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ch04

Course Number: ACCT 2102, Fall 2009

College/University: Georgia Perimeter

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CHAPTER 4 ACCRUAL ACCOUNTING CONCEPTS SUMMARY OF QUESTIONS BY STUDY OBJECTIVE AND BLOOMS TAXONOMY Item 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. SO 1 1 1 1 1 1 1 1 2 2 3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 3 3 BT K K K K K K K K C K K K K K K K K K K K K K K K K K C C C C...

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4 ACCRUAL CHAPTER ACCOUNTING CONCEPTS SUMMARY OF QUESTIONS BY STUDY OBJECTIVE AND BLOOMS TAXONOMY Item 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. SO 1 1 1 1 1 1 1 1 2 2 3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 3 3 BT K K K K K K K K C K K K K K K K K K K K K K K K K K C C C C C C K K C AP AP AP AP AP AP C K Item 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. SO 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 BT K K K K K K K K K K C Item SO BT Item True-False Statements SO 5 5 5 6 6 7 7 7 7 7 7 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 5 5 BT K K K K K K K K K K K K K AP C C C AN AN AP AP AP AP AP AP AN AN AP AP C C C C AP AP AP AP AP AP AP AP AP AP Item 45. 46. 47. 48. 49. 50. 51. 52. *53. SO BT K K K K K K K K K 23. 3 K 34. 24. 4 K 35. 25. 4 C 36. 26. 4 K 37. 27. 4 K 38. 28. 4 K 39. 29. 4 K 40. 30. 4 K 41. 31. 4 K 42. 32. 4 K 43. 33. 5 K 44. Multiple Choice Questions K 118. 4 AP 150. K 119. 4 AP 151. K 120. 4 K 152. K 121. 4 K 153. K 122. 4 K 154. K 123. 4 C 155. K 124. 4 AP 156. C 125. 4 C 157. K 126. 4 C 158. K 127. 4 K 159. K 128. 4 C 160. C 129. 4 C 161. K 130. 4 K 162. K 131. 4 C 163. K 132. 4 C 164. C 133. 4 C 165. C 134. 4 C 166. K 135. 4 K 167. K 136. 4 AP 168. K 137. 4 AP 169. K 138. 4 AN 170. K 139. 4 AP 171. K 140. 4 AP 172. K 141. 4 K 173. K 142. 4 AP 174. K 143. 4 AP 175. K 144. 4 K 176. AP 145. 4 K 177. AP 146. 4 C 178. AP 147. 4 K 179. K 148. 4 K 180. AP 149. 4 K 181. 7 7 7 8 8 8 8 8 9 182. 183. 184. 185. 186. 187. 188. 189. 190. 191. 192. 193. 194. 195. 196. 197. 198. 199. 200. 201. 202. 203. 204. 205. 206. 207. 208. 209. 210. 5 5 5 5 5 5 6 6 6 6 6 7 6 7 7 7 7 7 7 7 7 7 8 8 8 8 8 8 8 AP AN AP AP AP AP K K K K AP AP AP AP K K K K K K K K K K AP AP AP K C 4-2 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition 211. 212. 213. 214. 227. 228. 229. 230. 231. 249. 250. 251. 260. 2 3 3 3 2 2 3 3 3 1 1 1 1-8 K AP AP K AN AN AP AP AP K K K K 215 216 217. 3, 4 3 4 K AN AP Brief Exercises 218. 4 AP 219. 4 AP 220. 5 AP Exercises 4, 5 AP 4, 5 AP 4, 5 AP 4, 5 AP 221. 222. 223. 4, 5 4, 5 5 K AP AP 224. 225. 226. 6 6 7 AP AP K 232. 233. 234. 235. 236. 252. 253. 3 3, 4 4, 5 4,5 4, 5 1 1 K K AP AP AP K K 237. 238. 239. 240. 241. 242. 243. 244. 4, 5 4, 5 4, 5 5 AN K AP AP 245. 246. 247. 248. 5 5, 6 5, 6 6 AP AP AP AP Completion Statements 254. 4 K 256. 255. 4 K 257. Matching 4 5 K K 258. 259. 6 7 K K Short Answer Essay 261. 2 C 263. 2 C 265. 3 C 267. 262. 3 C 264. 3 K 266. 3 K *This topic is dealt with in an Appendix to the chapter. 3 E 268. 3 C A Further Look at Financial Statements 4-3 SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE S.O. 1 Item 1. 2. 3. 4. 5. 6. 7. 8. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 249. 250. 251. 252. 253. Type TF TF TF TF TF TF TF TF MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC C C C C C S.O. 2 Item 9. 10. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 211. 227. 228. Type TF TF MC MC MC MC MC MC MC MC MC MC MC Be Ex Ex S.O. 3 Item 11. 12. 13. 14. 15. 16. 17. 18. 19. 22. 23. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 212. 213. 214. 215. 216. Type TF TF TF TF TF TF TF TF TF TF TF MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC Be Be Be Be Be S.O. 3 (cont.) Item Type 229. Ex 230. Ex 231. Ex 232. Ex 233. Ex S.O. 4 Item 24. 25. 26. 27. 28. 29. 30. 31. 32. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. Type TF TF TF TF TF TF TF TF TF MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC 4-4 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition S.O. 4 (cont.) Item 149. 150. 151. 152. 152. 153. 154. 155. 156. 157. 158. 159. 160. 161. 162. 163. 164. 165. 166. 167. 215. 217. 218. 219. 221. 222. 233. 234. 235. 236. 237. 238. 239. 240. 241. 242. 243. 254. 255. 256. Type MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC Be Be Be Be Be Be Ex Ex Ex Ex Ex Ex Ex Ex Ex Ex Ex C C C S.O. 5 Item 33. 34. 35. 36. 168. 169. 170. 171. 172. 173. 174. 175. 176. 177. 178. 179. 180. 181. 182. 183. 184. 185. 186. 187. 220. 221. 222. 223. 234. 235. 236. 237. 238. 239. 240. 241. 242. 243. 245. 246. 247. 257. Type TF TF TF TF MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC Be Be Be Be Ex Ex Ex Ex Ex Ex Ex Ex Ex Ex Ex Ex Ex C S.O. 6 Item 37. 38. 188. 189. 190. 191. 192. 194. 224. 225. 246. 247. 248. 258. Type TF TF MC MC MC MC MC MC Be Be Ex Ex Ex C S.O. 7 Item 39. 40. 41. 42. 43. 44. 45. 46. 47. 193. 195. 196. 197. 198. 199. 200. 201. 202. 203. 226. 259. Type TF TF TF TF TF TF TF TF TF MC MC MC MC MC MC MC MC MC MC Be C S.O. 8 Item 48. 49. 50. 51. 52. 204. 205. 206. 207. 208. 209. 210. Type TF TF TF TF TF MC MC MC MC MC MC MC S.O.*9 Item 53. Type TF Note: TF = True-False MC = Multiple Choice C = Completion Ex = Exercise A Further Look at Financial Statements 4-5 The chapter also contains one set of ten Matching questions and six Short-Answer Essay questions. 4-6 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition CHAPTER STUDY OBJECTIVES 1. Explain the revenue recognition principle and the matching principle. The revenue recognition principle dictates that companies recognize revenue in the accounting period in which it is earned. The matching principle dictates that companies recognize expenses when expenses make their contribution to revenues. 2. Differentiate between the cash basis and the accrual basis of accounting. Accrual-based accounting means that companies record in the periods in which the events occur events that change a company's financial statements. Under the cash basis, companies record events only in the periods in which the company receives or pays cash. 3. Explain why adjusting entries are needed and identify the major types of adjusting entries. Companies make adjusting entries at the end of an accounting period. These entries ensure that companies record revenues in the period in which they are earned and that companies recognize expenses in the period in which they are incurred. The major types of adjusting entries are prepaid expenses, unearned revenues, accrued revenues, and accrued expenses. 4. Prepare adjusting entries for prepayments. Prepayments are either prepaid expenses or unearned revenues. Companies make adjusting entries for prepayments at the statement date to record the portion of the prepayment that represents the expense incurred or the revenue earned in the current accounting period. 5. Prepare adjusting entries for accruals. Accruals are either accrued revenues or accrued expenses. Adjusting entries for accruals record revenues earned and expenses incurred in the current accounting period that have not been recognized through daily entries. 6. Describe the nature and purpose of the adjusted trial balance. An adjusted trial balance is a trial balance that shows the balances of all accounts, including those that have been adjusted, at the end of an accounting period. The purpose of an adjusted trial balance is to show the effects of all financial events that have occurred during the accounting period. 7. Explain the purpose of closing entries. One purpose of closing entries is to transfer the results of operations for the period to Retained Earnings. A second purpose is to zero-out all temporary accounts (revenue accounts, expense accounts, and dividends) so that they start each new period with a zero balance. To accomplish this, companies close all temporary accounts at the end of an accounting period. They make separate entries to close revenues and expenses to Income Summary, Income Summary to Retained Earnings, and Dividends to Retained Earnings. Only temporary accounts are closed. 8. Describe the required steps in the accounting cycle. The required steps in the accounting cycle are: (a) analyze business transactions, (b) journalize the transactions, (c) post to ledger accounts, (d) prepare a trial balance, (e) journalize and post adjusting entries, (f) prepare an adjusted trial balance, (g) prepare financial statements, (h) journalize and post closing entries, and (i) prepare a post-closing trial balance. *9. Describe the purpose and the basic form of the work sheet. The work sheet is a device to make it easier to prepare adjusting entries and the financial statements. Companies often prepare a work sheet on a computer spreadsheet. The sets of columns of the work sheet are, from left to right, the unadjusted trial balance, adjustments, adjusted trial balance, income statement, and balance sheet. A Further Look at Financial Statements 4-7 TRUE-FALSE STATEMENTS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. The time period assumption states that the economic life of a business entity can be divided into artificial time periods. The time period assumption is often referred to as the matching principle. The revenue recognition principle dictates that revenue be recognized in the accounting period in which it is earned. Expense recognition often follows revenue recognition. The revenue recognition principle and the matching principle are helpful guides used in determining net income or net loss for a period. The matching principle requires that efforts be related to accomplishments. The matching concept supports accrual accounting principles. Applying accrual accounting results in a more accurate measurement of net income for the period than does cash basis accounting. Income will always be greater under the cash basis of accounting than under the accrual basis of accounting. The cash basis of accounting is not in accordance with generally accepted accounting principles. Adjusting entries are often made because some business events are not recorded as they occur. Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger. Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal. An adjusting entry would adjust a revenue so it is reported when it is paid. An adjusting entry to a prepaid expense is required to recognize expired expenses. An adjusting entry always involves two balance sheet accounts. An adjusting entry always involves a balance sheet account and an income statement account. Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities. Revenue received before it is earned and expenses used or consumed before being paid are both initially recorded as liabilities. Accrued revenues are revenues that have been received but not yet earned. Accrued revenues are revenues that have been earned but not yet received. The difference between unearned revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and unearned revenue has never been recorded. If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future. 4-8 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset. The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique. Accumulated Depreciation is a liability account and has a credit normal account balance. A liabilityrevenue account relationship exists with an unearned rent revenue adjusting entry. The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same. Unearned revenue is a prepayment that requires an adjusting entry when services are performed. The adjusting entry for unearned revenue results in an increase (a debit) to an asset account and an increase (a credit) to a revenue account. Asset prepayments become expenses when they expire. A contra asset account is subtracted from a related account in the balance sheet. Accrued revenues are revenues that have been earned and received before financial statements have been prepared. Each adjusting entry affects two balance sheet accounts. Depreciation is a valuation concept. A depreciable assets original cost typically will be shown on the balance sheet. Financial statements can be prepared from the information provided by an adjusted trial balance. An adjusted trial balance must be prepared before the adjusting entries can be recorded. Closing entries deal primarily with the balances of permanent accounts. The only accounts that are closed are temporary accounts. When closing entries are prepared, each income statement account is closed directly to retained earnings. Cash is a temporary account. The post-closing trial balance will contain only permanentbalance sheetaccounts. Accounts receivable is a permanent account. The Dividends account is closed to the Income Summary account at the end of each year. A revenue account is closed with a credit to the revenue account and a debit to Income Summary. An expense account is closed with a credit to the expense account and a debit to the Income summary account. Financial statements must be prepared before the closing entries are made. In the accounting cycle, closing entries are prepared before adjusting entries. A Further Look at Financial Statements 4-9 50. 51. 52. *53. Closing entries result in the transfer of net income or net loss into the Retained Earnings account. The post closing trial balance will have fewer accounts than the adjusted trial balance. The accounting cycle begins with the journalizing of the transactions. A work sheet is a multiple-column form that is a permanent accounting record. Answers to True-False Statements 1. 2. 3. 4. 5. 6. 7. 8. 9. T F T T T T T T F 10. 11. 12. 13. 14. 15. 16. 17. 18. T T F F F T F T F 19. 20. 21. 22. 23. 24. 25. 26. 27. T F T F F T F F T 28. 29. 30. 31. 32. 33. 34. 35. 36. F T F T T F F F T 37. 38. 39. 40. 41. 42. 43. 44. 45. T F T T F F T T F 46. 47. 48. 49. 50. 51. 52. 53. F T F F T T F F MULTIPLE CHOICE QUESTIONS 54. The time period assumption states that a. a transaction can only affect one period of time. b. estimates should not be made if a transaction affects more than one time period. c. adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations. d. the economic life of a business can be divided into artificial time periods. One of the accounting concepts upon which adjustments for prepayments and accruals are based is a. matching. b. cost. c. monetary unit. d. economic entity. An accounting time period that is one year in length is called a. a fiscal year. b. an interim period. c. the time period assumption. d. a reporting period. Adjustments would not be necessary if financial statements were prepared to reflect net income from a. monthly operations. b. fiscal year operations. c. interim operations. d. lifetime operations. 55. 56. 57. 4-10 58. Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Management usually wants ________ financial statements and the IRS requires all businesses to file _________ tax returns. a. annual, annual b. monthly, annual c. quarterly, monthly d. monthly, monthly In general, the shorter the time period, the difficulty of making the proper adjustments to accounts a. is increased. b. is decreased. c. is unaffected. d. depends on if there is a profit or loss. Which of the following is not generally an accounting time period? a. A week b. A month c. A quarter d. A year The revenue recognition principle dictates that revenue should be recognized in the accounting records a. when cash is received. b. when it is earned. c. at the end of the month. d. in the period that income taxes are paid. In a service-type business, revenue is considered earned a. at the end of the month. b. at the end of the year. c. when the service is performed. d. when cash is received. The matching principle matches a. customers with businesses. b. expenses with revenues. c. assets with liabilities. d. creditors with businesses. Javiers Tune-Up Shop follows the revenue recognition principle. Javier services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Javier on September 5. Javier receives the check in the mail on September 6. When should Javier show that the revenue was earned? a. August 31 b. August 1 c. September 5 d. September 6 59. 60. 61. 62. 63. 64. A Further Look at Financial Statements 4-11 65. A company spends $20 million dollars for an office building. Over what period should the cost be written off? a. When the $20 million is expended in cash b. All in the first year c. Over the useful life of the building d. After $20 million in revenue is earned The matching principle states that expenses should be matched with revenues. Another way of stating the principle is to say that a. assets should be matched with liabilities. b. efforts should be matched with accomplishments. c. dividends should be matched with stockholder investments. d. cash payments should be matched with cash receipts. Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)? a. Cost principle. b. Periodicity principle. c. Revenue recognition principle. d. Matching principle. A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be earned? a. December 5 b. December 10 c. November 30 d. December 1 A furniture factory's employees work overtime to finish an order that is sold on January 31. The office sends a statement to the customer in early February and payment is received by mid-February. The overtime wages should be expensed in a. January. b. February. c. the period when the workers receive their checks. d. either January or February depending on when the pay period ends. Which is not an application of revenue recognition? a. Recording revenue as an adjusting entry on the last day of the accounting period. b. Accepting cash from an established customer for services to be performed over the next three months. c. Billing customers on June 30 for services completed during June. d. Receiving cash for services performed. 66. 67. 68. 69. 70. 4-12 71. Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Why do generally accepted accounting principles require the application of the revenue recognition principle? a. Failure to apply the revenue recognition principle could lead to an overstatement of revenue. b. It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve. c. Recording revenue when cash is received is an objective application of the revenue recognition principle. d. Accounting software has made the revenue recognition easy to apply. On April 1, 2007, M Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for four years. M records depreciation expense of $9,000 for the calendar year ending December 31, 2007. Which accounting principle has been violated? Why? a. Depreciation principle, because depreciation expense is $12,000 per year. b. No principle has been violated because M has correctly matched the expense for using the equipment to the period it generated revenue. c. Matching principle because the cash was paid in 2007 and should be expensed in 2007. d. Matching principle because depreciation expense should be $8,000. Expenses sometimes make their contribution to revenue in a different period than when the expense is paid. When wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the first period? a. Due from Employees b. Due to Employer c. Wages Payable d. Wages Expense Under the accrual basis of accounting a. cash must be received before revenue is recognized. b. net income is calculated by matching cash outflows against cash inflows. c. events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles. Using accrual accounting, expenses are recorded and reported only a. when they are incurred whether or not cash is paid. b. when they are incurred and paid at the same time. c. if they are paid before they are incurred. d. if they are paid after they are incurred. A small company may be able to justify using a cash basis of accounting if they have a. sales under $1,000,000. b. no accountants on staff. c. few receivables and payables. d. all sales and purchases on account. 72. 73. 74. 75. 76. A Further Look at Financial Statements 4-13 77. Which statement is correct? a. As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use. b. The use of the cash basis of accounting violates both the revenue recognition and matching principles. c. The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. d. As long as management is ethical, there are no problems with using the cash basis of accounting. The following is selected information from J Corporation for the fiscal year ending October 31, 2007. Cash received from customers $300,000 Revenue earned 350,000 Cash paid for expenses 170,000 Cash paid for computers on November 1, 2006 that will be used for 3 years 48,000 Expenses incurred, not including any depreciation 200,000 Proceeds from a bank loan, part of which was used to pay for the computers 100,000 Based on the accrual basis of accounting, what is J Corporations net income for the year ending October 31, 2007? a. $114,000 b. $134,000 c. $82,000 d. $150,000 78. 79. The following is selected information from G Corporation for the fiscal year ending October 31, 2007. Cash received from customers $150,000 Revenue earned 175,000 Cash paid for expenses 85,000 Cash paid for computers on November 1, 2006 that will be used for 3 years 24,000 Expenses incurred, not including any depreciation 100,000 Proceeds from a bank loan, part of which was used to pay for the computers 50,000 Based on the accrual basis of accounting, what is G Corporations net income for the year ending October 31, 2007? a. $57,000 b. $67,000 c. $41,000 d. $75,000 4-14 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Use the following information to answer questions 80 and 81. Sheepskin Company had the following transactions during 2006. 80. Sales of $4,500 on account Collected $2,000 for services to be performed in 2007 Paid $625 cash in salaries Purchased airline tickets for $250 in December for a trip to take place in 2007 What is Sheepskins 2006 net income using accrual accounting? a. $3,875 b. $5,875 c. $5,625 d. $3,625 What is Sheepskins 2006 net income using cash basis accounting? a. $5,875 b. $1,375 c. $5,625 d. $1,125 81. Use the following information to answer questions 82 and 83. Renfro Company had the following transactions during 2006. 82. Sales of $5,400 on account Collected $2,400 for services to be performed in 2007 Paid $750 cash in salaries Purchased airline tickets for $300 in December for a trip to take place in 2007 What is Renfros 2006 net income using accrual accounting? a. $4,650 b. $7,050 c. $6,750 d. $4,350 What is Renfros 2006 net income using cash basis accounting? a. $7,050 b. $1,650 c. $6,750 d. $1,350 Which of the following reflect the balances of prepayment accounts prior to adjustment? a. Balance sheet accounts are understated and income statement accounts are understated. b. Balance sheet accounts are overstated and income statement accounts are over-stated. c. Balance sheet accounts are overstated and income statement accounts are understated. d. Balance sheet accounts are understated and income statement accounts are overstated. 83. 84. A Further Look at Financial Statements 4-15 85. The primary difference between prepaid and accrued expenses is that prepaid expenses have a. been incurred and accrued expenses have not. b. not been paid and accrued expenses have. c. been recorded and accrued expenses have not. d. not been recorded and accrued expenses have. The primary difference between accrued revenues and unearned revenues is that accrued revenues have a. not been earned and accrued revenues have been. b. been paid and unearned revenues have not. c. been recorded and unearned revenues have not. d. not been recorded and unearned revenues have. The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is a. contra asset. b. prepayment. c. asset. d. accrual. Accounts often need to be adjusted because a. there are never enough accounts to record all the transactions. b. many transactions affect more than one time period. c. there are always errors made in recording transactions. d. management can't decide what they want to report. Adjusting entries are made to ensure that: a. expense are recognized in the period in which they are incurred. b. revenues are recorded in the period in which they are earned. c. balance sheet and income statement accounts have correct balances at the end of an accounting period. d. All of the above. Adjusting entries are a. not necessary if the accounting system is operating properly. b. usually required before financial statements are prepared. c. made whenever management desires to change an account balance. d. made to balance sheet accounts only. Each of the following is a major type (or category) of adjusting entry except: a. earned expenses. b. prepaid expenses. c. accrued expenses. d. accrued revenues. Adjusting entries are required a. because some costs expire with the passage of time and have not yet been journalized. b. when the company's profits are below the budget. c. when expenses are recorded in the period in which they are earned. d. when revenues are recorded in the period in which they are earned. 86. 87. 88. 89. 90. 91. 92. 4-16 93. Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Which one of the following is not a justification for adjusting entries? a. Adjusting entries are necessary to ensure that revenue recognition principles are followed. b. Adjusting entries are necessary to ensure that the matching principle is followed. c. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP. d. Adjusting entries are necessary to bring the general ledger accounts in line with the budget. An adjusting entry a. affects two balance sheet accounts. b. affects two income statement accounts. c. affects a balance sheet account and an income statement account. d. is always a compound entry. Adjusting entries are a. the same as correcting entries. b. needed to ensure that the matching principle is followed. c. optional. d. rarely needed. The preparation of adjusting entries is a. straightforward because the accounts that need adjustment will be out of balance. b. often an involved process requiring the skills of a professional. c. only required for accounts that do not have a normal balance. d. optional when financial statements are prepared. If a resource has been consumed but a bill has not been received at the end of the accounting period, then a. an expense should be recorded when the bill is received. b. an expense should be recorded when the cash is paid out. c. an adjusting entry should be made recognizing the expense. d. it is optional whether to record the expense before the bill is received. An assetexpense relationship exists with a. liability accounts. b. revenue accounts. c. prepaid expense adjusting entries. d. accrued expense adjusting entries. A liabilityrevenue relationship exists with a. asset accounts. b. revenue accounts. c. prepaid revenue adjusting entries. d. accrued expense adjusting entries. Adjusting entries can be classified as a. postponements and advances. b. accruals and prepayments. c. prepayments and postponements. d. accruals and advances. 94. 95. 96. 97. 98. 99. 100. A Further Look at Financial Statements 4-17 101. A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause a. expenses to be overstated. b. net income to be overstated. c. liabilities to be understated. d. revenues to be understated. An architecture firm earned $2,000 for architecture services provided with the fee to be paid in the future. No entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting period and no adjusting entry is made, this would cause a. revenues to be overstated. b. net income to be overstated. c. liabilities to be understated. d. revenues to be understated. Which of the following accounts would not likely need to be adjusted at year end? a. Office Supplies b. Unearned Revenue c. Prepaid Advertising d. Land An adjusting entry would not include which of the following accounts? a. Cash b. Interest Receivable c. Property Tax Payable d. Unearned Revenue An adjusting entry can include a a. debit to an asset and a credit to a liability. b. debit to a revenue and a credit to an asset. c. debit to a liability and a credit to a revenue. d. debit to an expense and a credit to a revenue. An adjusting entry can include a a. debit to an asset and a credit to a revenue. b. debit to a revenue and a credit to an asset. c. credit to an expense and a debit to a revenue. d. debit to an expense and a credit to a revenue. Accrued revenues are a. received and recorded as liabilities before they are earned. b. earned and recorded as liabilities before they are received. c. earned but not yet received or recorded. d. earned and already received and recorded. 102. 103. 104. 105. 106. 107. 4-18 108. Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Prepaid expenses are a. paid and recorded in an asset account before they are used or consumed. b. paid and recorded in an asset account after they are used or consumed. c. incurred but not yet paid or recorded. d. incurred and already paid or recorded. Goods purchased for future use in the business, such as supplies, are called a. prepaid expenses. b. revenues. c. stockholders equity. d. liabilities. Accrued expenses are a. paid and recorded in an asset account before they are used or consumed. b. paid and recorded in an asset account after they are used or consumed. c. incurred but not yet paid or recorded. d. incurred and already paid or recorded. Unearned revenues are a. received and recorded as liabilities before they are earned. b. earned and recorded as liabilities before they are received. c. earned but not yet received or recorded. d. earned and already received and recorded. A revenueasset relationship exists with a. prepaid expense adjusting entries. b. accrued expense adjusting entries. c. unearned revenue adjusting entries. d. accrued revenue adjusting entries. The Village Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $3,000 on hand. The adjusting entry that should be made by the company on June 30 is a. Debit Laundry Supplies Expense, $3,000; Credit Laundry Supplies, $3,000. b. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,000. c. Debit Laundry Supplies, $3,500; Credit Laundry Supplies Expense, $3,500. d. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,500. Reese Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,600 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be a. Debit Office Supplies Expense, $1,600; Credit Office Supplies, $1,600. b. Debit Office Supplies, $2,400; Credit Office Supplies Expense, $2,400. c. Debit Office Supplies Expense, $2,400; Credit Office Supplies, $2,400. d. Debit Office Supplies, $1,600; Credit Office Supplies Expense, $1,600. 109. 110. 111. 112. 113. 114. A Further Look at Financial Statements 4-19 115. A company purchased office supplies costing $3,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,600 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be a. Debit Office Supplies Expense, $3,400; Credit Office Supplies, $3,400. b. Debit Office Supplies, $1,600; Credit Office Supplies Expense, $1,600. c. Debit Office Supplies Expense, $1,400; Credit Office Supplies, $1,400. d. Debit Office Supplies, $3,400; Credit Office Supplies Expense, $3,400. Unearned revenue is classified as a(n) a. asset account. b. revenue account. c. contra revenue account. d. liability. Joyce Company purchased office supplies costing $5,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2,400 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be a. Debit Office Supplies Expense, $2,600; Credit Office Supplies, $2,600. b. Debit Office Supplies, $2,400; Credit Office Supplies Expense, $2,400. c. Debit Office Supplies Expense, $2,400; Credit Office Supplies, $2,400. d. Debit Office Supplies, $2,600; Credit Office Supplies Expense, $2,600. On July 1 the Winter Shoe Store paid $12,000 to Ace Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Winter Shoe Store is a. Debit Rent Expense, $12,000; Credit Prepaid Rent, $2,000. b. Debit Prepaid Rent, $2,000; Credit Rent Expense, $2,000. c. Debit Rent Expense, $2,000; Credit Prepaid Rent, $2,000. d. Debit Rent Expense, $12,000; Credit Prepaid Rent, $12,000. The balance in the prepaid rent account before adjustment at the end of the year is $9,000 and represents three months rent paid on December 1. The adjusting entry required on December 31 is a. Debit Prepaid Rent, $3,000; Credit Rent Expense $3,000. b. Debit Prepaid Rent, $6,000; Credit Rent Expense, $6,000. c. Debit Rent Expense, $9,000; Credit Prepaid Rent, $9,000. d. Debit Rent Expense, $3,000; Credit Prepaid Rent, $3,000. If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be a. debit Unearned Revenue and credit Cash. b. debit Unearned Revenue and credit Revenue Earned. c. debit Unearned Revenue and credit Prepaid Expense. d. debit Unearned Revenue and credit Accounts Receivable. 116. 117. 118. 119. 120. 4-20 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition 121. Accumulated Depreciation is a(n) a. expense account. b. stockholders equity account. c. liability account. d. contra asset account. The Harris Company purchased a computer for $4,500 on December 1. It is estimated that annual depreciation on the computer will be $900. If financial statements are to be prepared on December 31, the company should make the following adjusting entry a. Debit Depreciation Expense, $900; Credit Accumulated Depreciation, $900. b. Debit Depreciation Expense, $75; Credit Accumulated Depreciation, $75. c. Debit Depreciation Expense, $3,600; Credit Accumulated Depreciation, $3,600. d. Debit Office Equipment, $4,500; Credit Accumulated Depreciation, $4,500. Adjustments for unearned revenue: a. decrease liabilities and increase revenues. b. increase liabilities and increase revenues. c. increase assets and increase revenues. d. decrease revenues and decrease assets. McCloud Realty Company received a check for $18,000 on July 1, which represents a 6month advance payment of rent on a building it rents to a client. Unearned Rental Revenue was credited for the full $18,000. Financial statements will be prepared on July 31. McCloud Realty should make the following adjusting entry on July 31 a. Debit Unearned Rental Revenue, $3,000; Credit Rental Revenue, $3,000. b. Debit Rental Revenue, $3,000; Credit Unearned Rental Revenue, $3,000. c. Debit Unearned Rental Revenue, $18,000; Credit Rental Revenue, $18,000. d. Debit Cash, $18,000; Credit Rental Revenue, $18,000. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a a. debit to an asset account and a credit to an expense account. b. debit to an expense account and a credit to an asset account. c. debit to an asset account and a credit to an asset account. d. debit to an expense account and a credit to an expense account. Adjustments for unearned revenue: a. decrease liabilities and increase revenues. b. increase liabilities and increase revenues. c. increase assets and increase revenues. d. decrease revenues and decrease assets. Payments of expenses that will benefit more than one accounting period are identified as a. expenses. b. revenues. c. prepaid expenses. d. liabilities. 122. 123. 124. 125. 126. 127. A Further Look at Financial Statements 4-21 128. A company usually determines the amount of supplies used during a period by a. adding the supplies on hand to the balance of the Supplies account. b. summing the amount of supplies purchased during the period. c. taking the difference between the supplies purchased and the supplies paid for during the period. d. taking the difference between the balance of the Supplies account and the cost of supplies on hand. If a company fails to make an adjusting entry to record supplies expense, then a. stockholders equity will be understated. b. expense will be understated. c. assets will be understated. d. net income will be understated. Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the adjusting entry is for the amount of supplies a. remaining. b. purchased. c. used. d. either used or remaining. If a company fails to adjust for accrued revenues a. liabilities will be understated and revenues will be understated. b. liabilities will be overstated and revenues will be understated. c. assets will be overstated and revenues will be understated. d. assets will be understated and revenues will be understated. 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? a. Failure to make an adjustment does not affect the financial statements. b. Expenses will be overstated and net income and stockholders equity will be understated. c. Assets will be overstated and net income and stockholders equity will be under-stated. d. Assets will be overstated and net income and stockholders equity will be overstated. If a company fails to adjust an Unearned Rent account for rent that has been earned, what effect will this have on that months financial statements? a. Assets will be understated and revenues will be understated. b. Liabilities will be understated and revenues will be understated. c. Liabilities will be overstated and revenues will be understated. d. Assets will be overstated and revenues will be understated. If a company fails to adjust for accrued expenses, what effect will this have on that month's financial statements? a. Failure to make an adjustment does not affect the financial statements. b. Expenses will be understated and net income and stockholders equity will be overstated. c. Assets will be overstated and net income and stockholders equity will be under-stated. d. Assets will be overstated and net income and stockholders equity will be overstated. 129. 130. 131. 132. 133. 134. 4-22 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition 135. Adjusting entries affect at least a. one revenue and one expense account. b. one asset and one liability account. c. one revenue and one balance sheet account. d. one income statement account and one balance sheet account. At December 31, 2007, before any year-end adjustments, Bollis Company's Prepaid Insurance account had a balance of $2,700. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be a. $1,500. b. $1,200. c. $2,700. d. $1,900. At December 31, 2007, before any year-end adjustments, Janis Company's Prepaid Insurance account had a balance of $1,900. It was determined that $1,400 of the Prepaid Insurance had expired. The adjusted balance for Prepaid Insurance for the year would be a. $1,400. b. $500. c. $3,300. d. $1,900. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true? a. Net income will be overstated for the current year. b. Total assets will be understated at the end of the current year. c. The balance sheet and income statement will be misstated but the Retained Earnings statement will be correct for the current year. d. Total assets will be understated at the end of the current year. 136. 137. 138. Use the following information to answer questions 139 through 143 The trial balance for Houley Corporation appears as follows: Houley Corporation Trial Balance December 31, 2007 Cash Accounts Receivable Prepaid Insurance Supplies Office Equipment Accumulated Depreciation, Office Equipment Accounts Payable Common Stock Retained Earnings Service Revenue Salaries Expense Rent Expense $ 300 500 60 140 4,000 $ 800 300 1,000 1,400 3,000 1,000 500 $6,500 $6,500 A Further Look at Financial Statements 4-23 139. If on December 31, 2007, supplies on hand were $20, the adjusting entry would contain a a. debit to Supplies for $20. b. credit to Supplies for $20. c. debit to Supplies Expense for $120. d. credit to Supplies Expense for $120. If on December 31, 2007, the insurance still unexpired amounted to $10, the adjusting entry would contain a a. debit to Prepaid Insurance for $50. b. credit to Prepaid Insurance for $10. c. debit to Insurance Expense for $50. d. credit to Prepaid Insurance for $10. If the estimated depreciation for office equipment were $800, the adjusting entry would contain a a. credit to Accumulated Depreciation, Office Equipment for $800. b. credit to Depreciation Expense, Office Equipment for $800. c. debit to Accumulated Depreciation, Office Equipment for $800. d. credit to Office Equipment for $800. If as of December 31, 2007, rent of $100 for December had not been recorded or paid, the adjusting entry would include a a. credit to Accumulated Rent for $100. b. credit to Cash for $100. c. debit to Rent Payable for $100 d. debit to Rent Expense for $100 If service for $125 had been performed but not billed, the adjusting entry to record this would include a a. debit to Service Revenue for $125. b. credit to Unearned Service Revenue for $125. c. credit for Service Revenue for $125. d. debit to Unearned Revenue for $125. Depreciation is the process of a. valuing an asset at its fair market value. b. increasing the value of an asset over its useful life in a rational and systematic manner. c. allocating the cost of an asset to expense over its useful life in a rational and systematic manner. d. writing down an asset to its real value each accounting period. The difference between the balance of a plant asset account and the related accumulated depreciation account is termed a. market value. b. contra asset. c. book value. d. liability. 140. 141. 142. 143. 144. 145. 4-24 146. Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition A new accountant working for Metcalf Company records $800 Depreciation Expense on store equipment as follows: Dr. Cr. Depreciation Expense ............................................ Cash .............................................................. 800 800 The effect of this entry is to a. adjust the accounts to their proper amounts on December 31. b. understate total assets on the balance sheet as of December 31. c. overstate the book value of the depreciable assets at December 31. d. understate the book value of the depreciable assets as of December 31. 147. From an accounting standpoint, the acquisition of long-lived assets is essentially a(n) a. accrual of expense. b. accrual of revenue. c. accrual of unearned revenue. d. prepaid expense. If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit a. cash. b. prepaid rent. c. unearned rent revenue. d. accrued rent revenue. An accumulated depreciation account a. is a contra liability account. b. increases on the debit side. c. is offset against total assets on the balance sheet. d. has a normal credit balance. The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the a. market value of the asset. b. blue book value of the asset. c. book value of the asset. d. depreciated difference of the asset. Which of the following would not result in unearned revenue? a. Rent collected in advance from tenants b. Services performed on account c. Sale of season tickets to football games d. Sale of two-year magazine subscriptions The policy at A Corporation is to expense all office supplies at the time of purchase. On the last day of the accounting period, there are $1,200 of unused office supplies on hand and the balance of supplies expense is $3,500. What should the accountant do? a. Debit Supplies and credit Supplies Expense for $1,200. b. Nothing, company policy says to expense supplies when purchased. c. Convince management to change its policy to avoid problems in the future. d. Debit Supplies Expense for $2,300 and credit Supplies for $2,300. 148. 149. 150. 151. 152. A Further Look at Financial Statements 4-25 153. Which statement is correct? a. Accumulated Depreciation should always have a debit balance in the Adjusted Trial Balance. b. Accumulated Depreciation is added to the long-term liabilities on the Balance Sheet. c. Accumulated Depreciation, Office Equipment represents the total cost of office equipment that has expired up to the date of the Balance Sheet. d. Accumulated Depreciation is used to reveal the value of the related asset on the date of the Balance Sheet. Lawton Company collected $8,400 in May of 2006 for 4 months of service which would take place from October of 2006 through January of 2007. The revenue reported from this transaction during 2006 would be: a. $0 b. $6,300 c. $8,400 d. $2,010 Keypress Company collected $6,700 in May of 2006 for 4 months of service which would take place from October of 2006 through January of 2007. The revenue reported from this transaction during 2006 would be: a. $0 b. $5,025 c. $6,700 d. $1,675 Waterfalls Corporation purchased a one-year insurance policy in January 2006 for $66,000. The insurance policy is in effect from March 2006 through February 2007. If the company neglects to make the proper year-end adjustment for the expired insurance a. Net income and assets will be understated by $55,000 b. Net income and assets will be overstated by $55,000 c. Net income and assets will be understated by $11,000 d. Net income and assets will be overstated by $11,000 Younger Corporation purchased a one-year insurance policy in January 2006 for $48,000. The insurance policy is in effect from March 2006 through February 2007. If the company neglects to make the proper year-end adjustment for the expired insurance a. Net income and assets will be understated by $40,000 b. Net income and assets will be overstated by $40,000 c. Net income and assets will be understated by $8,000 d. Net income and assets will be overstated by $8,000 At March 1, 2007, CookieTime Inc. had supplies on hand of $1,500. During the month, Candy purchased supplies of $1,900 and used supplies of $1,800. The March 31 balance sheet should report what balance in the supplies account? a. $1,500 b. $1,600 c. $1,800 d. $1,900 154. 155. 156. 157. 158. 4-26 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition 159. Dorting Company purchased a computer system for $3,600 on January 1, 2006. The company expects to use the computer system for 3 years. It has no salvage value. Monthly depreciation expense on the asset is: a. $0 b. $100 c. $1,200 d. $3,600 Fleet Services Company purchased equipment for $5,000 on January 1, 2007. The company expects to use the equipment for 5 years. It has no salvage value. What balance would be reported on the December 21, 2007 balance sheet for Accumulated Depreciation? a. $0 because Accumulated Depreciation is reported on the Income Statement b. $1,000 c. $4,000 d. $5,000 Meyer Realty Company received a check for $21,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $21,000. Financial statements will be prepared on July 31. Meyer Realty should make the following adjusting entry on July 31: a. Debit Unearned Rent, $3,500; Credit Rental Revenue, $3,500. b. Debit Rental Revenue, $3,500; Credit Unearned Rent, $3,500. c. Debit Unearned Rent, $21,000; Credit Rental Revenue, $21,000. d. Debit Cash, $21,000; Credit Rental Revenue, $21,000. Maple Tree Inc. purchased a 12-month insurance policy on March 1, 2007 for $900. At March 31, 2007, the adjusting journal entry to record expiration of this asset will include a. a debit to Prepaid Insurance and a credit to Cash for $900. b. a debit to Prepaid Insurance and a credit to Insurance Expense for $100. c. a debit to Insurance Expense and a credit to Prepaid Insurance for $75 d. a debit to Insurance Expense and a credit to Cash for $75. Ogletree Enterprises purchased a.v 18-month insurance policy on May 31, 2007 for $3,600. The December 31, 2007 balance sheet would report Prepaid Insurance of a. $0 because Prepaid Insurance is reported on the Income Statement. b. $1,400 c. $2,200 d. $3,600 At March 1, J.C. Retro Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $750 and consumed supplies of $800. If no adjusting entry is made for supplies a. stockholders' equity will be overstated by $800. b. expenses will be understated by $750. c. assets will be understated by $150. d. net income will be understated by $800. 160. 161. 162. 163. 164. A Further Look at Financial Statements 4-27 165. FMI Inc. pays its rent of $120,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following are true a. Failure to make the adjustment does not affect the February financial statements. b. Expenses will be overstated by $10,000 and net income and stockholders' equity will be understated by $10,000. c. Assets will be overstated by $20,000 and net income and stockholders' equity will be understated by $20,000. d. Assets will be overstated by $10,000 and net income and stockholders' equity will be overstated by $10,000. On January 1, 2006, E.D. Reardon Inc. purchased equipment for $30,000. The company is depreciating the equipment at the rate of $400 per month. At January 31, 2007, the balance in Accumulated Depreciation is a. $400 debit b. $4,800 credit c. $5,200 credit d. $26,600 debit On January 1, 2007, M. Johnson Company purchased equipment for $30,000. The company is depreciating the equipment at the rate of $700 per month. The book value of the equipment at December 31, 2007 is a. $0 b. $8,400 c. $21,600 d. $30,000 The accounts of a business before an adjusting entry is made to record an accrued revenue reflect an a. understated liability and an overstated revenue. b. overstated asset and an understated revenue. c. understated expense and an overstated revenue. d. understated asset and an understated revenue. Adjustments for accrued revenues. a. increase assets and increase revenues. b. increase assets and increase liabilities. c. decrease assets and increase revenues. d. decrease liabilities and increase revenues. Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause a. net income to be understated. b. an overstatement of assets and an overstatement of liabilities. c. an understatement of expenses and an understatement of liabilities. d. an overstatement of expenses and an overstatement of liabilities. 166. 167. 168. 169. 170. 4-28 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition 171. Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause a. net income to be overstated. b. an understatement of assets and an understatement of revenues. c. an understatement of revenues and an understatement of liabilities. d. an understatement of revenues and an overstatement of liabilities. An adjusting entry made to record accrued interest on a note receivable due next year consists of a a. debit to Interest Expense and a credit to Interest Payable. b. debit to Interest Receivable and a credit to Interest Earned. c. debit to Interest Expense and a credit to Notes Payable. d. debit to Interest Expense and a credit to Cash. Draxon Company borrowed $20,000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be a. Debit Interest Expense, $1,200; Credit Interest Payable, $1,200. b. Debit Interest Expense, $100; Credit Interest Payable, $100. c. Debit Note Payable, $1,200; Credit Cash, $1,200. d. Debit Cash, $300; Credit Interest Payable, $300. Nacron Company borrowed $8,000 from the bank signing a 9%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be a. Debit Interest Expense, $60; Credit Interest Payable, $60. b. Debit Interest Expense, $720; Credit Interest Payable, $720. c. Debit Note Payable, $720; Credit Cash, $720. d. Debit Cash, $60; Credit Interest Payable, $60. Jane Richards has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Jane make? a. Debit Cash and credit Unearned Revenue b. Debit Accounts Receivable and credit Unearned Revenue c. Debit Accounts Receivable and credit Service Revenue d. Debit Unearned Revenue and credit Service Revenue Jane Richards, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will she make upon receipt of the payments? a. Debit Unearned Revenue and credit Service Revenue b. Debit Cash and credit Accounts Receivable c. Debit Accounts Receivable and credit Service Revenue d. Debit Cash and credit Service Revenue 172. 173. 174. 175. 176. A Further Look at Financial Statements 4-29 177. Ames Real Estate signed a four-month note payable in the amount of $12,000 on September 1. The note requires interest at an annual rate of 12%. The amount of interest to be accrued at the end of September is a. $480. b. $120. c. $1,440. d. $160. Nova Real Estate signed a four-month note payable in the amount of $6,000 on September 1. The note requires interest at an annual rate of 12%. The amount of interest to be accrued at the end of September is a. $720. b. $180. c. $60. d. $120. A gift shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $30,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest? a. Interest Expense ................................................................ 300 Interest Payable ........................................................ 300 b. Interest Expense ................................................................ 450 Interest Payable ........................................................ 450 c. Interest Expense ................................................................ 300 Cash ......................................................................... 300 d. Interest Expense ................................................................ 450 Note Payable ............................................................ 450 A Christmas shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on October 1 in the amount of $10,000 with annual interest of 9%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest? a. Interest Expense ................................................................ 75 Interest Payable ........................................................ 75 b. Interest Expense ................................................................ 150 Interest Payable ........................................................ 150 c. Interest Expense ................................................................ 225 Interest Payable ......................................................... 225 d. Interest Expense ................................................................ 900 Note Payable ............................................................ 900 178. 179. 180. 4-30 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition 181. Snell Tables paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (2931). Employees work 5 days a week and the company pays $900 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January? a. Wages Expense ................................................................ 900 Wages Payable ......................................................... 900 b. Wages Expense ................................................................ 4,500 Wages Payable ......................................................... 4,500 c. Wages Expense ................................................................ 2,700 Wages Payable ......................................................... 2,700 d. No adjusting entry is required. Alex Crown earned a salary of $500 for the last week of October. She will be paid on November 1. The adjusting entry for Alexs employer October 31 is: a. No entry is required. b. Salaries Expense................................................................ 500 Salary payable .......................................................... 500 c. Salaries Expense................................................................ 500 Cash .......................................................................... 500 d. Salaries Payable................................................................. 500 Cash .......................................................................... 500 At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true? a. Salary Expense for the year is overstated. b. Liabilities at the end of the year are understated. c. Assets at the end of the year are understated. d. Stockholders equity at the end of the year is understated. A company shows a balance in Salaries Payable of $40,000 at the end of the month. The next payroll amounting to $60,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries? a. Salaries Expense ............................................................... 60,000 Salaries Payable ....................................................... 60,000 b. Salaries Expense ............................................................... 60,000 Cash ......................................................................... 60,000 c. Salaries Expense ............................................................... 20,000 Cash ......................................................................... 20,000 d. Salaries Expense ............................................................... 20,000 Salaries Payable ................................................................ 40,000 Cash ......................................................................... 60,000 Manning Corporation issued a one-year 9% $200,000 note on April 30, 2007. Interest expense for the year ended December 31, 2007 was? a. $18,000 b. $13,500 c. $12,000 d. $10,500 182. 183. 184. 