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Exam 3: Operating Decisions and the Accounting System

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Question 51

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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 of these items were included in operating income?

A) $415,000.
B) $411,700.
C) $442,000.
D) $460,700.

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

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Question 52

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During 2016, Sigma Company earned service revenue amounting to $700,000, of which $630,000 was collected in cash; the balance will be collected in January, 2017. Also in 2016 there were collections of cash prior to the delivery of goods/services totaling $10,000. What amount should the 2016 income statement report for service revenue?

A) $630,000.
B) $700,000.
C) $70,000.
D) $570,000.

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

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Question 53

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Which of the following journal entries correctly records the receipt of a utility bill, which will be paid for in later weeks?

Toby Toy Store has noticed the following items that need to be considered for its income statement for the year ended December 31, 2016: • Commissions of $3,000 for salespeople who made sales in December will be paid January 3, 2017. • The phone bill of $400 for December was received and will be paid January 20, 2017. • The store rent of $2,000 for January, 2017 was paid on December 28, 2016. • At the beginning of November, Toby paid $1,500 for advertising in a monthly magazine that is distributed in November and December of 2016, and January of 2017. What is the proper amount of expenses to be included in the income statement for the year?

The expense recognition principle requires expenses to be recorded on the income statement in the same period they are incurred in generating revenues.

Which of the following is not a proper application of the revenue recognition principle?

Which of the following statements is false?

Toy Shop Inc. has provided the following income statements: 2017 2016 2015 Net revenues $3,787.2 $4,232.2 $3,304.5 Cost of goods sold 1,674.0 $1,698.2 1,366.1 Gross profit 2,113.2 2,534.0 1,938.4 Operating expenses 2,217.5 2,206.5 1,613.5 Income (loss) from operations (104.3) 327.5 324.9 Nonoperating income (loss) (121.7) (53.7) (21.4) Income (loss) before taxes (226.0) 273.8 303.5 Income tax (expense)/benefit 81.4 (84.9) (97.1) Net income (loss) (144.6) 188.9 206.4 Required: (1) Compute net profit margin for each year. (2) Discuss some of the events that could have caused the changes to the net profit margin based on the income statement information above.

Which of the following journal entries is prepared when cash is received from a customer prior to delivery of the goods or services?

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. • Supplies expense was $336,000. • Rent expense for the store was $36,000. • Wages expense was $49,000. • Other operating expenses totaled $79,000. • Unearned revenue was $4,000. What is the amount of Lantz's total operating expenses?

Cash received prior to the providing of the goods or service results in an increase in both assets and liabilities.

Which of the following statements is false?

Which of the following statements is false?

Which of the following statements is correct?

Colby Corporation has provided the following information: • Operating revenues from customers were $199,700. • Operating expenses for the store were $111,000. • Interest expense was $9,200. • Gain from sale of plant and equipment was $3,300. • Dividend payments to Colby's stockholders were $7,700. • Income tax expense was $36,000. • Prepaid rent expense was $5,000. What is the amount of Colby's total operating expenses?

A company purchased supplies for cash, which will be consumed during future months. Which of the following correctly describes the impact of the supplies purchase on the financial statements?

Which of the following statements is false?

A retail store would likely have a shorter operating cycle than an automobile manufacturer.

Which of the following businesses would most likely not report cost of goods sold on their income statement?

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