Yelena Company received cash from a customer in advance of providing the service to the customer. Therefore, the normal balance for these accounts are credit balances. Generally, a passive activity is any trade or business activity in which you do not materially participate. The amount that can be capitalized is $72,500. Which of the following journal entries correctly records the receipt of a utility bill, which will be paid for in later weeks? Interest expense represents an amount of interest payable on any borrowings which includes loans, bonds or other lines of credit and its associated costs are shown on the income statement. Interest expense related to tax-exempt interest income under section 265. D; When Yelena provides the service revenue is recognized and the unearned revenue account is reduced. Assets are not affected. It is accounted for when companies record the loss in value of their fixed assets through depreciation. Which of the following accounts normally have a credit balance? C; Operating expenses = $522,000 = $336,000 + $36,000 + $49,000 + $79,000 + $22,000. TRUE; The operating cycle is the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers. The advertising is for three months and will be expensed for $500 for each month. The core revenue recognition principle has two requirements for recognizing revenue. C; Expenses are recorded when incurred in generating revenues and revenues are recorded when goods or services have been transferred to customers. FALSE; Interest revenue is a result of investing activities. This liability exists until the goods have been delivered, in this case until November 20. See the answer. Which of the following relationships can you expect to apply to the situation? These expenses highlight interest accrued during the period and not the interest … C; The expense recognition principle requires that expenses be recorded when incurred in earning revenue. T/F: The trial balance needs to be prepared prior to preparation of the income statement. So that $416.67 ($5000 / 12) must be entered as interest payable, since it’s money owed but not yet paid. B; Expenses are recorded (with a debit entry) when incurred. At the time of reacquisition, The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as. Which of the following transactions will result in an increase in operating income as of the date of the transaction? T/F: According to the expense recognition principle, wages expense is recognized on the income statement when the wages are paid rather than when the employee provides the work. T/F: A gain resulting from the sale of buildings and equipment is not reported as operating income on the income statement. C; Unearned revenue is a liability account and therefore has a credit balance. C; Operating income is increased by operating revenue. B; Assets and expenses are on the left side of the accounting equation and are all increased with a debit. B; Operating revenues = $734,000 = $255,000 + $479,000. TRUE; Under the accrual basis of accounting, the revenue recognition principle states that revenues are recognized when goods or services are transferred to customers. D; Operating income (income from operations) = $92,000 = $199,700 + $3,300 - $111,000. It represents interest payable on any borrowings – bonds, loans, … Lantz Company has provided the following information: A; Operating revenues = $734,000 = $255,000 + $479,000. T/F: The expense recognition principle requires expenses to be recorded on the income statement in the same period they are incurred in generating revenues. c. can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. A company receives a $50,000 cash deposit from a customer on October 15 but will not deliver the goods until November 20. d. 20 periods and 4% from the present value of 1 table. 100% (5 ratings) PreviousquestionNextquestion. Interest expense that is properly allocable to a passive activity. A; When supplies are consumed during the course of business, supplies expense is recognized and the supplies account is reduced; thus, expenses will increase and assets will decrease. For example, a retailer's main operations are the purchasing and sale of merchandise, and a manufacturer's main operations are the production and sale of goods. Interest Payable is also the title of the current liability account that is used to record and report this amount. b. carrying amount of the pre-restructure debt is greater than the total future cash flows. The services have been provided so it is appropriate to credit revenue. C; Operating revenues = $203,000 = $199,700 + $3,300. The credit to cash indicates these wages have been paid and to reduce the payable a debit is required. Interest expense that is properly allocable to a passive activity. Interest expenses are incurred from deposits, short-term and long-term loans, and trading account liabilities. Thus, the expenses resulting from this are not classified as operating expenses. C; When an asset is sold for more than its cost, a gain on the sale is reported. T/F: Using cash to purchase office supplies, which will be consumed later, results in an increase in expenses and a decrease in assets at the time of purchase. T/F: An income statement with each line divided by net sales and shown as a percentage is called a common statement. d. coupon rate, nominal rate, or stated rate. Treasury bonds should be shown on the balance sheet as. C; Interest expense is a cost resulting from financing activities, not operating activities, and thus results in a reduction after the operating income caption of the income statement. Mama June Pizza Company determined that dough, sauce, cheese and other ingredients costing $8,700 were used to make pizzas during July. TRUE; The account that is debited when a cash dividend is declared is retained earnings. Neither of these transactions increases total assets. In the valuation of the interest tax shield, it capitalizes the value of the firm and it also limits the tax benefits of the debt. C; Revenue is recognized at the time of delivery of goods and services to customers regardless of when the cash is received. D; The operating cycle can be described as cash-to-cash. On December 31, 2016, Avery Corporation paid $10,000 for next year's insurance policy. Which of the following is an example of revenue or expense to be recognized in the current period's income statement? Which of the following statements concerning the land sale is correct? Interest expense calculations Every