Chapter 03 – Operating Decisions and the Income Statement
87. Which of the following describes the transaction resulting in a journal entry with a debit to
Salaries payable and a credit to Cash?
88. Which of the following statements is correct?
Chapter 03 – Operating Decisions and the Income Statement
89. Which of the following statements is false?
90. Which of the following accounts doesn’t have a debit balance?
Chapter 03 – Operating Decisions and the Income Statement
91. Which of the following accounts doesn’t have a credit balance?
92. On January 1, 2011 Gucci Brothers Inc. had a $500,000 credit balance in retained earnings
and $600,000 balance in contributed capital. During 2011, the company earned net income of
$100,000, declared a dividend of $15,000, and issued additional stock for $25,000. What is
total stockholders’ equity on December 31, 2011?
Chapter 03 – Operating Decisions and the Income Statement
93. On January 1, 2010, Denmark Inc., started the year with a $200,000 credit balance in its
retained earnings account. During 2010, the company earned net income of $70,000 and
declared and paid dividends of $10,000. Also, the company received cash of $15,000 as an
additional investment by its owners. What is the balance in retained earnings on December
31, 2010?
94. Blazon Corporation’s retained earnings increased $79,000 during 2011. Blazon declared
$19,000 of dividends and paid $15,000 of the dividends declared during 2011. How much was
Blazon’s 2011 net income assuming that Blazon’s stockholders invested an additional $30,000
during 2011?
Chapter 03 – Operating Decisions and the Income Statement
95. Beemer Corporation has provided the following information pertaining to the year ended
December 31, 2011:
• Stockholders’ equity as of January 1 was $789,000.
• Dividends declared during the year totaled $71,000 of which $60,000 were paid during the
year.
• Stockholders invested $113,000 cash into the business in exchange for new shares of stock.
• Stockholders’ equity as of December 31 was $1,030,000.
How much was Beemer’s 2011 net income?
96. Which of the following transactions would not be reported as cash flow from operations
on a cash flow statement?
Chapter 03 – Operating Decisions and the Income Statement
97. Which of the following transactions would be reported as cash flow from operations on a
cash flow statement?
98. Garret Company has provided the following selected information for the year ended
December 31, 2011:
• Cash collected from customers was $783,000.
• Cash received from stockholders in exchange for stock totaled $91,000.
• Cash paid to suppliers was $361,000.
• Cash paid to employees was $204,000.
• Cash to stockholders for dividends was $33,000.
• Cash received from sale of a building was $250,000.
• Cash paid for rent was $39,000.
• Cash received for interest and dividends was $7,000.
• Cash paid for income taxes was $55,000.
Based on the selected information provided, how much was Garret’s cash flow from
operations?
Chapter 03 – Operating Decisions and the Income Statement
99. Which of the following statements is inaccurate with respect to the total asset turnover
ratio?
100. Top Company’s 2011 sales revenue was $200,000 and 2010 sales revenue was $180,000.
Top’s total assets as of December 31, 2011 were $150,000 and total assets as of January 1,
2011 were $130,000. What is Top’s total asset turnover ratio?
Chapter 03 – Operating Decisions and the Income Statement
101. 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.
102. Describe the difference between operating revenues and gains from the sale of plant and
equipment while providing examples of each.
Chapter 03 – Operating Decisions and the Income Statement
103. Describe the difference between operating expenses and losses from the sale of plant and
equipment while providing examples of each.
104. Describe the difference(s) with respect to the cash basis of accounting and the accrual
basis of accounting.
Chapter 03 – Operating Decisions and the Income Statement
105. Why might managers be tempted to violate the revenue principle and the matching
principle when preparing an income statement?
106. Describe the debit and credit logic pertaining to items reported on the income statement.
Chapter 03 – Operating Decisions and the Income Statement
107. Describe transactions which have an impact on the statement of stockholders’ equity.
108. Complete the chart below for Monticello Corporation by placing an X in the appropriate
boxes to indicate how the transaction should be recorded.
Chapter 03 – Operating Decisions and the Income Statement
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109. Indicate the sequential order of the following steps in the accounting information
processing cycle:
Analyzing transactions
Preparing financial statements
Developing a trial balance
Collecting original data
Posting to the accounts
Journalizing transactions