chap003 - Chapter 003: Operating Decisions and the Income...

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Chapter 003: Operating Decisions and the Income Statement True / False Questions 1. The operating cycle is the time it takes for a company to purchase goods, pay for the goods, sell them to customers, and collect the cash from the customers. TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 1 2. Wal-Mart would likely have a shorter operating cycle than General Motors. TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 1 3. The time period assumption allows a company to meet the qualitative characteristic of relevance by allowing for timelier reporting of financial information. TRUE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 1 4. An example of ongoing operations is revenue earned through the sale of a new automobile by a car dealership. TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 2 3-1
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Chapter 003: Operating Decisions and the Income Statement 5. An example of revenue earned from ongoing operating activities is the sale of an extended warranty contract on a washer and dryer. FALSE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 2 6. Revenues are inflows of net assets from peripheral transactions. FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 2 7. Income tax expense will appear on the balance sheet. FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 2 8. Interest expense connected to notes payable is an example of a non-operating or peripheral expense. TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 2 9. Under accrual accounting, interest expense would be recognized when the interest has accrued with the passage of time even though cash has not been paid. TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 3 3-2
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Chapter 003: Operating Decisions and the Income Statement 10. Application of generally accepted accounting principles requires that accrual basis accounting be used for the income statement. TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 3 11. Revenues are recognized when delivery has occurred or services have been rendered, there is persuasive evidence of an arrangement for customer payment, the price is fixed or determinable and collection is reasonably assured. TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 3 12. The matching principle states that expenses are recognized when incurred in generating revenue. TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 3 13. The revenue principle recognizes revenue from the sale of goods when ownership passes from the seller to the buyer. In the sale of services, revenue is recognized when the services are completed. TRUE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 3 3-3
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Chapter 003: Operating Decisions and the Income Statement 14. When a business pays for a two-year insurance policy it has incurred an expense. FALSE
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This note was uploaded on 11/18/2011 for the course ACCOUNTING BAD 1 taught by Professor Ginalord during the Spring '11 term at Santa Rosa.

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chap003 - Chapter 003: Operating Decisions and the Income...

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