six months, XYZ Corp. will naturally have to pay its bondholders cash coupons of $5,000. A; In purely service-oriented companies in which no products are produced or sold, the cost of using employees to generate revenue is usually the largest expense. The most common types of non-operating expenses are interest charges and losses on the disposition of assets. Zeppelin Company received cash during January for services to be provided in February. Interest expenses are considered to be tax-deductible, so tax shields are very important, as firms can get benefits from the structuring of such arrangements. D; Liability, retained earnings, and revenue accounts are all on the right side of the accounting equation and are all increased with a credit. C; The excess cash received over the cost of the land is recognized as a gain on sale of land. d. All of these are examples of "off-balance-sheet financing. accrued revenues quizlet General News January 20th, 2021 January 20th, 2021 Boone's Cleaning Service performed cleaning services during December 2016, but had not collected any cash from its customers as of December 31, 2016. Which of the following is correct for the 2016 year-end balance sheet? When a note payable is issued for property, goods, or services, the present value of the note is measured by, When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless, Discount on Notes Payable is charged to interest expense. This is because the premium collected (Carrying value – Face value) is amortized over the life of the bond. In a troubled debt restructuring in which the debt is settled by a transfer of assets with a fair market value less than the carrying amount of the debt, the debtor would recognize, In a troubled debt restructuring in which the debt is continued with modified terms, a gain should be recognized at the date of restructure, but no interest expense should be recognized over the remaining life of the debt, whenever the. The debt to total assets ratio is computed by dividing. ", When a business enterprise enters into what is referred to as off-balance-sheet financing, the company. FALSE; Total assets remain unchanged from this transaction and no expense is recorded. D; Losses reduce net income and stockholders' equity and therefore loss accounts have a debit balance. Toby Toy Store has noticed the following items that need to be considered for its income statement for the year ended December 31, 2016: A; Commissions $3,000 are expensed in December when the sales were made. An interest expense is usually paid to the lenders or the debt holders by a firm on the basis of the debt balance amount and the applicable interest rate. d. increased by accrued interest from May 1 to June 1. The expense for wages is recognized when the employee provides the services. d. as noncurrent and accompanied with a note explaining the method to be used in its liquidation. a. exceed what it would have been had the effective-interest method of amortization been used. Any interest expense that is capitalized, such as construction interest subject to section 263A. (D) Interest Expense is debited for the total amount of interest incurred during the full term of the note. Interest expense for the year will be $5000—the total amount incurred. Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future? So that $416.67 ($5000 / 12) must be entered as interest payable, since it’s money owed but not yet paid. With the passage of the Tax Cuts and Jobs Act of 2017, many itemized deductions previously available to taxpayers were either limited or eliminated. D; Cash basis accounting results in revenues being recorded when cash is received, and expenses are recorded when cash is paid. Which of the following is not a proper application of the revenue recognition principle? During 2016, Sigma Company earned service revenue amounting to $700,000, of which $630,000 was collected in cash; the balance will be collected in January, 2017. A non-operating expense is a business expense unrelated to the core operations. The profit or.A company … Generally, a passive activity is any trade or business activity in which you do not materially participate. Therefore, GAAP requires accrual basis accounting for financial reporting purposes. Interest expense on the income statement represents interest accrued during the period covered by the financial statements, and not the amount of interest paid over that period. A fixed expense. B; When assets other than investments are sold or disposed for less than the undepreciated cost, losses result and these losses are reported in the operating expenses section of the income statement which results in Income from Operations. The store paid Daring Dolls in advance for the order of SuperDolls. Which of the following correctly describes the impact of the supplies purchase on the financial statements? Sue invested $5,000 in the ABC Limited Partnership and received a 10 percent interest in the partnership. b. the nominal rate of interest exceeded the market rate. Smith Corporation has provided the following information: A; Operating revenues = $415,000 = $125,000 + $279,000 + $11,000. B; Gains or losses on the sale of assets, both those used in operations and those from sale of investments, are reported on the income statement. The interest on that loan would not qualify as an investment interest expense. Borrowing money is a financing activity. FALSE; An income statement with each line divided by net sales and shown as a percentage is called a common-sized income statement. B; Performing the services generated revenue, increasing net income and stockholders' equity. Also in 2016 there were collections of cash prior to the delivery of goods/services totaling $10,000. c. income before income taxes and interest expense by interest expense. TRUE; Revenues increase stockholders' equity through the account Retained Earnings and therefore have credit balances. Which of the following is one of these requirements? T/F: The operating cycle is the time that elapses between a company's cash payment to suppliers for inventory purchases and the collection of cash from sale of inventory to customers. The interest rate written in the terms of the bond indenture is known as the. d. The amount of interest expense will remain constant over the 10-year period. The portion paid in cash reduces assets and the unpaid portion of the expense must be recognized as an increase to liabilities. D; The revenue recognition principle requires