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Exam 3: The Income Statement

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Question 61

True/False

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Recording a Debit in an expense account will reduce expenses. BT: Knowledge

A) True
B) False

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Question 62

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Revenues come solely from selling a company's goods or services. BT: Knowledge

A) True
B) False

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Question 63

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Picasso Art School's operating activities for the month of February are summarized in the following transactions: 1.Provided $1,500 of instructional lessons. 2) Received $2,100 cash from students-of which $1,200 is for lessons provided in February,and $900 is for lessons provided in January. 3) Paid January's rental bill of $300.Received February's bill of $450 but did not pay. Determine Picasso Art School's Net Income for February using the accrual basis of accounting?

Accrual basis of accounting is the only acceptable method for external reporting of financial statements under both ASPE and IFRS. BT: Knowledge

If a company provides a service and receives payment at the same time:

Revenues and expenses are considered assets and liabilities,respectively. BT: Knowledge

To ensure revenue reporting is consistent over time,a business adopts a revenue recognition policy that defines the time at which they report revenues from providing goods or services to customers. BT: Knowledge

If payment is received at the same time a service is produced and sold,there is no difference between how cash and accrual accounting record the transaction. BT: Comprehension

A dance studio accepts $1,500 to provide a series of dance lessons to a youth group during the month of July.The studio decides to record the revenue in July.The studio decided to record the July expenses of rent,utilities and salaries in August,when it pays for them.One or both of these decisions:

What entry would be made in account receivable when a company has billed its client $230,000 during the financial year and client have sent in payments totalling $87,908.The business uses cash-based accounting?

Picasso Art School's operating activities for the month of February are summarized in the following transactions: 1.Provided $1,500 of instructional lessons. 2) Received $2,100 cash from students-of which $1,200 is for lessons provided in February,and $900 is for lessons provided in January. 3) Paid January's rental bill of $300.Received February's bill of $450 but did not pay. Determine Picasso Art School's Net Income for February using the cash basis of accounting?

Which of the following represents a subtotal rather than an account?

Prepare an income statement for Pet Sitters,Inc.,using the following data for the year ending December 31,2007.Show proper order of accounts and operating income and net income. $\begin{array}{l}\begin{array} { l r l r } \text { Income Tax Expense } & \$ 637,900 & \text { Sales Revenue } & \$ 8,964,500 \\\text { Wages Expense } & 5,986,000 & \text { Amortization Expense } & 375,400 \\\text { Operating and Administrative } & 531,800 & \text { Interest Expense } & 268,400\end{array}\\\text { Expense }\end{array}$

During March,the Long Life Consulting Company provides $23,000 in consulting services of which $12,000 is immediately paid for and $11,000 is on account.

Which of the following is not an expense and would not show on income statement?

A customer purchased $1,500 of services on credit two months ago and has just paid the bill.The receipt of the payment from the customer is recorded as a

When Cash is paid after the cost is incurred to generate revenue,costs are stated as: