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Exam 4: Accrual Accounting Concepts

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Question 101

Multiple Choice

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Under the cash basis of accounting:

A) revenue is recognized when services are performed.
B) expenses are matched with the revenue that is produced.
C) cash must be received before revenue is recognized.
D) a promise to pay is sufficient to recognize revenue.

E) B) and C)
F) All of the above

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Question 102

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The Dividends account is closed to the Income Summary account at the end of each year.

A) True
B) False

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Question 103

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In addition to updating Retained Earnings, ______________ entries produce a zero balance in each ______________ account.

At March 1, 2014, Candy Inc. had supplies on hand of $1,500. During the month, Candy purchased supplies of $2,900 and used supplies of $2,800. The March 31 balance sheet should report what balance in the supplies account?

An adjusting entry can include a:

Wang Company had the following transactions during 2013: -Sales of $10,800 on account -Collected $4,800 for services to be performed in 2014 -Paid $3,100 cash in salaries for 2013 -Purchased airline tickets for $600 in December for a trip to take place in 2014 What is Wang's 2013 net income using accrual accounting?

Why do generally accepted accounting principles require the application of the revenue recognition principle?

After all closing entries are journalized and posted, a _________________ trial balance is prepared from the ledger.

River Ridge Music School borrowed $30,000 from the bank signing a 6%, 6-month note on November 1. Principal and interest are payable to the bank on May 1. If the company prepares monthly financial statements, what adjusting entry should the company make at November 30 with regard to the note (round answer to the nearest dollar)?

Identify the impact on the balance sheet for that month if the following information is not used to adjust the accounts. 1. Supplies consumed during the month totalled $3,000. 2. Interest accrues on notes payable at the rate of $200 per month. 3. Insurance of $450 expired during the month. 4. Plant and equipment are depreciated at the rate of $1,200 per month.

The Downtown Company accumulates the following adjustment data at December 31. 1. Revenue of $1,100 collected in advance has been recognized. 2. Salaries of $600 are unpaid. 3. Prepaid rent totaling $400 has expired. 4. Supplies of $550 have been used. 5. Revenue recognized but unbilled totals $750. 6. Utility expenses of $300 are unpaid. 7. Interest of $250 has accrued on a note payable. Instructions: (a) For each of the above items indicate: 1. The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense). 2. The account relationship (asset/liability, liability/revenue, etc.). 3. The status of account balances before adjustment (understatement or overstatement). 4. The adjusting entry. (b) Assume net income before the adjustments listed above was $22,500. What is the adjusted net income? Prepare your answer in the tabular form presented below.

If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month's financial statements?

Karcan, Inc. purchased supplies costing ₤2,500 on January 1, 2014 and recorded the transaction by increasing assets. At the end of the year ₤1,100 of the supplies are still on hand. How will the adjusting entry impact Karcan, Inc.'s statement of financial position at December 31, 2014?

The worksheet contains columns for the:

Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues) ?

Fleet Services Company purchased equipment for $9,000 on January 1, 2014. The company expects to use the equipment for 5 years. It has no salvage value. What balance would be reported on the December 31, 2014 balance sheet for Accumulated Depreciation?

The Golden Petting Zoo operates a drive-through tourist attraction in Colorado. The company adjusts its accounts at the end of each month. The selected accounts appearing below reflect balances after adjusting entries were prepared on April 30. The adjusted trial balance shows the following: Other data: 1. Three months' rent had been prepaid on April 1. 2. The buildings are being depreciated at $6,000 per year. 3. The unearned ticket revenue represents tickets sold for future zoo visits. The tickets were sold at $4.00 each on April 1. During April, twenty of the tickets were used by customers. Instructions: (a) Calculate the following: 1. Monthly rent expense. 2. The age of the fencing in months. 3. The number of tickets sold on April 1. (b) Prepare the adjusting entries that were made by the Golden Petting Zoo on April 30.

An adjusting entry can include a:

Adjusting entries are needed to enable financial statements to conform to International Financial Reporting Standards (IFRS).

Hoosher Enterprises purchased an 18-month insurance policy on May 31, 2014 for $7,200. The December 31, 2014 balance sheet would report Prepaid Insurance of: