Fundamentals of Financial Accounting Fred Phillips 6th Edition-Test Bank

Phillips 6th Edition-Test Bank Sample Test Fundamentals of Financial Accounting, 6e (Phillips) Chapter 3 The Income Statement 1) The period of time between buying assets to be sold to customers and collecting cash from customers is the operating cycle. Answer: TRUE Explanation: The time between buying assets to be sold to customers and collecting cash from customers is the operating cycle of the business. Difficulty: 1 Easy Topic: Operating Activities Learning Objective: 03-01 Describe common operating transactions and select appropriate income statement account titles. Bloom’s: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 2) Expenses are the costs of operating a business that are paid for in the period covered by the income statement. Answer: FALSE Explanation: Expenses are costs of operating the business, incurred to generate revenues in the period covered by the income statement. Basically, whenever a business uses up its resources to generate revenues during the period, it reports an expense, regardless of when the company pays for the resources. Difficulty: 1 Easy Topic: Income Statement Accounts Learning Objective: 03-01 Describe common operating transactions and select appropriate income statement account titles. Bloom’s: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 3) If a company decides to record an expenditure made this period as an expense, when it should have been recorded as an asset, net income will be overstated in the current period as a result. Answer: FALSE Explanation: Erroneously recording an asset as an expense would overstate total expenses, which would understate net income. Difficulty: 3 Hard Topic: Income Statement Accounts Learning Objective: 03-01 Describe common operating transactions and select appropriate income statement account titles. Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 4) If revenues are not growing faster than expenses, then net income will decrease. Answer: TRUE Explanation: If revenues are increasing, but expenses are increasing even faster, then the amount of Net Income (Revenues − Expenses) will decrease. Difficulty: 2 Medium Topic: Income Statement Accounts Learning Objective: 03-01 Describe common operating transactions and select appropriate income statement account titles. Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 5) When revenues exceed expenses in a period, stockholders’ equity will increase. Answer: TRUE Explanation: When revenues exceed expenses, net income results. Net income increases stockholders’ equity. Difficulty: 2 Medium Topic: Inco