Chapter 03 – Operating Decisions and the Income Statement
48. 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 plant 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.
How much was Lantz’s income before income taxes?
Chapter 03 – Operating Decisions and the Income Statement
49. Which of the following correctly describes the impact of collecting cash from customers
for services to be provided in the future?
50. Colby Corporation has provided the following information:
Operating revenues were $199,700.
Operating expenses 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.
How much was Colby’s net income?
Chapter 03 – Operating Decisions and the Income Statement
51. Which of the following does not correctly describe the cash basis of accounting?
52. A landlord collected $5,000 cash from a tenant for December 2011’s rent but the tenant’s
rent for December is $8,000. Which of the following is true with respect to the landlord’s
financial statements?
Chapter 03 – Operating Decisions and the Income Statement
53. Which of the following is not criteria pertaining to the revenue principle?
54. Which of the following statements does not properly describe the accrual basis of
accounting?
Chapter 03 – Operating Decisions and the Income Statement
55. Which of the following statements is false?
56. Which of the following journal entries is prepared when a customer pays cash prior to
delivery of the goods or services?
Chapter 03 – Operating Decisions and the Income Statement
57. Which of the following journal entries is prepared when a customer pays cash subsequent
to delivery of goods or services?
58. 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?
Chapter 03 – Operating Decisions and the Income Statement
59. Which of the following best describes the matching principle?
60. During 2010, Sigma Company earned service revenues amounting to $700,000, of which
$630,000 was collected in cash; the balance will be collected in January 2011. What amount
should the 2010 income statement report for service revenues?
Chapter 03 – Operating Decisions and the Income Statement
61. 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?
62. A company purchased supplies for cash which will be consumed during future months.
Which of the following does not correctly describe the impact on the financial statements
when the supplies are used during future months?
Chapter 03 – Operating Decisions and the Income Statement
63. The revenue principle requires four conditions to be met. Which of the following is one of
the four conditions?
64. Which of the following journal entries is correct when a company has incurred interest
expense but has not yet paid the interest?
Chapter 03 – Operating Decisions and the Income Statement
65. McNeil Company owed its employees for services performed and recorded a liability for
the wages owed the employees. Which of the following correctly describes the impact on the
financial statements when the employee wages are subsequently paid?
66. Which of the following journal entries correctly records the receipt of a utility bill which
will be paid for in later weeks?
Chapter 03 – Operating Decisions and the Income Statement
67. Which of the following is not a proper application of the revenue principle?
68. Which of the following is an example of revenue or expense to be recognized in the
current period’s income statement?
Chapter 03 – Operating Decisions and the Income Statement
69. Which of the following liability accounts is likely to be satisfied without a future cash
payment?
70. 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?
Chapter 03 – Operating Decisions and the Income Statement
71. 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?
72. Which of the following correctly applies the revenue recognition principle?
Chapter 03 – Operating Decisions and the Income Statement
73. Which of the following accounts normally have a credit balance?
74. During 2010, Sensa Corporation incurred operating expenses amounting to $100,000 of
which $75,000 was paid in cash; the balance will be paid during 2011. Which of the following
is correct for the 2010 year-end balance sheet?
Chapter 03 – Operating Decisions and the Income Statement
75. Which of the following accounts normally have a debit balance?
76. Which of the following statements is false?
Chapter 03 – Operating Decisions and the Income Statement
77. Which of the following statements is correct?
78. Which of the following journal entries correctly records a transaction where services were
provided to a customer on account?
Chapter 03 – Operating Decisions and the Income Statement
79. Which of the following is correct when land costing $20,000 is sold for $29,000? The land
was a component of plant and equipment on the balance sheet.
80. Boone’s Cleaning Service performed cleaning services during December, 2010, but had
not collected any cash from its customers as of December 31, 2010. What impact did
performing these services have on the accounting equation?
Chapter 03 – Operating Decisions and the Income Statement
81. On December 31, 2010, Avery Corporation paid $10,000 for next year’s insurance policy.
This transaction should be recorded as follows by Avery:
82. Mama June Pizza Company sold land costing $39,000 for $51,000 cash. Which of the
following statements concerning the land sale is correct?
Chapter 03 – Operating Decisions and the Income Statement
83. Which of the following statements is false when Mama June Pizza Company paid $47,000
cash on accounts owed to suppliers?
84. Which of the following journal entries is correct assuming that Mama June Pizza
Company received cash for interest earned on investments?
Chapter 03 – Operating Decisions and the Income Statement
85. Mama June Pizza Company determined that dough, sauce, cheese and other ingredients
costing $8,700 were used to make pizzas during July. Which of the following statements is
false with respect to the use of the ingredients?
86. Zeppelin Company received cash during January for services to be provided in February.
Which of the following statements does not accurately describe the impact on the financial
statements when Zeppelin provides the services during February?