000.

 

  1. Which of the following phases of the accounting information processing cycle is performed at the end of the accounting period?
    1. Adjusting entries.
    2. Peer reviews.

 

 

  1. Transaction entries.

 

  1. When a corporation pays a dividend, the
    1. expense account will be increased with a debit.

 

  1. dividends account will be increased with a credit.

 

  1. retained Earnings account will be directly increased with a debit.

 

  1. dividends account will be increased with a debit.

 

  1. If Global Company paid $500 for the telephone bill, this would do which of the following?
    1. decrease assets.

 

  1. increase assets.
  2. decrease expenses.

 

  1. increase liabilities.

 

  1. If Golden Corporation declared a dividend to its shareholders which has not been paid, this would
    1. increase liabilities.

 

  1. increase shareholders’ equity.

 

  1. decrease liabilities.

 

  1. increase assets.

 

  1. Which of the following items has no effect on retained earnings?
    1. dividends
    2. revenue

 

  1. hiring a new employee

 

  1. expense

 

  1. During 20B, Melon Company incurred operating expenses amounting to $250,000, of which $120,000 were paid in cash; the balance will be paid in January 20C. On the 20B income statement of the company, what amount should be reported for operating expenses?

 

  1. $120,000.

 

  1. $130,000.
  2. $250,000.

 

  1. $370,000.

 

  1. With respect to shareholders’ equity, indicate which one of the following statements is correct.

 

  1. Revenues are recorded as credits to the revenue accounts and expenses are recorded as debits to the expense accounts.

 

  1. Revenues are recorded as debits to the revenue accounts and expenses are recorded as credits to the expense accounts.
  2. Contributions (investments) by owners are recorded as debits to the share capital accounts.
  3. Withdrawals by owners are recorded as credits to the share capital accounts.

 

  1. Hill’s Copy Service performed photocopy services during December, 20A, but had not collected any cash (or other assets) from its customers by the end of the accounting period, December 31, 20A. What effect did performing these services have on the fundamental accounting model?

 

  1. Increased assets and increased liabilities.

 

  1. Increased assets and increased shareholders’ equity.

 

  1. Increased assets and decreased shareholders’ equity.

 

  1. Decreased liabilities and decreased shareholders’ equity.

 

  1. The statement of retained earnings is dependent on the results of
    1. the balance sheet.

 

  1. the income statement.
  2. a company’s share capital.

 

  1. the cash flow statement.

 

  1. On December 31, 20A, Ted Corporation paid $2,000 for next year’s insurance coverage. How should this

 

 

 

 

 

 

 

transaction be recorded by Ted Corporation?

  1. Choice A

 

  1. Choice B
  2. Choice C

 

  1. Choice D

 

  1. On January 1, 20B, Grover Inc., started the year with a $22,000 credit balance in its retained earnings account. During 20B, the company earned net income of $40,000 and declared and paid dividends of $10,000. Also, the company received cash of $15,000 as an additional investment by its owners. Therefore, the balance in retained earnings on December 31, 20B, would be which of the following?
    1. $42,000.

 

  1. $52,000.
  2. $57,000.

 

  1. $67,000.

 

  1. Golden Company had these transactions during the accounting period. Sold merchandise for $600; its cost was $400.

 

Collected $400 from an account receivable. The account was established in the previous year. Used office supplies of $50.

Golden’s net income for the period would be which of the following?

 

  1. $50.

 

  1. $150.
  2. $600.

 

  1. $900.

 

  1. Cash receipts from interest and dividends are classified as
    1. financing activities.

 

  1. investing activities.

 

  1. operating activities.

 

  1. either financing or investing activities.

 

  1. The category that is generally considered to be the best measure of a company’s ability to continue as a going concern is
    1. cash flows from investing activities.

 

  1. cash flows from operating activities.
  2. cash flows from financing activities.

 

  1. usually different from year to year.

 

  1. For a merchandising company, the largest operating cash outflow would result from which of the following?
    1. payments to suppliers from whom we have purchased inventory on credit

 

  1. payment of wages and benefits to employees

 

  1. payment of taxes to the various government entities

 

  1. payment of interest on notes payable

 

  1. Operating cash inflows and outflows are primarily connected to which of the following?
    1. acquisitions and sale of long lived assets

 

  1. the sale of goods and services to customers and costs incurred to operate the business
  2. issuance of shares, bank borrowings and repayments, and dividend payments

 

  1. purchase and sale of long-term investments

 

  1. Asset turnover measures
    1. how often a company replaces its assets.

 

  1. how efficiently a company uses its assets to generate sales.

 

  1. the portion of the assets that have been financed by creditors.

 

  1. the overall rate of return on assets.

 

  1. A company reports sales revenue of $120 million this year and $110 million last year. Their total assets in the current year are $80 million and last year’s total assets were $75 million. What is the current year’s asset turnover ratio?

