Multiple Choice

Select the one best response.

1. One difference between a loss and an expense is: a. An expense is from an everyday business activity. b. A loss decreases net income. c. An expense shows on the income statement. d. An increase to a loss shows as a debit.

2. Net income: a. Will cause a decrease in Retained Earnings at the end of the year b. Is the same amount as Cash Flows from Operating Activities c. Is all you need to know about a company's profitability d. For most companies, is computed with the accrual basis

3. The company that is most likely to have significant amounts of deferred (unearned) revenue is: a. Speedway Convenience Stores b. Microsoft c. General Mills d. Herbie's Barber Shop

4. Blue Company purchased an insurance policy on March 1, Year 6 and it will cover 12 months, of fire and flood damage. The cost was $75,000. The year-end is December 31, Year 6. What will the journal entry at December 31, Year 6 include? a. A credit to Prepaid Insurance of $56,250 b. A debit to Insurance Expense of $62,500 c. A debit to Insurance Expense of $12,500 d. A credit to Prepaid Insurance of $75,000

5. Which of the following items is most likely to be included in S, G and A Expense? a. the cost of inventory sold b. the cost of income taxes c. the cost of the legal department d. the cost of factory equipment