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Shaun,Inc.received payment from a customer in June for a service that was provided during July.For the month of July,how will this be reflected in the basic accounting equation?


A) Assets will not change,liabilities will decrease,and stockholders' equity will increase.
B) Assets will increase,liabilities will increase,and stockholders' equity will not change.
C) Assets will increase,liabilities will not change,and stockholders' equity will increase.
D) Assets will decrease,liabilities will not change,and stockholders' equity will increase.

E) C) and D)
F) B) and C)

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A

Match the term and the explanation.There are more definitions than terms. -Expense Recognition Principle


A) The concept that expenses should be reported at the same time as the related revenue.
B) Reported when a company sells goods or services in the ordinary course of business for more than it costs to produce.
C) A company's policy on when to report revenue in the financial statements.
D) A ratio that indicates the percent of each revenue dollar that is left over after covering costs and expenses.
E) Reporting expenses and revenue according to the time the underlying activities occur.
F) A liability account indicating customers have already paid for services not yet rendered.
G) The principle that changes in assets must be matched by changes in liabilities and equity.
H) An indication that a company has already paid a cost not yet incurred.
I) A list of account balances when the accounts do not yet include all revenues and expenses.
J) Also known as net assets,this is the value of assets minus liabilities.
K) Reporting expenses and revenues according to the time the money is paid or received.

L) D) and I)
M) A) and D)

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In general,the lower a company's net profit margin,the better the performance of the company.

A) True
B) False

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The entry to record the payment of accounts payable:


A) decreases assets.
B) increases expenses.
C) increases liabilities.
D) increases stockholder's equity.

E) A) and D)
F) None of the above

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On July 15,Monk,Inc.received a $820 bill for advertising run in July.The bill will be paid in August.The entry to record in July includes a $820:


A) debit to Prepaid Advertising.
B) credit to Prepaid Advertising.
C) credit to Accounts Payable.
D) credit to Cash.

E) All of the above
F) C) and D)

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Match the term and the definition.There are more definitions than terms. -Net Income


A) To reduce the recorded value of an asset to better reflect its true market value.
B) Any outlay of money by a company for any purpose.
C) Total revenue minus total expenses.
D) The concept that revenue should be recorded when earned,not necessarily when payment is received.
E) The increase in value of financial assets held by a company.
F) The practice of dividing the life of the business into months and years.
G) The concept that a company should record revenue during the same period as expenses.
H) The concept that revenue and expenses should be recorded at the time received or paid.
I) Payments received for goods that have not yet been delivered or services that have not yet been performed.
J) Revenues should be recorded when they are earned and expenses when they are incurred.
K) Any use or sacrifice of a company's resources to generate revenue.

L) B) and H)
M) C) and K)

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The prepayment of rent for the next three months (not including this month) :


A) reduces total assets.
B) has no effect on total assets.
C) increases expenses.
D) decreases stockholders' equity.

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

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During May,2018,Sugar Inc.performs consulting services.The client does not pay Sugar until June,2018.


A) Using the accrual basis of accounting,the revenue is reported in June 2018.
B) Using the cash basis of accounting,the revenue is reported in May 2018.
C) Using the accrual basis of accounting,the revenue is reported in May 2018.
D) Using the accrual basis of accounting,the revenue is reported when Sugar's expenses are paid.

E) A) and C)
F) C) and D)

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During April,Ballarat,Inc.earned $1,680,of which $1,200 was collected,and had expenses of $960,of which $840 was paid.Its net income equals:


A) $720 using accrual accounting versus $360 using cash basis.
B) $360 using accrual accounting versus $720 using cash basis.
C) $840 using accrual accounting versus $240 using cash basis.
D) $240 using accrual accounting versus $840 using bash basis.

E) All of the above
F) B) and C)

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Consider the following information from a company's unadjusted trial balance at December 31,2018.All accounts have normal balances.  Accounts Receivable $4,500 Accounts Payable 650 Cash 1,700 Service Revenue 5,500 Common Stock 4,000 Equipment 4,900 Insurance Expense 400 Land 3,800 Notes Payable, Due 2021 4,000 Notes Receivable, Matures 2019 1,200 Prepaid Insurance 400 Rent Expense 1,400 Retained Earnings, January 1,2018 7,850 Salaries and Wages Expense 3,700\begin{array}{lr}\text { Accounts Receivable } & \$ 4,500 \\\text { Accounts Payable } & 650 \\\text { Cash } & 1,700 \\\text { Service Revenue } & 5,500 \\\text { Common Stock } & 4,000 \\\text { Equipment } & 4,900 \\\text { Insurance Expense } & 400 \\\text { Land } & 3,800 \\\text { Notes Payable, Due 2021 } & 4,000 \\\text { Notes Receivable, Matures 2019 } & 1,200 \\\text { Prepaid Insurance } & 400 \\\text { Rent Expense } & 1,400 \\\text { Retained Earnings, January 1,2018 } & 7,850 \\\text { Salaries and Wages Expense } & 3,700\end{array} What is the total of the debit side of the unadjusted trial balance?