185. A Further Look at Financial Statements 4-31 186. Blue Corporation issued a one-year 12% $200,000 note on April 30, 2007. Interest expense for the year ended December 31, 2007 was? a. $24,000 b. $18,000 c. $16,000 d. $14,000 Employees at B Corporation are paid $5,000 cash every Friday for working Monday through Friday. The calendar year accounting period ends on Wednesday, December 31. How much salary expense should be recorded two days later on January 2? a. $5,000 b. $3,000 c. None, matching requires the weekly salary to be accrued on December 31. d. $2,000 An adjusted trial balance a. is prepared after the financial statements are completed. b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made. c. is a required financial statement under generally accepted accounting principles. d. cannot be used to prepare financial statements. Which of the statements below is not true? a. An adjusted trial balance should show ledger account balances. b. An adjusted trial balance can be used to prepare financial statements. c. An adjusted trial balance proves the mathematical equality of debits and credits in the ledger. d. An adjusted trial balance is prepared before all transactions have been journalized. Which statement is incorrect concerning the adjusted trial balance? a. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. b. The adjusted trial balance provides the primary basis for the preparation of financial statements. c. The adjusted trial balance lists the account balances in order of their magnitude. d. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted. Can financial statements be prepared directly from the adjusted trial balance? a. They cannot. The general ledger must be used. b. Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts. c. No, the adjusted trial balance merely proves the equality of the total debit and total credit balances in the ledger after adjustments are posted. It has no other purpose. d. They can because that is the only reason that an adjusted trial balance is prepared. 187. 188. 189. 190. 191. 4-32 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Use the following information to answer questions 192-193. Given the following adjusted trial balance: Debit Cash Accounts receivable Inventory Prepaid rent Property, plant & equipment Accumulated depreciation Accounts payable Unearned revenue Common stock Retained earnings Service revenue Interest revenue Salary expense Travel expense Total 192. Net income for the year is: a. $48 b. $220 c. $274 d. $446 Credit $1,562 2,098 3,124 86 300 52 82 172 206 6,610 218 56 160 66 _____ $7,396 _____ $7,396 193. After closing entries have been posted, the balance in retained earnings will be: a. $6,390 b. $6,562 c. $6,830 d. $6,658 Use the following information to answer questions 194-195. Given the following adjusted trial balance: Debit Cash Accounts receivable Inventory Prepaid rent Property, plant & equipment Accumulated depreciation Accounts payable Unearned revenue Common stock Retained earnings Service revenue Interest revenue Salary expense Travel expense Total $781 1,049 1,562 43 150 Credit 26 41 86 103 3,305 109 28 80 33 _____ $3,698 _____ $3,698 A Further Look at Financial Statements 4-33 194. Net income for the year is: a. $24 b. $110 c. $137 d. $223 After closing entries have been posted, the balance in retained earnings will be: a. $3,195 b. $3,281 c. $3,415 d. $3,329 Closing entries a. are prepared before the financial statements. b. reduce the number of permanent accounts. c. cause the revenue and expense accounts to have zero balances. d. summarize the activity in every account. Which of the following is a true statement about closing the books of a corporation? a. Expenses are closed to the Expense Summary account. b. Only revenues are closed to the Income Summary account. c. Revenues and expenses are closed to the Income Summary account. d. Revenues, expenses, and the Dividends account are closed to the Income Summary account. The closing entry process consists of closing a. all asset and liability accounts. b. out the Retained Earnings account. c. all permanent accounts. d. all temporary accounts. Which account will have a zero balance after closing entries have been journalized and posted? a. Service revenue. b. Advertising Supplies. c. Prepaid Insurance. d. Accumulated Depreciation. A post-closing trial balance will show a. zero balances for all accounts. b. zero balances for balance sheet accounts. c. only balance sheet accounts. d. only income statement accounts. 195. 196. 197. 198. 199. 200. 4-34 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition 201. Which types of accounts will appear in the post-closing trial balance? a. Permanent accounts. b. Temporary accounts. c. Accounts shown in the income statement columns of a work sheet. d. None of the above. The purpose of the post-closing trial balance is to a. prove that no mistakes were made. b. prove the equality of the permanent account balances that are carried forward into the next accounting period. c. prove the equality of the temporary account balances that are carried forward into the next accounting period. d. list all the balance sheet accounts in alphabetical order for easy reference. Which statement is correct concerning the adjusted trial balance? a. An adjusted trail balance eliminates the need for the preparation of financial statements. b. The purpose of an adjusted trial balance is to prove the equality of the total debit balances and the total credit balances in the ledger. c. An adjusted trial balance will contain only permanentbalance sheetaccounts. d. The adjusted trial balance is prepared after the adjusting entries have been journalized but before they have been posted. The final step in the accounting cycle is to prepare a. closing entries. b. financial statements. c. a post-closing trial balance. d. adjusting entries. All of the following are required steps in the accounting cycle except: a. journalizing and posting closing entries. b. preparing an adjusted trial balance. c. preparing a post-closing trial balance. d. preparing a work sheet. 202. 203. 204. 205. Use the following information from the Income Statement of the Dirt Poor Laundry Service to answer questions 206 through 208: __________________________________________________________________________ Revenues Laundry Service Revenues ........................................................ $4,500 Expenses Wages expense ......................................................................... $ 950 Advertising expense ................................................................... 500 Rent expense ............................................................................. 300 Supplies expense ....................................................................... Insurance 200 expense ..................................................................... 100 Total expenses ........................................................................... 2,050 Net Income ......................................................................................... $2,450 A Further Look at Financial Statements 4-35 206. The entry to close the Laundry Service Revenue account includes a a. debit to Laundry Service Revenue for $4,500. b. credit to Laundry Service Revenue for $4,500. c. debit to Income Summary for $4,500. d. debit to Retained Earnings for $4,500. The entry to close the expense accounts includes a a. credit to Income Summary for $2,050. b. debit to Income Summary for $2,050. c. debit to Wages Expense for $950. d. credit to Retained Earnings for $2,050. The entry to close the Income Summary includes a a. credit to Income Summary for $2,450. b. debit to Income Summary for $2,450. c. debit to Retained Earnings for $2,450. d. credit to Common Stock for $2,450. The first required step in the accounting cycle is a. adjusting entries. b. journalizing transactions. c. analyzing transactions. d. posting transactions. The accounts receivable account has a beginning balance of $52,000 and an ending balance of $74,000. If $32,000 was sold on account during the year, what were the total collections on account? a. $10,000 b. $54,000 c. $84,000 d. $94,000 207. 208. 209. 210. 4-36 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Answers to Multiple Choice Questions 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. d a a d b a a b c b a c b d c a b a b c c a c 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. b b b a d a d c c d d b d b a a d c b b c c c 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. b d d d a c a c a a c a d d c c d a c d b d b 123. 124 125 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. a a b a c d b c d d c b d a b a c c a d c c c 146. 147. 148. 149. 150. 151. 152. 153. 154. 155. 156. 157. 158. 159. 160 161. 162. 163. 164. 165. 166. 167. 168. c d c d c b a c b b b b b b b a c c a d c c d 169. 170. 171. 172. 173. 174. 175. 176. 177. 178. 179. 180. 181. 182. 183. 184. 185. 186. 187. 188. 189. 190. 191. a c b b b a c b b c a c c b b d c c d b d c b 192. 193. 194. 195. 196. 197. 198. 199. 200. 201. 202. 203. 204. 205. 206. 207. 208. 209. 210. a d a d c c d a c a b b c d a b b c a A Further Look at Financial Statements 4-37 BRIEF EXERCISES Be. 211 Identify the effect, if any, that each of the following transactions would have upon cash and retained earnings. Show the dollar amount and the effect (+, , N). Retained _Cash__ Earnings 1. 2. 3. 4. 5. Purchases capital asset for $3,000 Purchased $200 of supplies for cash Recorded an adjusting entry to record use of $110 of the above supplies. Received $600 from customers in payment of their accounts Recorded depreciation of equipment for period used, $900. (5 min.) _Cash__ 1. 2. 3. 4. 5. Purchases capital asset for $3,000 Purchased $200 of supplies for cash Recorded an adjusting entry to record use of $110 of the above supplies. Received $600 from customers in payment of their accounts Recorded depreciation of equipment for period used, $900. $-3,000_ $ -_200 ___N__ $ + 600 _N _ Retained Earnings __ N__ __ N _ $ -110_ __N__ $ - 900_ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ Solution 211 Be. 212 Before month-end adjustments are made, the February 28 trial balance of Boses Enterprise contains revenue of $11,000 and expenses of $7,600. Adjustments are necessary for the following items: Depreciation for February is $1,200. Revenue earned but not yet billed is $2,800. Accrued interest expense is $800. Revenue collected in advance that is now earned is $2,500. Portion of prepaid insurance expired during February is $500. Instructions Calculate the correct net income for Bose's Enterprise for February 3. 4-38 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Solution 212 (5 min.) $ 3,400 $2,500 2,800 1,200 800 500 5,300 8,700 Net Income before Adjustments ($11,000 7,600) Add: Unearned Revenues Accrued Revenues Subtract: Depreciation Expense Interest Expense Insurance Expense Net Income after Adjustments Be. 213 2,500 $ 6,200 Before month-end adjustments are made, the September 30 trial balance of Lector's Enterprise contains revenue of $9,200 and expenses of $5,300. Adjustments are necessary for the following items: Depreciation for September is $300. Revenue earned but not yet billed is $2,100. Accrued interest expense is $600. Revenue collected in advance that is now earned is $3,400. Portion of prepaid insurance expired during September is $300. Instructions Calculate the correct net income for Lectors enterprise for September. Solution 213 Add: (5 min.) $ 3,900 $3,400 2,100 300 600 300 5,500 9,400 Unearned Revenues Accrued Revenues Net Income before Adjustments ($9,200 5,300) Subtract: Depreciation Expense Interest Expense Insurance Expense Net Income after Adjustments 1,200 $ 8,200 A Further Look at Financial Statements 4-39 Be. 214 For each of the following oversights, state whether total assets will be understated (U), overstated (O), or no affect (NA). _____ _____ _____ _____ _____ _____ 1. 2. 3. 4. 5. 6. Failure to record revenue earned but not yet received. Failure to record expired prepaid rent. Failure to record accrued interest on the bank savings account. Failure to record depreciation. Failure to record accrued wages. Failure to recognize the earned portion of unearned revenues. (5 min.) Solution 214 1. 2. 3. 4. 5. 6. U O U O NA NA Be. 215 State whether each situation is a prepaid expense (PE), unearned revenue (UR), accrued revenue (AR) or an accrued expense (AE). 1. 2. 3. 4. 5. Unrecorded interest on savings bonds is $245. Property taxes that have been incurred but that have not yet been paid or recorded amount to $300. Legal fees of $1,000 were collected in advance. By year end 60 percent were still unearned. Prepaid insurance had a $500 balance prior to adjustment. By year end, 40 percent was still unexpired. Unpaid salaries earned by year end but not yet paid or recorded amounted to $1,200. (5 min.) Solution 215 1. 2. 3. 4. 5. AR AE UR PE AE 4-40 Be. 216 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Identify the impact on the balance sheet if the following information is not used to adjust the accounts. 1. 2. 3. 4. Supplies consumed totalled $3,000. Interest accrues on notes payable at the rate of $200 per month. Insurance of $450 expired during the month. Plant and equipment are depreciated at the rate of $1,200 per month. Solution 216 1. 2. 3. 4. Assets overstated and Stockholders' Equity overstated by $3,000. Liabilities understated and Stockholders' Equity overstated by $200. Assets overstated and Stockholders' Equity overstated by $450. Assets overstated and Stockholders' Equity overstated by $1,200. Be. 217 On January 1, the Biddle & Biddle, CPAs received a $9,000 cash retainer for legal services to be rendered ratably over the next 3 months. The full amount was credited to the liability account Unearned Revenue. Assuming that the revenue is earned ratably over the 3 month period, what adjusting journal entry should be made at January 31? Solution Unearned Revenue Fees Earned Be. 218 On February 1, the Acts Tax Service received a $2,000 cash retainer for tax preparation services to be rendered ratably over the next 4 months. The full amount was credited to the liability account Unearned Revenue. Assuming that the revenue is earned ratably over the 4 month period, what balance would be reported on the February 28 balance sheet for Unearned Revenue? Solution Revenue earned monthly = $2,000/ 4 months = $500 per month Feb 28 balance in Unearned Revenue = $2,000 $500 revenue earned in February = $1,500 Be. 219 Better Publications, sold annual subscriptions to their magazine for $24,000 in December, 2006. The magazine is published monthly. The new subscribers received their first magazine in January, 2007. 1. What adjusting entry should be made in January if the subscriptions were originally recorded as a liability? 3,000 3,000 A Further Look at Financial Statements 4-41 2. What amount will be reported on the January 2007 balance sheet for Unearned Revenue? Solution 219 1. 2. Unearned Revenue 2,000 Subscription Revenue Unearned Revenue at January 31: 24,000 - 2,000 = $22,000 2,000 Be. 220 River Ridge Music School borrowed $20,000 from the bank signing a 10%, 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)? Solution 220 Interest Expense (20,000 10% 1/12 Interest Payable Be. 221 Match the statements below with the appropriate terms by entering the appropriate letter code in the spaces provided. TERMS: A. Prepaid Expenses B. Unearned Revenues C. Accrued Revenues D. Accrued Expenses STATEMENTS: ____ 1. A revenue not yet earned; collected in advance. ____ 2. An expense incurred; not yet paid or recorded. ____ 3. A revenue earned; not yet collected or recorded. ____ 4. An expense not yet incurred; paid in advance. Solution 221 1. 2. 3. 4. B D C A (5 min.) 167 167 4-42 Be. 222 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Prepare adjusting entries for the following transactions. Omit explanations. 1. 2. 3. Depreciation on equipment is $800 for the accounting period. There was no beginning balance of supplies and purchased $500 of office supplies during the period. At the end of the period $80 of supplies were on hand. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $600 was unexpired. (5 min.) 800 800 420 420 400 400 Solution 222 1. Depreciation Expense ................................................................... Accumulated DepreciationEquipment ............................... 2. Supplies Expense ......................................................................... Supplies ............................................................................... ($500 $80) 3. Rent Expense ............................................................................... Prepaid Rent ........................................................................ ($1,000 $600) Be. 223 Prepare adjusting entries for the following transactions. Omit explanations. 1. 2. 3. Unrecorded interest accrued on savings bonds is $250. Property taxes incurred but not paid or recorded amount to $900. Salaries incurred by year end but not yet paid or recorded amounted to $750. (5 min.) 250 250 900 900 750 750 Solution 223 1. Interest Receivable ...................................................................... Interest Revenue ................................................................... 2. Property Taxes Expense ............................................................... Property Taxes Payable ....................................................... 5. Salaries Expense .......................................................................... Salaries Payable ................................................................... Be. 224 The adjusted trial balance of Jesper Corporation at December 31,2007 includes the following accounts: Retained Earnings $12,600; Dividends $6,000; Service Revenue $35,000; Salaries Expense $13,000; Insurance Expense $2,000; Rent Expense $3,500; Supplies Expense $500; and Depreciation Expense $1,000. Prepare an income statement for the year ended December 31, 2007. A Further Look at Financial Statements 4-43 Solution 224 (5 min.) JESPER CORPORATION Income Statement For the Year Ended December 31, 2007 ___________________________________________________________________________ Revenues Service Revenue Expenses Salaries Expense Rent Expense Insurance Expense Depreciation Expense Supplies Expense Total Expenses Net Income Be. 225 The adjusted trial balance of Jesper Corporation at December 31,2007 includes the following accounts: Retained Earnings $12,600; Dividends $6,000; Service Revenue $35,000; Salaries Expense $13,000; Insurance Expense $2,000; Rent Expense $3,500; Supplies Expense $500; and Depreciation Expense $1,000. Prepare a retained earnings statement for the year. Solution 225 (5 min.) $ 35,000 $13,000 3,500 2,000 1,000 500 20,000 $15,000 JESPER CORPORATION Retained Earnings Statement For the Year Ended December 31, 2007 ___________________________________________________________________________ Retained Earnings, January 1 Plus: Net Income Less: Dividends Retained Earnings, December 31 $12,600 15,000 27,600 6,000 $21,600 4-44 Be. 226 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition The following selected accounts appear in the adjusted trial balance for Bender Company. Identify the accounts that would be included in the post-closing trial balance. 