What Would Be the Effect on December's Income Statement of a Utility

question 47

Multiple Choice

What would be the effect on December's income statement of a utility bill received on December 27,2011 but which will not be paid until January 10,2012?

• A)No expense will be recognized until the bill is paid in January
• B)We would cause an increase in profit by recording the expense in December
• C)Recording the expense in December when it is incurred will increase expenses
• D)Profit will be decreased when we pay the bill in January

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Definitions:

Paid-In Capital

The total amount of cash and other assets that shareholders have given a company in exchange for stock.

Retained Earnings

The accumulated portion of net income not distributed to shareholders and reinvested in the business.

Voting Rights

The rights of shareholders to vote on key corporate decisions, such as the election of the board of directors.

Preemptive Rights

The rights that give existing shareholders the opportunity to buy additional shares of a company's new stock issue before the public, maintaining their percentage of ownership.