A) $22,000.
B) $17,350.
C) $16,500.
D) $13,500.

E) None of the above
F) B) and C)

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The following account balances are taken from the December 31,2018,financial statements of ABZ Advertising Company.The company uses accrual basis accounting.  Advertising Revenue 46,482 Cash 41,516 Accounts Receivable 7,296 Interest Expense 2,299 Accounts Payable 5,000 Operating Expenses 37,460 Deferred Revenue 1,178 Equipment 18,048 Income Tax Expense 2,326\begin{array}{lr}\text { Advertising Revenue } & 46,482 \\\text { Cash } & 41,516 \\\text { Accounts Receivable } & 7,296 \\\text { Interest Expense } & 2,299 \\\text { Accounts Payable } & 5,000 \\\text { Operating Expenses } & 37,460 \\\text { Deferred Revenue } & 1,178 \\\text { Equipment } & 18,048 \\\text { Income Tax Expense } & 2,326\end{array} The following activities occurred in 2019: 1.Performed advertising services on account,$55,000. 2.Received cash payments on account,$10,400. 3.Received deposits from customers for advertising services to be performed in 2020,$2,500. 4.Made payments to suppliers on account,$5,000. 5.Incurred $45,000 of operating expenses;$39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year. What is the amount of revenue that will be reported on the income statement for the year ended December 31,2019?


A) $57,500.
B) $39,000.
C) $55,000.
D) $50,000.

E) B) and C)
F) All of the above

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Murphy,Inc.paid $9,600 cash for insurance in June that provides coverage for six months,from July through December.How much expense should be recognized in June to be in accordance with generally accepted accounting principles?


A) No expense should be recognized in June.
B) $9,600
C) $1,600 ($9,600 × 1/6 for the month of June)
D) $4,800

E) All of the above
F) A) and C)

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The fact that any problems a seller has in collecting amounts due from customers is accounted for separately is implied in the language of:


A) step 3 "entitled to."
B) step 5 "when (or as) each performance obligation is satisfied."
C) step 1 "it can be written,verbal,or merely implied."
D) step 2 "transferring control of goods or services to a customer."

E) A) and D)
F) All of the above

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A

During 2019,Ocean Consulting had the following transactions with it clients (customers) : On February 1,2019,the company received cash of $10,000 from clients in payment of their account balances as of December 31,2018. On November 1,2019,the company received $4,000 cash as payments in advance for services to be performed in 2020. The company received a total of $26,000 in cash for services that were performed during 2019. The company sent bills totaling $8,000 to clients for services performed during 2019;this amount was unpaid as December 31,2019. What is the amount of Service Revenue that will be reported on the income statement for the year 2019?


A) $38,000.
B) $44,000.
C) $48,000.
D) $34,000.

E) B) and C)
F) C) and D)

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In an expanded accounting equation,revenues and expenses are an expanded part of:


A) Retained Earnings.
B) Common Stock.
C) Liabilities.
D) Assets.

E) A) and B)
F) A) and D)

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The primary source of revenues and expenses comes from:


A) financing activities.
B) investing activities.
C) operating activities.
D) other activities.

E) A) and B)
F) A) and D)

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A net loss results when:


A) assets are greater than liabilities.
B) revenues are less than expenses.
C) revenues are greater than expenses.
D) cash paid is less than cash received.

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

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The financial statement that reports revenues and expenses is the:


A) statement of retained earnings.
B) income statement.
C) balance sheet.
D) statement of cash flows.

E) A) and D)
F) A) and C)

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The employees of Pinnacle,Inc.worked during July but are not paid their wages totaling $800 until August.Which of the following best indicates how to account for this transaction in July?


A) No journal entry needs to be made because payment has not yet been made.
B) A journal entry with a debit to Salaries and Wages Expense and a credit to Deferred Expense for $800 should be recorded.
C) A journal entry with a debit to Salaries and Wages Payable and a credit to Salaries and Wages Expense for $800 should be recorded.
D) A journal entry with a debit to Salaries and Wages Expense and a credit to Salaries and Wages Payable for $800 should be recorded.

E) A) and D)
F) None of the above

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D

If a company is paid in full for services provided this month,how will the basic accounting equation be affected?


A) Liabilities will decrease.
B) Stockholders' equity will increase as revenue is recorded.
C) Liabilities will increase.
D) Assets will decrease.

E) All of the above
F) C) and D)

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