1. 2. 3. 4. Accumulated Depreciation Depreciation Expense Retained Earnings Dividends (5 min.) 5. 6. 7. Supplies Accounts Payable Service Revenue Solution 226 The following are accounts that would be included in the post-closing trial balance. 1. 3. 5. 6. Accumulated Depreciation Retained Earnings Supplies Accounts Payable EXERCISES Ex. 227 The balance sheets of Pale Company include the following: Interest Receivable Supplies Wages Payable Unearned Service Revenue The income statement for 2007 shows the following: Interest Revenue Service Revenue Supplies Expense Wages Expense Instructions Calculate the following for 2007: 1. Cash received for interest. 2. Cash paid for supplies. 3. Cash paid for wages. 4. Cash received for service revenue. Solution 227 (15 min.) $ 10,200 $15,500 5,300 $ 10,200 12/31/07 $5,300 5,000 3,700 -0$15,500 75,700 10,700 39,000 12/31/06 $ -03,400 3,800 4,000 1. Cash received for interest = Interest Revenue Less: Interest Receivable Cash Received A Further Look at Financial Statements 4-45 2. Cash paid for supplies = Supplies Expense Less: Supplies (2006) Add: Supplies (2007) Cash Paid 3. Cash paid for wages = Wages Expense Add: Wages Payable (2006) Less: Wages Payable (2007) Cash Paid 4. Cash received for service revenue = Service Revenue Less: Unearned Service Revenue (2006) Cash Received Ex. 228 $12,300 $10,700 3,400 7,300 5,000 $12,300 $39,100 $39,000 3,800 42,800 3,700 $39,100 $71,700 $75,700 4,000 $71,700 The 2007 income statement for Moring Company showed rent expense of $6,500 and wages expense of $7,600. The related balance sheet account balance at year-end last year and this year were as follows: 2006 2007 Prepaid Rent $900 $300 Wages Payable 500 400 Calculate the following for 2007: 1. Cash paid for rent. 2. Cash paid for wages. Solution 228 (10 min.) $7,100 $6,500 300 6,200 900 $7,100 $7,500 $7,600 400 8,000 500 $7,500 1. Cash paid for rent = Rent Expense Less: Prepaid rent (2006) Add: Prepaid rent (2007) Cash Paid 2. Cash paid for wages = Wages Expense Add: Wages Payable (2006) Less: Wages Payable (2007) Cash Paid 4-46 Ex. 229 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition The Larson Company prepared the following income statement using the cash basis of accounting: THE LARSON COMPANY Income Statement, Cash Basis For the Year Ended December 31, 2007 Service revenue (does not include $40,000 of services rendered on account because the collection will not be until 2008) ................................................... Expenses (does not include $15,000 of expenses on account because payment will not be made until 2008) .............................................................. Net income ........................................................................................................... Additional data: 1. Depreciation on a company automobile for the year amounted to $7,000. This amount is not included in the expenses above. 2. On January 1, 2007, paid for a two-year insurance policy on the automobile amounting to $1,600. This amount is included in the expenses above. Instructions (a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change. (b) Explain which basis (cash or accrual) provides a better measure of income. (15 min.) $380,000 220,000 $160,000 Solution 229 (a) THE LARSON COMPANY Income Statement For the Year Ended December 31, 2007 Service revenue ............................................................................................. Expenses ....................................................................................................... Net income .................................................................................................... $420,000 241,200 $178,800 Service revenue should include the $40,000 for services performed on account. The accrual basis states that revenue is reflected in the period when the service is performed. ($380,000 + $40,000 = $420,000). Expenses should include the $15,000 for expenses incurred but not yet paid. The accrual basis states that expenses should be reflected in the period when incurred. Expenses also should only include half of the $1,600 insurance premium since $800 applies to 2007. The other $800 is an asset and should be reflected on the balance sheet as prepaid insurance. The $7,000 of depreciation for the automobile is included as an expense in 2007. ($220,000 + $15,000 $800 + $7,000 = $241,200). (b) The accrual basis of accounting provides a better measure of income than the cash basis. The accrual basis is required under generally accepted accounting principles and recognizes revenues when earned and expenses when incurred. Revenues and expenses recognized under the accrual basis are related to the economic environment in which they occur and thus allow trends to be more meaningfully interpreted. The cash basis often fails to recognize revenue in the period when earned and expenses when A Further Look at Financial Statements 4-47 incurred. Additionally, expenses are not matched with revenues when earned; therefore, the matching principle is violated. Ex. 230 On December 31, 2007, Polski Company prepared an income statement and balance sheet and failed to take into account three adjusting entries. The incorrect income statement showed net income of $40,000. The balance sheet showed total assets, $130,000; total liabilities, $60,000; and stockholders equity, $70,000. The data for the three adjusting entries were: (1) (2) (3) Depreciation of $9,000 was not recorded on equipment. Wages amounting to $10,000 for the last two days in December were not paid and not recorded. The next payroll will be in January. Rent of $7,000 was paid for two months in advance on December 1. The entire amount was debited to Prepaid Rent when paid. Instructions Complete the following tabulation to correct the financial statement amounts shown (indicate deductions with parentheses): Item Incorrect balances Effects of: Depreciation W ages Rent Correct Balances Solution 230 (10 min.) Net Income $40,000 (9,000) (10,000) (3,500) $17,500 Total Assets $130,000 (9,000) 10,000 (3,500) $117,500 $70,000 Total Liabilities Stockholders Equity $60,000 $70,000 (9,000) (10,000) (3,500) $47,500 Net Income $ 40,000 Total Assets $130,000 Total Liabilities Stockholders Equity $ 60,000 $ 70,000 Item Incorrect balances Effects of: Depreciation Wages Rent Correct Balances Ex. 231 The Upton Company accumulates the following adjustment data at December 31. 1. Revenue of $1,100 collected in advance has been earned. 2. Salaries of $600 are unpaid. 4-48 3. 4. 5. 6. 7. Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Prepaid rent totaling $450 has expired. Supplies of $550 have been used. Revenue earned but unbilled totals $750. Utility expenses of $300 are unpaid. 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 $21,500. What is the adjusted net income? Prepare your answer in the tabular form presented below. Account Balances Before Adjustment (Understatement or Overstatement) Income Effect Increase (Decrease) Type of Adjustment Solution 231 (a) Account Relationship (20 min.) Adjusting Entry Type of Account Relationship Adjustment 1. Unearned revenue L/R 2. Accrued expense 3. Prepaid expense 4. Prepaid expense 5. Accrued revenue 6. Accrued expense 7. Accrued expense Codes: A = L= Asset Liability E/L E/A E/A A/R E/L E/L Account Balances Before Adjustment (Understatement or Overstatement) Liab. O Rev. U Exp. U Liab. U Exp. U Asset O Exp. U Asset O Asset U Rev. U Exp. U Liab. U Exp. U Liab. U R= O= Adjusting Entry Unearned Revenue Service Revenue Salary Expense Salaries Payable Rent Expense Prepaid Rent Supplies Expense Supplies Income Effect Increase (Decrease) 1,100 (600) (450) (550) 750 (300) (250) Accounts Receivable Service Revenue Utilities Expense Accounts Payable Interest Expense Interest Payable Revenue Overstatement A Further Look at Financial Statements 4-49 E= Expense U= Understatement 4-50 (b) Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Net income before adjustments .................................................. Add: Unearned revenue (1) ..................................................... Accrued revenue (5) ....................................................... Less: Accrued salaries (2) ........................................................ Prepaid rent expired (3) .................................................. Supplies used (4) ............................................................ Accrued utilities (6) ......................................................... Accrued interest (7) ........................................................ Adjusted net income ................................................................... $21,500 $1,100 750 600 450 550 300 250 1,850 23,350 2,150 $21,200 Ex. 232 The adjusted trial balance of Masters Company includes the following balance sheet accounts that frequently require adjustment. For each account, indicate (a) the type of adjusting entry (prepaid expenses, unearned revenues, accrued revenues, or accrued expenses) and (b) the related account in the adjusting entry. (a) (b) Type of Adjusting Entry Related Account Balance Sheet Account 1. Supplies 2. Accounts Receivable 3. Prepaid Insurance 4. Accumulated Depreciation Equipment 5. Interest Payable 6. Salaries Payable 7. Unearned Service Revenue Solution 232 (10 min)(cont.) (a) Type of Adjusting Entry Prepaid Expense Accrued Revenue Prepaid Expense Prepaid Expense Accrued Expense Accrued Expense Unearned Revenue (b) Related Account Supplies Expense Service Revenue Insurance Expense Depreciation Expense Interest Expense Salaries Expense Service Revenue Balance Sheet Account 1. Supplies 2. Accounts Receivable 3. Prepaid Insurance 4. Accumulated Depreciation Equipment 5. Interest Payable 6. Salaries Payable 7. Unearned Service Revenue A Further Look at Financial Statements 4-51 Ex. 233 Match the statements below with the appropriate terms by entering the appropriate letter code in the spaces provided. TERMS: A. Prepaid Expenses B. Unearned Revenues C. Accrued Revenues D. Accrued Expenses STATEMENTS: ____ 1. A revenue not yet earned; collected in advance. ____ 2. Office supplies on hand that will be used in the next period. ____ 3. Interest revenue collected; not yet earned. ____ 4. Rent not yet collected; already earned. ____ 5. An expense incurred; not yet paid or recorded. ____ 6. A revenue earned; not yet collected or recorded. ____ 7. An expense not yet incurred; paid in advance. ____ 8. Interest expense incurred; not yet paid. Solution 233 1. 2. 3. 4. 5. 6. 7. 8. B A B C D C A D (5 min.) Ex. 234 The Runners, a semi-professional baseball team, prepare financial statements on a monthly basis. Their season begins in April, but in March the team engaged in the following transactions: (a) (b) Paid $120,000 to Brookmire City as advance rent for use of Brookmire City Stadium for the sixmonth period April 1 through September 30. Collected $600,000 cash from sales of season tickets for the team's 20 home games. This amount was credited to Unearned Ticket Revenue. During the month of April, the Runners played four home games and five road games. 4-52 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Instructions Prepare the adjusting entries required at April 30 for the transactions above. Solution 234 (5 min.) 20,000 20,000 (a) Rent Expense .............................................................................. Prepaid Rent ..................................................................... ($120,000 6 = $20,000) (b) Unearned Ticket Revenue ........................................................... Ticket Revenue ................................................................. ($600,000 20 = $30,000; $30,000 4 = $120,000) Ex. 235 120,000 120,000 Prepare adjusting entries for the following transactions. Omit explanations. 1. 2. 3. 4. 5. Depreciation on equipment is $1,040 for the accounting period. Interest owed on a loan but not paid or recorded is $175. There was no beginning balance of supplies and $350 of office supplies were purchased during the period. At the end of the period $100 of supplies were on hand. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $700 had expired. Accrued salaries at the end of the period amounted to $900. (10 min.) 1,040 1,040 175 175 250 250 700 700 900 900 Solution 235 1. Depreciation Expense ................................................................... Accumulated DepreciationEquipment ............................... 2. Interest Expense ........................................................................... Interest Payable ................................................................... 3. Supplies Expense ......................................................................... Supplies ............................................................................... ($350 $100) 4. Rent Expense ............................................................................... Prepaid Rent ........................................................................ 5. Salaries Expense ....................................................................... Salaries Payable .................................................................... Ex. 236 Prepare adjusting entries for the following transactions. Omit explanations. 1. 2. Unrecorded interest accrued on savings bonds is $510. Property taxes incurred but not paid or recorded amount to $800. A Further Look at Financial Statements 4-53 3. 4. 5. Legal service revenues of $4,000 were collected in advance. By year end $600 was still unearned. Prepaid insurance had a $400 debit balance prior to adjustment. By year end, 60 percent was still unexpired. Salaries incurred by year end but not yet paid or recorded amounted to $650. (10 min.) 510 510 800 800 3,400 3,400 160 160 650 650 Solution 236 1. Interest Receivable ...................................................................... Interest Revenue ................................................................... 2. Property Taxes Expense ............................................................... Property Taxes Payable ....................................................... 3. Unearned Legal Services Revenues .............................................. Legal Revenues .................................................................... ($4,000 $600) 4. Insurance Expense ....................................................................... Prepaid Insurance ................................................................. ($400 x .40) 5. Salaries Expense .......................................................................... Salaries Payable .................................................................... Ex. 237 Prepare year-end adjustments for the following transactions. Omit explanations. 1. 2. 3. 4. 5. 6. 7. Accrued interest on notes receivable is $45. $1,000 of unearned revenues have been earned. Three years rent, totaling $48,000, was paid in advance at the beginning of the year. Services totaling $2,900 had been performed but not yet billed at the end of the year. Depreciation on equipment totaled $6,500 for the year. Supplies purchased totaled $850. By year end, only $175 of supplies remained. Salaries owed to employees at the end of the year total $960 (10 min.) 45 45 1,000 1,000 16,000 16,000 Solution 237 1. Interest Receivable ...................................................................... Interest Revenue ................................................................... 2. Unearned Revenues ...................................................................... Revenues ............................................................................. 3. Rent Expense .............................................................................. Prepaid Rent ........................................................................ ($48,000 3 = $16,000) Accounts Receivable................................................................... 4. 2,900 4-54 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Services Revenue................................................................. 5. Depreciation ExpenseEquipment ............................................. Accumulated DepreciationEquipment ............................... 6,500 2,900 6,500 A Further Look at Financial Statements 4-55 6. Supplies Expense ......................................................................... Supplies ................................................................................ ($850 $175) 7. Salaries Expense ......................................................................... Salaries Payable ................................................................ 675 675 960 960 Ex. 238 Banes Coat Company purchased a delivery truck on June 1 for $18,000, paying $8,000 cash and signing a 6%, 2-month note for the remaining balance. The truck is expected to depreciate $3,600 each year. Banes Coat Company prepares monthly financial statements. Instructions (a) (b) (c) Prepare the general journal entry to record the acquisition of the delivery truck on June 1 . Prepare any adjusting journal entries that should be made on June 30 . Show how the delivery truck will be reflected on Banes Coat Company's balance sheet on June th 30 . (10 min.) 18,000 8,000 10,000 th st Solution 238 (a) June 1 Delivery Truck .............................................................. Cash ................................................................... Notes Payable ..................................................... (To record acquisition of delivery truck and signing of a 2-month, 6% note) (b) June 30 Depreciation Expense - Delivery Truck ........................ Accumulated DepreciationDelivery Truck ........ (To record monthly depreciation) $3,600 12 = $300/month 30 Interest Expense .......................................................... Interest Payable .................................................. (To accrue interest on notes payable) $10,000 6% 1/12 = $50 (c) Assets Delivery Truck Less: Accumulated DepreciationDelivery Truck 300 300 50 50 $18,000 300 $17,700 4-56 Ex. 239 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition The Marson Company prepares monthly financial statements. Below are listed some selected accounts and their balances on the September 30 trial balance before any adjustments have been made for the month of September. MARSON COMPANY Trial Balance (Selected Accounts) September 30, 2007 __________________________________________________________________________ Office Supplies .................................................................................... Prepaid Insurance ............................................................................... Office Equipment ................................................................................ Accumulated DepreciationOffice Equipment ................................... Unearned Rent Revenue .................................................................... Debit $ 2,700 5,250 16,200 Credit $ 900 1,200 (Note: Debit column does not equal credit column because this is a partial listing of selected account balances.) An analysis of the account balances by the company's accountant provided the following additional information: 1. A physical count of office supplies revealed $1,200 on hand on September 30. 2. A two-year life insurance policy was purchased on June 1 for $6,000. 3. Office equipment depreciates $3,600 per year. 4. The amount of rent received in advance that remains unearned at September 30 is $700. Instructions Using the information given, prepare the adjusting entries that should be made by the Marson Company on September 30. Solution 239 (10 min.) 1. Office Supplies Expense ............................................................... 1,500 Office Supplies ..................................................................... (To record the amount of office supplies used $2,700 1,200) 2. Insurance Expense ....................................................................... Prepaid Insurance ................................................................ (To record insurance expired $6,000 24) 3. Depreciation Expense Office Equipment .................................... Accumulated DepreciationOffice Equipment ..................... (To record monthly depreciation $3,600 12) 4. Unearned Rent Revenue ............................................................... Rent Revenue ...................................................................... 250 1,500 250 300 300 500 500 A Further Look at Financial Statements 4-57 (To record rent revenue earned $1,200 $700) Ex. 240 Prepare the required end-of-period adjusting entries for each independent case listed below. Case 1 The Thomas Company began the year with a $3,000 balance in the Office Supplies account. During the year, $8,500 of additional office supplies were purchased. A physical count of office supplies on hand at the end of the year revealed that $8,300 worth of office supplies had been used during the year. No adjusting entry has been made until year end. Case 2 The Carson Company has a calendar year-end accounting period. On July 1, the company purchased office equipment for $28,800. It is estimated that the office equipment will depreciate $240 each month. No adjusting entry has been made until year end. Case 3 Yates Realty is in the business of renting several apartment buildings and prepares monthly financial statements. It has been determined that 2 tenants in $600 per month apartments and one st tenant in the $1,000 per month apartment had not paid their December rent as of December 31 . Solution 240 (10 min.) Case 1December 31 Office Supplies Expense .................................................. Office Supplies ..................................................... (To record office supplies used during the year) Case 2December 31 Depreciation Expense-Office Equipment .......................... Accumulated DepreciationOffice Equipment ...... (To record depreciation expense for six months) $240 6 months = $1,440 Depreciation Case 3December 31 Rent Receivable ............................................................... Rent Revenue ....................................................... (To accrue rent earned but not yet received) [(2 x $600) + $1,000)] 8,300 8,300 1,440 1,440 2,200 2,200 4-58 Ex. 241 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition The Speedway Insurance Agency prepares monthly financial statements. Presented below is an income statement for the month of June that is correct on the basis of information considered. SPEEDWAY INSURANCE AGENCY Income Statement For the Month Ended June 30 __________________________________________________________________________ Revenues Premium Commission Revenues ............................................... $40,000 Expenses Salary Expense .......................................................................... $12,000 Advertising Expense ................................................................... 800 Rent Expense ............................................................................. 4,200 Depreciation Expense ................................................................ 2,800 Total Expenses .......................................................................... 19,800 Net Income ......................................................................................... $20,200 Additional Data: When the income statement was prepared, the company accountant neglected to take into consideration the following information: 1. A utility bill for $1,200 was received on the last day of the month for electric and gas service for the month of June. 2. A company insurance salesman sold a life insurance policy to a client for a premium of $28,000. The agency billed the client for the policy and is entitled to a commission of 20%. 3. Supplies on hand at the beginning of the month were $2,000. The agency purchased additional supplies during the month for $1,500 in cash and $2,200 of supplies were on hand at June 30. 4. The agency purchased a new car at the beginning of the month for $18,000 cash. The car will depreciate $4,500 per year. 5. Salaries owed to employees at the end of the month total $5,300. The salaries will be paid on July 5. Instructions Prepare a corrected income statement. A Further Look at Financial Statements 4-59 Solution 241 (15 min.) SPEEDWAY INSURANCE AGENCY Income Statement For the Month Ended June 30 ___________________________________________________________________________ Revenues Premium Commission Revenues ($40,000 + $5,600) ................. $45,600 Expenses Salary Expense ($12,000 + $5,300) ........................................... $17,300 Advertising Expense ................................................................... 800 Rent Expense ............................................................................. 4,200 Depreciation Expense ($2,800 + $375) ...................................... 3,175 Utilities Expense ($0 + $1,200) ................................................... 1,200 Supplies Expense ($0 + $1,300) ................................................ 1,300 Total expenses .................................................................. 27,975 Net Income ......................................................................................... $17,625 Ex. 242 One part of an adjusting entry is given below. Instructions Indicate the account title for the other part of the entry. 1. Unearned Service Revenue is debited. 2. Prepaid Rent is credited. 3. Accounts Receivable is debited. 4. Depreciation Expense is debited. 5. Utilities Expense is debited. 6. Interest Payable is credited. 7. Service Revenue is credited (give two possible debit accounts). 8. Interest Receivable is debited. Solution 242 1. 2. 3. 4. (5 min.) 5. 6. 7. 8. Utilities Payable Interest Expense Accounts Receivable or Unearned Service Revenue Interest Revenue Service Revenue Rent Expense Service Revenue Accumulated Depreciation 4-60 Ex. 243 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition The following ledger accounts are used by the Runway Race Track: Accounts Receivable Prepaid Printing Prepaid Rent Unearned Admissions Revenue Admissions Revenue Concessions Revenue Printing Expense Rent Expense Instructions For each of the following transactions below, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on November 30, the end of the fiscal year. (a) (b) (c) (d) (e) On November 1, paid rent on the track facility for three months, $105,000. On November 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totaled $900,000. On November 1, borrowed $150,000 from First National Bank by issuing a 6% note payable due in three months. On November 5, schedules for 20 racing days in November, 25 racing days in December and 15 racing days in January were printed for $3,000. The accountant for the concessions company reported that gross receipts for November were $140,000. Ten percent is due to Runway and will be remitted by December 10. (15 min.) 105,000 105,000 35,000 35,000 Solution 243 (a) Journal Entry Prepaid Rent ........................................................................ Cash ............................................................................ Adjusting Entry Rent Expense ....................................................................... Prepaid Rent ................................................................ ($105,000 $35 (b) Journal Entry Cash ..................................................................................... Unearned Admissions Revenue.................................... Adjusting Entry Unearned Admissions Revenue ........................................... Admissions Revenue ................................................... ($900,000 12 = $75,000) 900,000 900,000 75,000 75,000 A Further Look at Financial Statements 4-61 Solution 243 (cont.) (c) Journal Entry Cash ..................................................................................... Note Payable ............................................................... Adjusting Entry Interest Expense .................................................................. Interest Payable ........................................................... ([$150,000 6%] 12 = $750) (d) Journal Entry Prepaid Printing .................................................................... Cash ............................................................................ Adjusting Entry Printing Expense .................................................................. Prepaid Printing ........................................................... ($3,000 20 60 = $1,000) (e) Journal Entry None Adjusting Entry Accounts Receivable ............................................................ Concessions Revenue ................................................. Ex. 244 Dallison Company has an accounting fiscal year, which ends on June 30. The company also has a policy of paying the weekly payroll on Friday. Payroll records indicate the following salary costs were incurred. Amount Date Monday June 28 $3,000 Tuesday June 29 2,800 Wednesday June 30 2,400 Thursday July 1 3,000 Friday July 2 2,400 Instructions (a) (b) Prepare any necessary adjusting journal entries that should be made at year end on June 30. Prepare the journal entry to record the payment of the weekly payroll on July 2. 14,000 14,000 150,000 150,000 750 750 3,000 3,000 1,000 1,000 4-62 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Solution 244 (10 min.) 8,200 8,200 8,200 5,400 13,600 (a) June 30 Salaries Expense ......................................................... Salaries Payable ................................................. (To accrue salaries incurred but not yet paid) (b) July 2 Salaries Payable .......................................................... Salaries Expense ......................................................... Cash ................................................................... (To record payment of July 2 payroll) Ex. 245 On Friday of each week, Prawn Company pays its factory personnel weekly wages amounting to $45,000 for a five-day work week. Instructions (a) (b) Prepare the necessary adjusting entry at year end, assuming December 31 falls on Wednesday. Prepare the journal entry for payment of the week's wages on the payday which is Friday, January 2 of the next year. (5 min.) Wages Expense .......................................................... Wages Payable ................................................... ([$45,000 3 = $27,000) Wages Payable ........................................................... Wages Expense .......................................................... Cash ................................................................... 27,000 27,000 Solution 245 (a) Dec. 31 (b) Jan. 2 27,000 18,000 45,000 A Further Look at Financial Statements 4-63 Ex. 246 Presented below is the Trial Balance and Adjusted Trial Balance for Seinfeld Company on December 31. SEINFELD COMPANY Trial Balance December 31 ___________________________________________________________________________ Before Adjustment Dr. Cr. $ 3,000 2,800 2,100 1,200 18,000 $ 1,300 2,700 10,000 4,460 8,200 3,200 8,000 2,060 1,800 500 2,460 2,100 1,100 700 500 120 $37,080 3,200 9,300 After Adjustment Dr. Cr. $ 3,000 3,900 1,500 500 18,000 $ 1,800 3,000 10,000 120 400 4,260 8,200 Cash Accounts Receivable Prepaid Rent Supplies Automobile Equipment Accumulated Depreciation Automobile Equipment Accounts Payable Notes Payable Interest Payable Salaries Payable Unearned Service Revenue Common Stock Dividends Service Revenue Salaries Expense Utilities Expense Rent Expense Supplies Expense Depreciation Expense Automobile Equipment Interest Expense Totals $34,660 $34,660 $37,080 Instructions Prepare in journal form, with explanations, the adjusting entries that explain the changes in the balances from the trial balance to the adjusted trial balance. 4-64 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Solution 246 (20 min.) 1,100 1,100 600 600 700 700 500 500 400 400 120 120 200 200 300 300 Accounts Receivable .......................................................................... Service Revenue ........................................................................ (To record revenue earned but not yet collected) Rent Expense ..................................................................................... Prepaid Rent .............................................................................. (To record expiration of prepaid rent) Supplies Expense ............................................................................... Supplies ..................................................................................... (To record supplies used) Depreciation ExpenseAutomobile Equipment .................................. Accumulated DepreciationAutomobile Equipment .................. (To record depreciation expense) Salaries Expense ................................................................................ Salaries Payable ........................................................................ (To record salaries owed, not yet paid) Interest Expense ................................................................................. Interest Payable ......................................................................... (To record accrued interest payable) Unearned Service Revenue ................................................................ Service Revenue ........................................................................ (To record revenue earned) Utilities Expense ................................................................................. Accounts Payable ...................................................................... (To record receipt of utility bill) Ex. 247 The Sloop 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: Prepaid Rent $ 12,000 Fencing 42,000 Accumulated DepreciationFencing 5,500 Unearned Ticket Revenue 600 Other data: 1. Three months' rent had been prepaid on April 1. 2. The fencing is being depreciated at $6,000 per year. 3. The unearned ticket revenue represents tickets sold for future zoo visits. The tickets were sold A Further Look at Financial Statements 4-65 at $5.00 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. Prepare the adjusting entries that were made by the Sloop Petting Zoo on April 30. (15 min.) (b) Solution 247 (a) 1. $6,000. The $12,000 balance on the adjusted trial balance reflects two months remaining on the prepaid rent. This indicates that the monthly rent is $6,000. 2. The fencing is 11 months old. By dividing annual depreciation ($6,000) by 12, the monthly depreciation expense is $500. The accumulated depreciation account shows $5,500 which means that depreciation has been taken for 11 months. 3. 140 tickets were originally sold. Twenty tickets were used in April at $5.00 each. The adjusted trial balance shows a balance of $600 indicating that 120 tickets are still outstanding. By adding the 20 used in April to the 120 still remaining to be used, 140 tickets must have been sold on April 1. (b) 1. Rent Expense ....................................................................... Prepaid Rent ................................................................ 2. Depreciation Expense ........................................................... Accumulated DepreciationFencing ........................... 3. Unearned Ticket Revenue .................................................... Ticket Revenue ............................................................ (20 $5 = $100) 6,000 6,000 500 500 100 100 4-66 Ex. 248 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition The adjusted trial balance of Jacks Financial Planners appears below and using the information from the adjusted trial balance, you are to prepare for the month ending December 31: 1. an income statement; 2. a retained earnings statement; and 3. a balance sheet. JACKS FINANCIAL PLANNERS Adjusted Trial Balance December 31, 2007 __________________________________________________________________________ Credit Debit Cash ................................................................................................... $ 17,400 Accounts Receivable .......................................................................... 2,200 Office Supplies .................................................................................... 1,800 Office Equipment ................................................................................ 15,000 Accumulated DepreciationOffice Equipment ................................... $ 4,000 Accounts Payable ............................................................................... 4,000 Unearned Service Revenue ................................................................ 5,000 Common Stock .................................................................................... 17,000 Retained Earnings .............................................................................. 7,400 Dividends ............................................................................................ 2,500 Service Revenue ................................................................................. 6,500 Office Supplies Expense ..................................................................... 600 Depreciation Expense ......................................................................... 2,500 Rent Expense ..................................................................................... 1,900 $43,900 $43,900 Solution 248 1. (20 min.) JACKS FINANCIAL PLANNERS Income Statement For the Month Ended December 31, 2007 __________________________________________________________________________ $ 6,500 $2,500 1,900 600 5,000 $ 1,500 Revenues Service Revenue ........................................................................ Expenses Depreciation Expense ................................................................ Rent Expense ............................................................................. Office Supplies Expense ............................................................ Total Expenses ..................................................................... Net Income .......................................................................................... A Further Look at Financial Statements 4-67 Solution 248 2. (cont.) JACKS FINANCIAL PLANNERS Retained Earnings Statement For the Month Ended December 31, 2007 ___________________________________________________________________________ $7,400 1,500 2,500 $6,400 Retained Earnings, December 1 ......................................................... Plus: Net Income............................................................................... Less: Dividends ................................................................................. Retained Earnings, December 31 ....................................................... 3. JACKS FINANCIAL PLANNERS Balance Sheet December 31, 2007 ___________________________________________________________________________ $17,400 2,200 1,800 $15,000 4,000 11,000 $32,400 Assets Cash .................................................................................................... Accounts Receivable ........................................................................... Office Supplies .................................................................................... Office Equipment ................................................................................ Less: Accumulated DepreciationOffice Equipment ........................ Total Assets ............................................................................... Liabilities and Stockholders Equity Liabilities Accounts Payable ....................................................................... Unearned Service Revenue ....................................................... Total Liabilities ...................................................................... Stockholders Equity Common Stock............................................................................ Retained Earnings ...................................................................... Total Liabilities and Stockholders Equity .............................. $4,000 5,000 $ 9,000 17,000 6,400 23,400 $32,400 4-68 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition COMPLETION STATEMENTS 249. The ______________ assumption states that the economic life of a business can be divided into artificial time periods. 250. The ______________ principle gives accountants guidance as to when revenue is to be recorded. 251. 252. 253. In a service company, revenue is earned when the service is _______________. The matching principle attempts to match ______________ with ______________. Expenses paid and recorded in an asset account before they are used or consumed are called _______________. Revenue received and recorded as a liability before it is earned is referred to as _________________. 254. Failure to adjust a prepaid expense account for the amount expired will cause _______________ to be understated and ________________ to be overstated. 255. 256. Depreciation is an __________________ concept, not a ________________ concept. An adjusting entry recording accrued salaries for a period indicates that Salaries Expense has been ________________ but has not yet been ________________ or recorded. 257. An adjusted trial balance proves the ______________ of the total debit and credit balances after all ______________ entries have been made. 258. In addition to updating Retained Earnings, ______________ entries produce a zero balance in each ______________ account. 259. After all closing entries are journalized and posted, a _________________ trial balance is prepared from the ledger. Answers to Completion Statements 249. 250. 251. 252. 253. 254. time period revenue recognition performed expenses, revenues prepaid expenses, unearned revenue expenses, assets 255. 256. 257. 258. 259. allocation, valuation incurred, paid equality, adjusting closing, temporary post-closing A Further Look at Financial Statements 4-69 MATCHING 260. Match the items below by entering the appropriate code letter in the space provided. A. B. C. D. E. ____ ____ ____ ____ ____ ____ ____ ____ ____ Time period assumption Cash basis Revenue recognition principle Prepaid expenses Matching principle F. G. H. I. J. Accrued revenues Depreciation Post-closing trial balance Accrued expenses Book value 1. Events recorded only in periods the company receives or pays cash 2. Expenses paid before they are incurred 3. Cost less accumulated depreciation 4. The economic life of a business can be divided into artificial time periods 5. Efforts are related to accomplishments 6. Includes only permanentbalance sheetaccounts 7. Revenue is recognized when earned 8. Revenues earned but not yet received 9. Expenses incurred but not yet paid ____ 10. A cost allocation process Answers to Matching 1. 2. 3. 4. 5. B D J A E 6. 7. 8. 9. 10. H C F I G 4-70 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition SHORT-ANSWER ESSAY QUESTIONS S-A E 261 You are part of a group of individuals (incorporators) who want to form a new corporation. During discussions on forming the business, Mark Adams makes this statement: Our business will have accounts receivable and accounts payable. It will also acquire a substantial amount of computers and equipment. Will it be acceptable to use the cash basis of accounting? Prepare a response for Mark and the other incorporators. Solution 261 Considering the proper basis of accounting to use is an important decision that should be addressed before the business is started. Thus, this is an excellent time to look at the differences between the cash and accrual basis of accounting. When the cash basis is used, revenue is recorded when cash is received and expenses are recorded when cash is paid. This is not an objective approach in determining net income because the receipt and payment of cash does not reflect the efforts and accomplishments of the business. Also, accounts receivable, accounts payable and depreciation are not recognized in the accounting records. The use of the accrual basis of accounting overcomes these problems. Revenue is recorded when it is earned and expenses are recorded when they are incurred. This represents an objective way of matching efforts and accomplishments of the accounting period. In addition, accounts receivable and accounts payable are recorded and their balances are shown on the balance sheet. The business has access to these balances during the accounting period and can make important decisions about them. Since the business has computers, it is important to record a portion of their costs each accounting period. This process is called depreciation. Instead of showing the cost as an expense when the computers are purchased (cash basis), the cost is allocated to the accounting periods in which the computers are used (accrual basis). This makes net income more meaningful because it reflects a matching of the expense to the period in which revenues were earned. The cost of the computers, less the accumulation of depreciation that has been taken, is shown as an asset on the balance sheet. Thus, the user can see that these assets are available for future use. Also, generally accepted accounting principles require the use of the accrual basis of accounting. It will be better to use the accrual basis of accounting. A Further Look at Financial Statements 4-71 S-A E 262 The long-term liability section of A Corporations Balance Sheet includes the following accounts Notes Payable Mortgage Payable Salaries Payable 75,000 Accumulated Depreciation Total Long-Term Liabilities 125,000 $550,000 $100,000 250,000 A Corporation is an established company and does not experience any financial difficulties or have any cash flow problems. Discuss at least two items that are questionable as long-term liabilities. Solution 262 Salaries Payable should not be reported as a long-term liability. This represents the amounts owed to employees. If the corporation does not have any financial difficulties or cash flow problems, the salaries should be paid within one year. Accumulated Depreciation is a contra asset account. The balance is subtracted from the cost of the related asset in the Property, Plant, and Equipment section of the balance sheet. Are all of the notes payable actually long-term (due after one year)? If not, the portion due within one year should be reported as a current liability instead. S-A E 263 The income statement is an important financial statement used by individuals who are interested in the operations of a business enterprise. Explain how the time period assumption and the revenue recognition and matching principles provide guidance to accountants in preparing an income statement. Solution 263 The time period assumption assumes that the financial and operating life of an accounting entity, such as a business enterprise, can be broken up into arbitrary time periods. The revenue recognition and matching principles are the basic rules for allocating revenues and expenses to these arbitrary time periods under the accrual basis of accounting. The revenue recognition principle dictates the time period to which revenue is to be allocated and recognized, that is, on which income statement the revenue is to be reported. The matching principle dictates the time period to which costs are allocated and recognized as expenses, that is, on which income statement the expenses are to be reported and matched against revenues in the determination of net income. 4-72 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition S-A E 264 What is the purpose of the preparation of adjusting entries? Solution S-A E 264 Adjusting entries are needed to ensure that the revenue recognition and matching principles are followed. The use of adjusting entries makes it possible to produce accurate financial statements at the end of the period. Their purpose is to bring all accounts up to date. S-A E 265 Briefly distinguish between a prepayment and an accrual. Solution 265 A prepayment is the postponement of the recognition of an expense already paid or of a revenue already received. An accrual is the recognition of an expense or revenue that has arisen but that has not yet been recorded. S-A E 266 In developing an accounting information system, it is important to establish procedures whereby all transactions that affect the components of the accounting equation are recorded. Why then, is it often necessary to adjust the accounts before financial statements are prepared even in a properly designed accounting system? Identify the major types of adjustments that are frequently made and give a specific example of each. Solution 266 Account balances must be adjusted before financial statements are prepared, even in a properly designed accounting system, because (1) some of the recorded transactions have been recognized prematurely and (2) some effects on components of the accounting equation have not been recorded. Prepayments and deferrals are types of adjustments of recorded transactions that must be allocated to future periods as well as the current period. Examples of deferral-type adjustments are prepaid rent, prepaid insurance, and unearned revenue. Accruals are adjustments of unrecorded transactions that must be recognized in the current period. Examples of accrual-type adjustments are salaries and wages payable, interest payable, and interest receivable. S-A E 267 (Ethics) Benson and Jencks is a manufacturing company that specializes in writing instruments. The past year was a difficult one for the company, as it sought to retain its share in a market in which the largest competitors were also rapid innovators. Benson and Jencks introduced a new product late in the year, even though testing was not complete. It was a pen designed with two cartridges: one supplying ink and the other correction fluid. A person could then switch easily between writing and correcting errors. It was priced fairly high, and was never heavily advertised. Even so, the CorrectO-Pen, as the product was named, was an overwhelming success. The success of the product has Fern Donald, the manager of the New Products division, worried, A Further Look at Financial Statements 4-73 however. She was concerned that quality problems would begin occurring, since the longevity of the pen and stability of the correction fluid formulation had not been tested. She did not want sales personnel to get the bonuses that appeared to be indicated, since they might aggressively promote a product that would fail in use. She preferred to complete testing of the pen first, so that more confidence could be placed in the results. Top management, however, declined the tests. Ms. Donald then instructed you, the accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to show them as current expenses in total. In this way, the new product would appear to be only slightly profitable. Required: 1. Describe the alternatives that you as an accountant would have in this situation. 2. Indicate which alternative is best. Solution 267 The choices include: 1. Follow the manager's instructions. 2. Explain to the manager why you cannot follow her instructions. 3. Report the manager's actions to her superior. 4. Resign. There are probably other alternatives as well. Students should be able to come up with at least #1 and #2. Of the choices, #1 is unethical because it will cause the financial statements to be misleading. #3 and #4 are rather drastic measures that do not seem to be indicated, at least not yet. #2, therefore, is the best choice. S-A E 268 (Communication) A new sales representative, Eddy Werhl, has just received his copy of the month-end financial reports. He is puzzled by the term "unearned revenue." He left the following e-mail message for you on the company's bulletin board system: What is this??? Creative Accounting, or what??? Line item 12 on year-to-date financials shows over $25Gs in Unearned Revenue!!! Come on, guys! Either we earned it, or we didn't . . . Right??! Is this how you guys lower our commissions? Reply to e.wehrl@sbd Required: Write a response to send to Eddy. (Since the answer is being prepared for a "bulletin board" type system, it can be in informal language and can respond in kind to the humor. However, proper grammar and spelling are essential, as is the message about what unearned revenue really is.) 4-74 Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition Solution 268 Since the answer is being prepared for a "bulletin board" type system, it can be in informal language and can respond in kind to the humor. However, proper grammar and spelling are essential, as is the message about what unearned revenue really is. A proposed message follows: EddyWhat a pleasant surprise to hear from you! Maybe you can teach those other guys in your department something about living in the present! Do you know some of them still write me notes on paper??? Unbelievable, right??! Now to your question. Your unearned revenue is the sales you made that us smart guys in accounting didn't figure you had earned, so we just took it away from you! Might as well save the company some dough for our own bonuses, right?? Seriously, Eddyunearned revenue is the result of your getting customers of the kind we likethey pay in advance! When they pay before we can even get their products made or shipped, we can't count the money they pay us as revenue. What we actually have is a liabilityan obligation to make and ship products. So that's how us (smart guys) in accounting count itas a liability. You happened to have about 25% of your sales that fit in that category. W hen production can catch up with orders, you'll get credit for the sales. (Take heartIt'll seem like Christmas all over again) Thanks again for actually using the system. Talk to me again sometime . . . Reply to

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Georgia Perimeter - ACCT - 2102
CHAPTER 5MERCHANDISING OPERATIONSSUMMARY OF QUESTIONS BY STUDY OBJECTIVESTrue-False StatementsItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. SO 1 1 1 1 1 1 1 1 1 1 1 Item 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. SO 1 1 2 2 2 2 2 2 2 2 2 Item 23. 24. 25. 2
Georgia Perimeter - ACCT - 2102
CHAPTER 5 Test Bank: Study Objective 1 TRUE-FALSE STATEMENTS AND SOLUTIONS1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Retailers and wholesalers are both considered merchandising enterprises. The operating cycle of a merchandising company ordinarily is sho
Georgia Perimeter - ACCT - 2102
CHAPTER 5 Test Bank: Study Objective 2 TRUE-FALSE STATEMENTS AND SOLUTIONS14. 15. 16. 17. 18. 19. 20. 21. 22. 23. Operating expenses are subtracted from Revenue for a service enterprise and from Gross Profit for a merchandising enterprise. Net sales minu
Georgia Perimeter - ACCT - 2102
CHAPTER 5 Test Bank: Study Objective 3 TRUE-FALSE STATEMENTS AND SOLUTIONS24. 25. 26. 27. 28. 29. 30. 31. 32. Cash register tapes provide evidence of credit sales. The Sales Returns and Allowances account and the Sales Discount account are both classifie
Georgia Perimeter - ACCT - 2102
CHAPTER 5 Test Bank: Study Objective 4 TRUE-FALSE STATEMENTS AND SOLUTIONS33. 34. 35. 36. 37. 38. 39. 40. 41. 42. The terms 2/10, n/30 mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date. The multi
Georgia Perimeter - ACCT - 2102
CHAPTER 5 Test Bank: Study Objective 5 TRUE-FALSE STATEMENTS AND SOLUTIONS47. 48. With the periodic inventory system, goods` available for sale must be calculated before cost of goods sold. Under the periodic system, the purchases account is used to accu
Georgia Perimeter - ACCT - 2102
CHAPTER 5 Test Bank: Study Objective 6 TRUE-FALSE STATEMENTS AND SOLUTIONS51. 52.The gross profit amount is generally considered to be more informative than the gross profit rate. Gross profit rate is computed by dividing cost of goods sold by net sales
Georgia Perimeter - ACCT - 2102
CHAPTER 5 Test Bank: Study Objective 7 TRUE-FALSE STATEMENTS AND SOLUTIONS49. 50.Under the periodic system, when a customer returns goods, the purchases returns and allowances is debited. Under the periodic inventory system, acquisitions of merchandise
Georgia Perimeter - ACCT - 2102
CHAPTER 6REPORTING AND ANALYZING INVENTORYSUMMARY OF QUESTIONS BY STUDY OBJECTIVE AND BLOOMS TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 177. 178. 1
Georgia Perimeter - ACCT - 2102
CHAPTER 7INTERNAL CONTROL AND CASHSUMMARY OF QUESTIONS BY STUDY OBJECTIVE AND BLOOMS TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 186. 187.
