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Exam 3: The Income Statement

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Question 31

True/False

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An increase in unearned revenue would have an impact on the income of the company. BT: Knowledge

A) True
B) False

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Question 32

Multiple Choice

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The unadjusted trial balance:

A) is a preliminary financial statement for external users.
B) generally lists account names in alphabetical order.
C) is created to determine that total debits equal total credits.
D) demonstrates that the accounting process is error free.

E) All of the above
F) B) and D)

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Question 33

Multiple Choice

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Which of the following items is not a specific account in a company's chart of accounts?

WestJet Corporation issued a $1,000 gift certificate.What journal entry will WestJet Corporation record?

When a customer buys services on account,it should be recorded as:

Show journal entries for each of the following January activities,and post results to the relevant T-accounts. A.Provided $26,000 of services.$17,000 was received in cash and $9,000 was provided on credit. B.Used $423 of supplies. C.Provided $3,500 of services paid for in previous months. D.Bought $15,000 of new equipment signing a promissory note. E.Paid $689 on account for December's utilities. F.Paid workers $8,300 for work done in January.

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:

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.

Corporate income taxes cannot be calculated until all adjustments are made to net income. BT: Knowledge

Company A receives $10,000 in advance this month for work to be performed next month.This month,the company should:

GAAP (Generally Accepted Accounting Principles)requires the use of accrual basis of accounting for external financial reporting purposes. BT: Knowledge

The Pet Sitters,Inc.,had the following transactions during the month of January.For each of the transactions,prepare journal entries. A.Paid $5,000 cash for cat litter,of which $600 was used during January,and $4,400 will be used during February through April. B.Paid $4,480 for wages and salaries,one-half of which employees had earned in December and one-half of which related to January. C.Paid $480 in advance for February utilities. D.Provided $12,000 in services on account. E.Paid $800 on accounts payable. F.Received $210 from customers as deposits for future pet sitting services. G.Obtained $390 in vet services during the month,but will not pay the bill until February. H.Paid $780 for equipment.

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. BT: Knowledge

All other accounts remaining the same,an increase in revenue will always:

According to the Revenue Principle,a company should not record the revenue from a transaction until it is actually received in cash. BT: Comprehension

At September 30,Balance Corporation reported the following unadjusted amounts for its accounts,each of which is considered to be a "normal" balance,i.e.,an account that normally has a debit balance actually does have a debit balance.Prepare an unadjusted trial balance. $\begin{array} { l r } \text { Accounts Payable } & \$ 12,000 \\\text { Accounts Receivable } & 1,000 \\\text { Advertising Expense } & 400 \\\text { Cash } & 85,000 \\\text { Contributed Capital } & 64,000 \\\text { Equipment } & 60,000 \\\text { Note Payable } & 36,000 \\\text { Rent Revenue } & 42,000 \\\text { Retained Earnings } & 24,800 \\\text { Supplies } & 1,400 \\\text { Supplies Expense } & 600 \\\text { Utilities Expense } & 2,000 \\\text { Wages Expense } & 28,400\end{array}$

Costs that benefit future periods are reported as assets. BT: Knowledge

During August,your company sells $10,000 of services that cost $8,000 to provide.You report the revenue in August and the expenses (that is,the costs incurred to provide those services)in September and October when they are paid.This is an acceptable accounting procedure. BT: Comprehension

Sparkling Pools received a bill for $1,200 for running newspaper ads during the last two weeks of July; the bill will be paid on August 1.Advertising expense should be:

Company's net income is the sole determinant of its value for the period the net income is generated. BT: Knowledge