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Exam 3: The Income Statement

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Question 61

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

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Managers want their companies to appear ...

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Question 62

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The profit of a business is computed by subtracting revenues from expenses.

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Question 63

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

What is Other Comprehensive Income?

Which method of preparing income statements provides the most information about future cash flows?

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?

During the accounting period, Luxor Company had the following data: Sales of products: Cash received $70 ,000 On credit (not yet received) $10 ,000 Expenses: Cash paid $35, 000 On credit (not yet paid) $3, 000 What were the sales revenue and expenses? $\begin{array} { | l | r | r | } \hline & \text { Sales Revenue } & \text { Expenses } \\\hline A & \$ 60,000 & \$ 32,000 \\\hline B & \$ 70,000 & \$ 35,000 \\\hline C & \$ 80,000 & \$ 35,000 \\\hline D & \$ 80,000 & \$ 38,000 \\\hline\end{array}$

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.

Which of the following costs is most likely to be the largest expense item on the statement of earnings of a merchandising chain such as Walmart?

The Upton Country Store had the following transactions in April: a. Sold $25,000 of goods to customers and received $22,000 in cash and the rest are on account b. The cost of the inventory sold was $13,000 c. The store purchased $8,000 of inventory and paid for $4, 000 in cash and the rest were bought on account d. They paid $7 ,000 in wages for the month e. Received a $600 bill for utilities for the month that will not be paid until May f. Received rent for the adjacent store front for the months of April and May in the amount of $3, 000 Complete the following statements:

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

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

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

The right side of an account

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

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?

If Pizza Pizza reports an asset turnover ratio of 2.34 for 2013 and their competitor Pizza Hut reports 3.79 for their 2013 ratio, it means which of the following?

Which of the following statements is true?

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is

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