20. An increase in which one of the following will increase net income? A. Fixed
ID: 2734308 • Letter: 2
Question
20. An increase in which one of the following will increase net income? A. Fixed costs B. Depreciation C. Marginal tax rate D. Revenue E. Dividends 21. Which two of the following determine when revenue is recorded on the financial statements based on the recognition principle? I. Payment is collected for the sale of a good or service. II. The earnings process is virtually complete. III. The value of a sale can be reliably determined. IV. The product is physically delivered to the buyer. A. I and II only B. I and IV only C. II and III only D. II and IV only E. I and III only 22. Depreciation does which one of the following for a profitable firm? A. Increases net income B. Increases net fixed assets C. Decreases net working capital D. Lowers taxes E. Has no effect on net income 23. The recognition principle states that: A. costs should be recorded on the income statement whenever those costs can be reliably determined. B. costs should be recorded when paid. C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue. D. sales should be recorded when the payment for that sale is received. E. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined
Explanation / Answer
20)D. Revenue. As the Net Income=Revenue-Expenses therefore the Revenue is directly related to the Net Income so an increase in Revenue shall increase net income.
21)D. II and IV only. According to recognition principle revenue can be recognized when the service or product has been delivered completely regardless of whether the payment has been collected or not and that the earning process has been complete.
22)D. Lowers taxes. The depreciation allows for tax savings as Depreciation*Tax rate.As depreciation is deducted in net income therefore the deduction lowers the taxes that are actually are paid for.
23)E. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.
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