Question 1

Expenses incurred but not paid decrease assets and shareholders' equity.

Accepted Answer

Expenses incurred but not paid increase liabilities and decrease shareholders' equity, but do not directly affect assets.

Question 2

Utilities expense and wages payable are both elements of the income statement.

Accepted Answer

Utilities expense and wages payable are both elements of the balance sheet, not the income statement. Utilities expense is a type of expense account and is reported on the income statement, but its corresponding liability account is utilities payable, which is reported on the balance sheet. Similarly, wages payable is a liability account that is reported on the balance sheet, not the income statement.

Question 3

Unadjusted financial statements do not reflect revenues earned or expenses incurred in the accounting period if the receipt or payment of cash occurs in a different period.

Accepted Answer

Unadjusted financial statements only record transactions when cash is received or paid, while adjusting entries are necessary to reflect revenues earned or expenses incurred in the current accounting period regardless of when cash is received or paid.

Question 4

When the board of directors declares a cash dividend to be paid to shareholders,shareholders' equity increases.

Accepted Answer

When a cash dividend is declared, it reduces retained earnings, which is a component of shareholders' equity, thus decreasing the total shareholders' equity.

Question 5

Revenues increase shareholders' equity,so they are recorded with credits.

Accepted Answer

Revenues increase the company's net income, which in turn increases its retained earnings, a component of shareholders' equity. Retained earnings are recorded with a credit, so revenues are also recorded with a credit to properly balance the accounting equation.

Question 6

Revenue accounts normally have debit balances because they represent assets received while expense accounts normally have credit balances because they represent assets used.

Accepted Answer

Revenue accounts normally have credit balances because they represent assets earned, while expense accounts normally have debit balances because they represent assets used.

Question 7

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:
Cash Basis
Income Statement
Revenues:
Accrual Basis
Income Statement
Revenues:

Accepted Answer

The answer of The Upton Country Store had the following...

Question 8

An increase in expenses represents an increase in shareholders' equity.

Accepted Answer

An increase in expenses represents a decrease in net income, which in turn decreases shareholders' equity.

Question 9

A company can experience difficulty even if it does not report a loss.

Accepted Answer

A company can experience financial difficulties due to factors such as declining sales, increased competition, excessive debt, inefficient operations, or economic downturns, despite not reporting a loss on their financial statements.

Question 10

Profit differs from cash flow from operations because the revenue recognition and matching processes result in the recognition of revenues and related expenses that are independent of the timing of cash receipts and payments.

Accepted Answer

Profit is calculated by subtracting total expenses from total revenue, while cash flow from operations measures the actual movement of cash in and out of a business during a specific period. Revenues and related expenses are recognized in the income statement regardless of whether any cash has been received or paid out. Therefore, profit can be earned without any cash flowing in or out of a business.

Question 11

Small Company rendered services to customers amounting to $6,000 during 20A; the related cash was collected as follows: $4,000 in 20A; $2,000 in 20B.During 20A,$3,000 was incurred for wages expense; the related cash payments were made as follows: $1,200 in 20A; in 20B,$1,800.Based only on these data,provide the following amounts:

Accepted Answer

The answer of Small Company rendered services to customers amounting...

Question 12

A high total asset turnover signifies efficient management of assets; a low asset turnover ratio signifies less efficient management.

Accepted Answer

A high total asset turnover indicates that a company is generating significant revenue from its assets, implying effective management. Conversely, a low asset turnover ratio suggests a company is not effectively utilizing its assets to generate revenue, indicating less efficient asset management.

Question 13

An increase in revenue represents an increase in shareholders' equity.

Accepted Answer

Revenue is a source of income for a company, and when revenue increases, it can lead to an increase in profits, which in turn can increase shareholders' equity. Shareholders' equity is the value of a company's assets minus its liabilities and represents the ownership interest that shareholders have in the company.

Question 14

Revenues earned decrease assets and shareholders' equity.

Accepted Answer

Revenues earned increase assets and shareholders' equity as they represent income generated by the company, which enhances its financial position.

Question 15

Usually,the market price of shares is not adversely affected by lower than expected quarterly profit.

Accepted Answer

Generally, if a company reports lower than expected quarterly profits, its share price may decline as investors may perceive the company as performing poorly. This can result in selling pressure on the shares and a decrease in the market price. However, there can be exceptions, and other factors such as future growth prospects, macroeconomic conditions, and overall market sentiment may also influence the share price.

Question 16

Collection of a customer's account has an impact on total assets.

Accepted Answer

The answer of Collection of a customer's account has an...

Question 17

The statement of financial position is affected by the sale of merchandise for cash.

Accepted Answer

When merchandise is sold for cash, it results in an increase in cash and a decrease in inventory on the statement of financial position. This change in assets affects the overall balance sheet, making it true that the statement of financial position is affected by the sale of merchandise for cash.

Question 18

The sale of merchandise for cash usually will increase assets.

Accepted Answer

When merchandise is sold for cash, it will increase both the cash balance and the inventory turnover ratio, ultimately increasing assets.

Question 19

In a well-run business,creditors expect the total asset turnover ratio to fluctuate due to seasonal upswings and downturns.

Accepted Answer

Seasonal fluctuations in business can impact the total asset turnover ratio, causing it to vary throughout the year. However, a well-run business should be able to manage these fluctuations effectively to ensure profitability and maintain good relationships with creditors.

Question 20

The income statement reports profit or loss at a point in time.

Accepted Answer

The income statement reports revenue, expenses, and profit or loss over a period of time, such as a month or a year, not just at a point in time.

Quiz 3: Operating Decisions and the Accounting System