38) Rich Corp. received cash of $6,000 on August 1,2018 for one year\'s renten a

Question

38) Rich Corp. received cash of $6,000 on August 1,2018 for one year's renten and recorded the transaction with a credit to Rent Revenue 2018 adjusting entry is A. Debit Cash and credit Unearned Rent, $3,500. B. Debit Rent Revenue and credit Unearned Rent $2,500 C. Debit Rent Revenue and credit Uneaned Rent, $3,500 D. Debit Unearned Rent and credit Rent Revenue, $2,500 The December 31, 8. Dabit Rent Renearmed Rert 37) Which of the following statements is correct for caloulating the ending balance of retained earnings: Start with beginning retained earnings and then 1. Add or deduct prior period adjustments, net of tax. 2. Add net income and subtract dividends 3. Add or deduct the cumulative effect of a change in accounting principles, net of tax 4. Add comprehensive income tems, net of tex A. Items 1, 2, 3 and 4 B. Items 1, 2 and 3 C. Only items 1 and 2 D. Only item 2 38) Which of the following items require a separate calculation of earnings per share? 1. Income from continuing operations 2. Discontinued Operations. 3. Net Income 4. Unusual Gain and Losses 5. A change in the estimated life of long term assets. A. Items 1, 2,& 3 B. Only item 3 C. Item 2 &4 D. All 5 items. 39) Which of the following equals Operating income on the Income Statement? A. Net sales- cost of goods sold- operating expenses B. Net sales- cost of goods sold- operating expenses+ other revenues- other expenses C. Net sales- cost of goods sold-operating expenses - income taxes D. Net sales- cost of goods sold -operating expenses+ gain on separately reported items- losses on separately reported items. 40) Which of the following require a separate allocation of income taxes? ain or loss on the sale of an operating division that has been discontinued 2. Income from continuing operations 3. Restructuring Costs 4. Error in computing deprecation from a prior year. A. Items 1, 2, and 4, B. Both 1 and 2 C. All items

Explanation / Answer

36) Answer is option (D) Debit Rent Revenue and credit Unearned Rent, $3,500

??Explanations: Cash received on 1st Aug' 2018 as rent for one full year which will be ended on 31st July, 2018. Adjustment entry is to be passed on 31st December, hence at the end of December 2018, rent for 7 month is still unearned but it has already been received in advance.

Unearned Rent as on 31st December 2018 = $6,000 X 7/12 = $ 3,500

37) ?Answer is option ?(C) Only item 1 and 2

?Explanations: Retained earning means excess of profits after payment of interest for debt capital and dividend for shares. To find out the ending balance of Retained earnings first we adjust the prior period adjustment with the opening balance of retained earnings. Then net income for the year is to be added and dividend paid during the year is to be deducted.

Computation of ending balance of Retained earnings:

Opening Balance of Retained Earnings ****

Add/Less: Prior prior adjustments    ****

Adjusted balance of retained earnings ****

Add: Net income for the year    ****

****

Less: Divided paid during the year    ****

??Ending Balance of Retained Earnings    ****

38) ?Answer is option ?(B) Items 1, 2 and 3

?Explanations: EPS from Discontinued operation is calculated to find out how much part of the total EPS comes from the discontinued operation of a business and EPS from continuing operation is calculated to forecast the future profitability of the business. EPS from net income is calculated to see the overall profitability of the business. EPS from these three sources of income must be calculated at the time of taking investment decision to any business. Otherwise the decision may become misleading.

(39) ?Answer is option (A) Net Sales - Cost of goods sold - Operating Expenses.

?Explanations: Operating income means profit generated from main business activity of the organization. In the given answer Operating income means before tax operating income. Non operating income and Expenses are adjusted with Operating income then Income tax is deducted.

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