 

  1. 46
  2. 50

 

  1. 55

 

  1. 61

 

  1. If Pizza Pizza reports an asset turnover ratio of 2.34 for 2010 and their competitor Pizza Hut reports 3.79 for their 2010 ratio, it means which of the following?
    1. Pizza Pizza is better able to pay their current obligations with their current assets

 

  1. Pizza Pizza has been more effective in managing the use and level of its assets

 

  1. Pizza Pizza has been less effective in managing the use and level of its assets
  2. Pizza Pizza is less able to pay off their current obligations with their current assets

 

  1. The Upton Country Store had the following transactions in April:
    1. Sold $25,000 of goods to customers and received $22,000 in cash and the rest are on account
    2. The cost of the inventory sold was $13,000

 

  1. The store purchased $8,000 of inventory and paid for $4,000 in cash and the rest were bought on account
  2. They paid $7,000 in wages for the month

 

  1. Received a $600 bill for utilities for the month that will not be paid until May

 

  1. Received rent for the adjacent store front for the months of April and May in the amount of $3,000 Complete the following statements:

Cash Basis Income Statement

 

 

 

 

 

Revenues:

Accrual Basis

 

Income Statement

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

100.Small Company rendered services to customers amounting to $6,000 during 20A; the related cash was collected as follows: $4,000 in 20A; $2,000 in 20B. During 20A, $3,000 was incurred for wages expense; the related cash payments were made as follows: $1,200 in 20A; in 20B, $1,800. Based only on these

 

 

data, provide the following amounts:

 

 

 

 

 

 

 

 

 

 

101.Explain why a $500 revenue collected in advance for service would be recorded as a debit to cash and a credit to a liability account.

 

102.Why might managers be tempted to violate the revenue principle and the matching principle in financial reporting?

 

 

 

 

 

 

 

 

 

 

103.Complete the chart below for McRae Corporation by entering check marks in the appropriate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

spaces.

 

 

 

 

 

 

 

 

 

 

104.Indicate the sequential order of the following steps in the accounting information processing cycle by entering numbers to the left. The earliest step will be 1 and the last step will be 6. ______ Analyzing transactions ______ Preparing financial statements ______ Developing a trial balance ______ Collecting original data ______ Posting to the accounts ______ Journalizing transactions

 

105.Part A. Perform transaction analysis for Cress Company regarding the following transactions for May.

Indicate an increase (+) or decrease (-) to the account in front of the amount.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Part B. Determine whether the transactions (A)-(F) above affected cash flows. If so, determine the type of activity as an operating activity, an investing activity, or a financing activity. If cash is not affected use “no effect.” Place a check mark under the appropriate column for each transaction

 

106.Immediately after the adjusting entries were journalized and posted for the 20B year, the accounts of Way Corporation showed the following

 

 

 

 

 

 

 

 

 

 

 

balances:

 

 

 

 

 

 

 

 

 

 

107.The following accounts for Juliet Enterprises, Inc., are listed in alphabetical order. Enter the number associated with each to identify the accounts that would be used in the journal entry for each transaction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

given below.

 

108.On June 1, 20A, Global Services, Inc., was started with $50,000 invested by the owners as share capital. On June 30, the accounting records contained the following

 

 

 

 

 

 

 

 

 

 

 

 

amounts:

 

 

 

 

 

 

 

 

 

 

109.Explain why the net income reported on the income statement is usually not equal to net cash flows from operating activities on the statement of cash flows.

 

 

 

 

 

 

 

 

 

 

110.The following data is from Gauthier Machine

 

 

 

 

 

Shop:

Compute Gauthier Machine Shop’s asset turnover ratio for the two most recent years

  • 20C __________
  • 20B __________

 

 

 

 

 

 

 

 

 

 

111.Match the following statements with the terms given below by entering the appropriate letter in the blank space.

1. Deferred An expense incurred, but not yet recorded nor ____
expense paid.
2. Accrued An expense paid, but not yet incurred. ____
revenue
3. Deferred revenue earned, but not yet recorded nor ____
revenue collected.
4. Accrued A revenue collected, but not yet earned. ____
expense

 

 

 

 

  1. (a) $22,000, (b) $3,000, (c) $4,000, (d) $7,000, (e) $14,000, (f) $25,000, (g) $1,500, (h) $13,000, (i) $7,000, (j) $600, (k) $5,900

 

 

 

 

100.

 

  1. A debit is recorded to cash because a receipt of cash increases this asset account. A corresponding credit to a liability account (unearned revenue) is appropriate because the customer is “owed” services in the future. If the services are not performed, the customer would get a refund.

 

  1. Managers want their companies to appear successful when financial statements are issued. With revenues as high as possible and expenses as low as possible, net income will be elevated. Managers might be tempted to report revenues even though the earnings process is not complete. Also, if some expenses can be put off until a later time, net income will appear larger. Many times manager bonuses are calculated based on net income. Lower net income could cause an adverse reaction in the market place regarding share prices. This could cause some managers to lose their jobs.

 

 

 

 

 

 

 

 

 

 

 

103.

 

  1. 2-6-5-1-4-3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

105.

 

 

 

 

 

106.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

107.

 

 

 

 

 

 

 

 

 

108.

 

  1. Net income on the income statement is an application of the accrual basis of accounting. Revenues are reported when earned and expenses incurred are matched to those earned revenues. The net cash flows from operating activities on the statement of cash flows are reported on the cash basis of accounting. That is, amounts received from customers and amounts paid for expenses are on the statement of cash flows. Therefore, the difference in net income and net cash from operating activities is a timing issue.

 

  1. (a) 2.05, (b) 1.95

 

  1. Accrued expense :: An expense incurred, but not yet recorded nor paid. and  Deferred expense :: An expense paid, but not yet

 

incurred. and Accrued revenue :: revenue earned, but not yet recorded nor collected. and Deferred revenue :: A revenue collected, but not yet earned.

 

ch03 Summary

 

Category # of Questions
Difficulty: Easy 18
Difficulty: Hard 15
Difficulty: Medium 78
Learning Objective: 1 11
Learning Objective: 2 14
Learning Objective: 3 37
Learning Objective: 4 33
Learning Objective: 5 10
Learning Objective: 6 6
Libby – Chapter 03 111