13. If a business pays rent in advance and debits a Prepaid Rent account, the co
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13. If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment should credit a. Cash b. Prepaid Rent c. Accrued Rent Revenue d. Unearned Rent Revenue 14. Debits: a. Increase both assets and liabilities b. Increase assets and decrease liabilities c. Decrease liabilities and expense accounts d. Decrease assets and increase liabilities 15. Sales revenue less cost of goods sold is called a. Net income b. Net profit c. Gross profit d. Marginal income 16. Which of the followinstre of the rbs nting and cash basis of accounting? a. Cash basis of accounting records all transactions. b. Accrual basis of accounting records revenue only when it is earned. c. Accrual accounting is not allowed under GAAP. d. All of the above are true. 17. Which of the following accounts would be closed at the period using the perpetual inventory system? a. Cost of Goods Sold b. Merchandise Inventory c.Accounts Payable d. Accounts Receivable training sessions. Gymnastics collects the $ 2,100 in advance and will provide the training later. After five sessions, how much should Gymnastics, Inc. report in its income statement assuming it uses the accrual basis of accounting method? a. $2,100 b. 0 c. $1,500 d. 600 18. Gymnastics, Inc. gains a client who prepays $ 2,100 for a package of seven physicalExplanation / Answer
Answer 13: OPTION D
Since rent was received in advance, of the period it pertains to, it becomes un-earned.
Answer 14: OPTION B
Assets are real accounts, hence debits increases them. And for liabilities, debit decreases them.
Answer 15: OPTION C
Difference between Sales and Cost of goods sold represents the benefit from production also known as Gross Profit.
Answer 16: OPTION B
Under Accrual accounting, revenue is recorded when earned and expenses are recorded when consumed.
Answer 17: OPTION A
At period end, the inventory and cost of goods sold are closed under periodic inventory system. Under Perpetual inventory system, inventory account is not closed, but only the Cost of goods sold.
Answer 18: OPTION C
Fees per session = $2,100/7 = $300
Sessions provided = 5
Income earned = $300*5 = $1,500
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