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Exam 3: Operating Decisions and the Accounting System

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Question 21

Multiple Choice

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Which of the following would lengthen the operating cycle?

A) Faster collection of accounts receivables.
B) Selling inventory in a shorter period of time.
C) Increasing the number of customers who paid cash.
D) Relaxing credit terms and allowing customers more time to pay.

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

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Question 22

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The net profit margin ratio is calculated by dividing net sales by net income.

A) True
B) False

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Question 23

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On December 31, 2016, Avery Corporation paid $10,000 for next year's insurance policy. This transaction should be recorded as follows by Avery:

Earnings per share must be either reported on the income statement or disclosed in the notes to the financial statements.

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.

During 2016, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid during 2017. Which of the following is correct for the 2016 year-end balance sheet?

What is the operating cycle? Describe a business entity with an operating cycle of less than six months and a business with an operating cycle of more than one year.

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 income before income taxes?

Which of the following statements is correct?

A company purchased $20,000 of inventory during February and will pay for it during March. Which of the following statements is false, assuming the inventory was sold during March?

Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future?

The net profit margin ratio is a measure of how much profit was created per sales dollar.

Under accrual accounting, rent expense for February, 2016 would be recognized on the income statement in February, 2016 even though it had been paid for in January of 2016.

According to the revenue recognition principle, revenue is recognized at the time that cash is collected from a customer for services to be provided in the future.

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

World Coffee, Inc. has provided the following information pertaining to the store's month ended October 31, 2016:

Revenue accounts have credit balances because they increase stockholders' equity.

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. A. A.Collected $2,000 on accounts receivable. 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.Transaction Assets Liabilities Stockholders' Equity Account Amount Account Amount Account Amount Ex.Paid wages for two weeks in March.The total cash paid was $500.Cash -$500 Wage expense -$500 B. B.Services were completed for customers.A total of $1,500 was billed but none of it was received in March.

Trend Decorations Company provides decorating services for store displays. Trend sold equipment that it had been using to create decorations. Of the following choices, which will Trend report on its income statement when it sells the equipment?

Revenue may be recognized: