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Exam 3: Operating Decisions and the Accounting System

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Question 51

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Why might managers be tempted to violate the revenue realization principle and the expense matching principle when preparing an income statement?

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Managers want their companies to appear ...

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Question 52

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Smith Corporation has provided the following information: Cash sales totaled $125,000. Credit sales totaled $279,000. Cash collections from customers for services yet to be provided totaled $38,000. An $11,000 gain from the sale of property and equipment occurred. Interest income totaled $7,700. How much were Smith's operating revenues?

A) $404,000.
B) $411,700.
C) $442,000.
D) $460,700.

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Question 53

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Complete the chart below for Monticello Corporation by placing an X in the appropriate boxes to indicate how the transaction should be recorded.

Unearned revenues are reported as liabilities on the balance sheet.

The time period assumption implies that the life of a business entity can be reported in time periods such as quarters and years.

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. Cost of goods sold was $336,000. Rent expense was $36,000. Salaries expense was $49,000. Other operating expenses totaled $79,000. Unearned revenue was $4,000. How much was Lantz's income before income taxes?

Which of the following journal entries is prepared when cash is received from a customer prior to delivery of the goods or services? A. Cash $\quad$ Revenues B. Cash $\quad$ Unearned revenues C. Unearned revenues $\quad$ Cash D. Cash $\quad$ Accounts receivable

Which of the following would lengthen the operating cycle?

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

Describe the operating activities section of the cash flow statement and provide three examples of operating activities cash flows.

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. Cost of goods sold was $336,000. Rent expense was $36,000. Salaries expense was $49,000. Other operating expenses totaled $79,000. Unearned revenue was $4,000. How much was Lantz's operating income?

Yelena Company received cash from a customer in advance of providing the service to the customer. Which of the following does not accurately describe the impact on the financial statements when Yelena later provides the service?

Which of the following journal entries correctly records a transaction where services were provided to a customer on account? A. Cash $\quad$ Revenues B. Unearned revenue $\quad$ Revenues C. Accounts receivable $\quad$ Revenues D. Revenues $\quad$ Accounts receivable

Which of the following transactions would be reported as cash flow from operating activities on a cash flow statement?

Using cash to purchase office supplies, which will be consumed later, results in an increase in expenses and a decrease in assets at the time of purchase.

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 matching principle requires expenses to be recorded on the income statement when incurred in generating revenues.

Part A. Perform transaction analysis for Blake Company regarding the following transactions for the month of March. Indicate the account affected by the transaction as well as the increase (+) or decrease (-) to the components of the accounting equation and the amount. Part B. Determine whether the transactions A-F above affected cash flows during March. 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 an X under the appropriate column for each transaction. $\begin{array} { | l | l | l | l | l | } \hline && { \text { Type of Activity } } \\\hline \text { Transaction } & \text { Operating } & \text { Investing } & \text { Financing } & \text { No effect } \\\hline \text { A. } & & & & \\\hline \text { B. } & & & & \\\hline \text { C. } & & & & \\\hline \text { D. } & & & & \\\hline \text { E. } & & & & \\\hline \text { F. } & & & & \\\hline\end{array}$

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

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