that revenue be recognized once goods have been transferred to customers, usually upon delivery. Neither has an impact on operating income. TRUE; The trial balance lists all accounts and proves that debits equal credits. Which of the following describes what will occur when Daring Dolls recognizes revenue? Allowing customers more time to pay increases the time it takes to collect cash and finish the operating cycle. One-third of supplies received were used = $600 × 1/3 = $200. Which of the following businesses would most likely not report cost of goods sold on their income statement? This is recorded by crediting the gain on sale of land account for the amount the sales price exceeded cost. Which of the following costs is most likely to be the largest expense reported on the income statement of a merchandiser such as Wal-Mart Stores? This is often the time when the goods are delivered. Business interest expenses may be deductible if the use of the loan qualifies under tax law. Which of the following describes the reporting of interest expense on the income statement? B; Reduction of the liability account, unearned revenue, occurs once goods or services have been provided and does not require a cash payment. Examples of Interest Expense and Interest Payable. Net interest income is a financial performance measure that reflects the difference between the revenue generated from a bank's interest-bearing assets and expenses … This interest expense Interest Expense Interest expense arises out of a company that finances through debt or capital leases. 70. Revenues have no impact on additional paid-in capital. FALSE; Interest expense results from the cost of borrowing money. Interest expense is a nonoperating expense when it is not part of a company's main operations. It is also important to keep in mind that the interest tax shield value is the present value of all the interest tax shields. However, the December payment won’t be made until January 15 of the following year. Depreciation Expense and Accumulated Depreciation . When such a transaction takes place. Which of the following journal entries is correct when a company has incurred an expense for work performed but has not yet paid for theses wages to employees? B; In companies with a merchandising focus, cost of goods sold is usually the most significant expense on the income statement. The amount that can be capitalized is the lesser of the avoidable interest or actual interest. T/F: When the board of directors declares a cash dividend, the retained earnings account is debited. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows. June's Printing Shop had the following information for office supplies: B; One-half of goods ordered were received = $600. T/F: Reporting revenues on the income statement that were previously reported as unearned revenues on the balance sheet results in a decrease in liabilities and an increase in net income, retained earnings, and stockholders' equity. FALSE; Revenue is recognized when the company transfers promised goods or services to its customer in the amounts it expects to receive. T/F: Expenses are the result of decreases in assets or increases in liabilities incurred in order to generate revenues. Bond issued at premium: Interest expense will be less than the coupon payment. The primary difference between revenues and gains is: A; Revenues are defined as increases in assets or settlements of liabilities from ongoing operations. T/F: Under accrual accounting, rent expense for February, 2016 would be recognized on the income statement in February, 2016 even though it had been paid for in January of 2016. Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements? Cash, utilities expense, and accounts receivable are all classified as either assets or expenses. A corporation borrowed money from a bank to build a building. Interest expense related to tax-exempt interest income under section 265. An expense is recorded as the supplies are consumed. Tax-deductible interest is a borrowing expense that a taxpayer can claim on a federal or state tax return to reduce taxable income. For services to be provided in the future, an increase in the unearned revenue (a liability) account is also recorded. A; The cash account is increase with a debit because cash is received. The land was a component of property and equipment on the balance sheet. When unearned revenue is earned, the liability account decreases. Which of the following accounts does not have a debit balance? c. AGI of $99,500. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. What impact did performing these services have on the accounting equation? This is clearly interest expense. Which of the following is correct when land costing $20,000 is sold for $29,000? Deductions do not apply to small businesses, farms, real … Revenues can also be generated regularly from investments as dividends and interest. Which of the following accounts normally have a debit balance? TRUE; In accrual accounting, expenses are recognized in the same period in which they are incurred to generate revenue. 56. The interest on credit card charges is personal B; When cash is received before goods or services have been provided, cash is debited and unearned revenue (a liability account) is credited. Interest payable is the amount of interest the company has incurred but has not yet paid as of the date of the balance sheet. TRUE; The expense recognition principle requires that expenses incurred to generate revenues be recognized in the same period as the revenue it helped to generate. 2/3 of loan proceeds were used to purchase tax-exempt bonds, 2/3 of the bank interest is nondeductible. Thus, the asset account of cash decreases by the same amount that the asset account of supplies increases. C; Upon the receipt of the cash deposit, a liability (unearned revenue) must be reported on the balance sheet. The following information has been provided by Hable Company: C; Operating expenses = $56,000 = $9,900 + $12,000 + $5,700 + $21,300 + $7,100. TRUE; Operating revenue results from an entity's sale of goods or services. If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a, When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be. C; When services are provided to a customer on account, a debit to accounts receivable is required. T/F: An example of operating revenue would be the revenue created by the sale of an automobile by a car dealership. 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