Georgia Perimeter - ACCT - 2102
CHAPTER 8REPORTING AND ANALYZING RECEIVABLESSUMMARY OF QUESTIONS BY STUDY OBJECTIVE AND BLOOMS TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 8
Georgia Perimeter - ACCT - 2102
CHAPTER 10REPORTING AND ANALYZING LIABILITIESSUMMARY OF QUESTIONS BY STUDY OBJECTIVE AND BLOOMS TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90.
Georgia Perimeter - ACCT - 2102
C HAPTER 11REPORTING AND ANALYZING STOCKHOLDERS EQUITYSUMMARY OF QUESTIONS BY STUDY OBJECTIVE AND BLOOMS TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72.
Georgia Perimeter - ACCT - 2102
CHAPTER 12STATEMENT OF CASH FLOWSSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOMS TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 169. 170. 171. 181. 182. 191.
Georgia Perimeter - ACCT - 2102
CHAPTER 13FINANCIAL ANALYSIS: THE BIG PICTURESUMMARY OF QUESTIONS BY STUDY OBJECTIVE AND BLOOMS TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 9. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74.
Georgia Perimeter - ACCT - 2102
Comprehensive Examination AA-1COMPREHENSIVE EXAMINATION A(Chapters 1 - 5)ProblemA-I A - II A - III A - IV A-V A - VI A - VIITopicMultiple Choice . Matching . Adjusting Entries . Ratios . Journal Entries. Income Statement for a Merchandising Company
Georgia Perimeter - ACCT - 2102
COMPREHENSIVE EXAMINATION B(Chapters 6 - 8)ProblemB-I B - II B - III B - IV B-V B - VI B - VIITopicMultiple Choice . Ratios . Bank Reconciliation . Periodic Inventories . Journal Entries. Cash Budget . Notes Receivable. Checking Work .Points20 15 1
Georgia Perimeter - ACCT - 2102
COMPREHENSIVE EXAMINATION C(Chapters 9 - 11)ProblemC-I C - II C - III C - IV C-VTopicMultiple Choice . Ratios . Corporation Entries . Bonds Payable. Plant Asset Disposal Entries . Checking Work .Points20 16 28 20 _16 100Approximate Minutes20 15 2
Georgia Perimeter - ACCT - 2102
COMPREHENSIVE EXAMINATION D(Chapters 12 - 13)ProblemD-I D - II D - III D-ITopicMultiple Choice . Comparative analysis. Statement of Cash Flows . Calculation of Ratios . Checking Work .Points24 10 30 36 100Approximate Minutes24 10 30 20 84 6 90D-
Georgia Perimeter - ACCT - 2102
Final Exam: Chapters 1-13 Financial Accounting Kimmel, Weygandt, & KiesoName _ Instructor _ Section # _ Date _Part Points ScoreI 80II 20III 20IV 15V 12VI 12VII 21VIII 20Total 200PART I MULTIPLE CHOICE (80 points) Instructions Designate the bes
Washington - NUTRITION - 300
NUTR 300For Exam 2Review of Metabolic Pathways Carbohydrates Catabolic PathwaysSUBSTRATE FED OR FASTED?Fats (lipids) LipolysisTRIGLYCERIDES FASTEDProteins ProteolysisPROTEINS FASTEDGlycogenolysisGLYCOGEN FASTEDGlycolysisSUBSTRATE FED OR FASTED?
Jacksonville U. - LAW - contr1
30 MC questions | 75 min Short Essay | you pick of 2 | 3,500 characters | 30 min Long Essay | 7,000 characters | 60 minCommon LawA Bargain in which there is manifestation of mutual assent to exchangeCISG(1) This Convention applies to contracts of sale
Rensselaer Polytechnic Institute - ECON - 4160
rro + V,'l:0.l'a NOE COAI'-11 GoP ublic F inance M idterm E xam Answer THREE questions. Answer every bullet, show all work.Fall 20081. Adams Ale C o has drawn crystal clear drinking water from an adjacent stream for use in brewing its premium produc
CSU Dominguez Hills - ACC - ACC 502
1) Sales collection a. sales budget Month Sales b. Total Sales Revenue c. Cash reciepts schedule Cash Collected d. Amount of accounts receivable 2) Month COGS a) Inventory Purchase Budget Month Beg Inventory Ending Inventory desired Inventory Purchases Re
CSU Dominguez Hills - ACC - ACC 502
Chapter 9 Profit PlanningTrue/False Questions 1. The usual starting point in budgeting is to make a forecast of net income. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,9 Level: Easy 2. A budget committee he
CSU Dominguez Hills - ACC - ACC 502
Chapter 10 Standard Costs and the Balanced ScorecardTrue/False Questions 1. Ideal standards do not allow for machine breakdowns and other normal inefficiencies. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Le
CSU Dominguez Hills - ACC - ACC 502
Chapter 11 Flexible Budgets and Overhead AnalysisTrue/False Questions 1. A key feature of a flexible budget is that actual results can be compared to budgeted costs at the same level of activity. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Th
CSU Dominguez Hills - ACC - ACC 502
Chapter 12 Segment Reporting and DecentralizationTrue/False Questions 1. Allocating common fixed costs to segments on segmented income statements reduces the usefulness of such statements. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
CSU Dominguez Hills - ACC - ACC 502
Chapter 13 Relevant Costs for Decision MakingTrue/False Questions 1. Sunk costs are costs that have proven to be unproductive. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 1 Level: Medium 2. A
CSU Dominguez Hills - ACC - ACC 502
Practice Quiz 1 1. Managerial accounting places considerable weight on: A) generally accepted accounting principles. B) the financial history of the entity. C) ensuring that all transactions are properly recorded. D) detailed segment reports about departm
CSU Dominguez Hills - ACC - ACC 502
Practice Quiz 9 1. Which of the following benefits could an organization reasonably expect from an effective budget program? A) Better control of the organization's costs. B) Better coordination of an organization's activities. C) Better communication of
CSU Dominguez Hills - ACC - ACC 502
Practice Quiz 10 1. To measure controllable production inefficiencies, which of the following is the best basis for a company to use in establishing the standard hours allowed for the output of one unit of product? A) Average historical performance for th
CSU Dominguez Hills - ACC - ACC 502
Practice Quiz 11 1. A budget that is based on the actual activity of a period is known as a: A) continuous budget. B) flexible budget. C) static budget. D) master budget. When using a flexible budget, a decrease in activity within the relevant range: A) d
CSU Dominguez Hills - ACC - ACC 502
Practice Quiz 12 1. The impact on net operating income of short-run changes in sales for a segment can be most clearly predicted by analyzing: A) the contribution margin ratio. B) the segment margin. C) the ratio of the segment margin to sales. D) net sal
CSU Dominguez Hills - ACC - ACC 502
Practice Quiz 13 1. Which of the following cash flows is relevant in a decision about accepting Alternative X or Alternative Y? A) a cash inflow for Alternative X that is not a cash inflow for Alternative Y. B) a cash inflow that is lost if Alternative X
CSU Dominguez Hills - ACC - ACC 502
Practice Quiz 14 1. Suture Corporation's discount rate is 12%. If Suture has a 5-year investment project that has a project profitability index of zero, this means that: A) the net present value of the project is equal to zero. B) the internal rate of ret
CSU Dominguez Hills - ACC - ACC 502
d c b b a b c b c b b c b c c
CSU Dominguez Hills - FIN - Fin 595
CAPSTONE CASE 2: SPATIAL TECHNOLOGY, INC. Suggested Case Discussions and Analyses A. Describe Spatial Technologys business model in terms of revenues, profits, and cash flows. Spatial is the originator of a 3D modeling file format (SAT) and object manipul
CSU Dominguez Hills - FIN - Fin 595
CHAPTER 1 INTRODUCTION AND OVERVIEW FOCUS The purpose of this first chapter is to present an overview of what entrepreneurial finance is about. In doing so we hope to convey to you the importance of understanding and applying entrepreneurial finance metho
CSU Dominguez Hills - FIN - Fin 595
Chapter 2 FROM THE IDEA TO THE BUSINESS PLAN FOCUS In this chapter we examine how one can move from an idea to a determination of the feasibility of the related business opportunity. We present an opportunity screening system to aid in determining whether
CSU Dominguez Hills - FIN - Fin 595
Chapter 3 ORGANIZING AND FINANCING A NEW VENTUREFOCUSIn this chapter, we focus on organizing the venture, obtaining and protecting intellectual property, and early stage financing. Although an entrepreneur can change the legal form of the venture in the
CSU Dominguez Hills - FIN - Fin 595
Chapter 4 MEASURING FINANCIAL PERFORMANCE FOCUSIn this chapter, we introduce basic accounting and financial statements designed to help ventures monitor their progress. We stress the need to understand how cash is built and burned both in terms of financ
CSU Dominguez Hills - FIN - Fin 595
Chapter 5 EVALUATING FINANCIAL PERFORMANCE FOCUSIn this chapter, we focus on identifying and understanding the financial ratios used to evaluate the ventures financial performance over time. Venture performance and efficiency is important to a variety of
CSU Dominguez Hills - FIN - Fin 595
Chapter 6 FINANCIAL PLANNING: SHORT TERM AND LONG TERM FOCUS In this chapter, we focus on projecting financial statements into the future both short-term and long-term. The availability of cash is what drives the entrepreneurial venture. Inadequate cash o
CSU Dominguez Hills - FIN - Fin 595
Chapter 7 TYPES AND COSTS OF FINANCIAL CAPITAL FOCUS In this chapter, we characterize financial markets and focus on developing an understanding of the how one obtains and pays for financial capital. Without adequate capital, even the best ideas and ventu
CSU Dominguez Hills - FIN - Fin 595
Chapter 8SECURITIES LAW CONSIDERATIONS WHEN OBTAINING VENTURE FINANCING FOCUSIn this chapter we introduce several major legal aspects of fundraising for the new venture. We discuss the central role of the Securities Act of 1933 and the exemptions availa
CSU Dominguez Hills - FIN - Fin 595
Chapter 9 VALUING EARLY-STAGE VENTURES FOCUS In this chapter, we introduce basic concepts of valuation, the process of estimating values. We consider the owner of a growing business who is beginning negotiations with a potential investor. We introduce the
CSU Dominguez Hills - FIN - Fin 595
Chapter 10 VENTURE CAPITAL VALUATION METHODS FOCUSIn this chapter, we present several variations on the simplified valuation procedures and rules of thumb frequently grouped under the designation venture capital methods. We introduce a threescenario appr
CSU Dominguez Hills - FIN - Fin 595
Chapter 11 PROFESSIONAL VENTURE CAPITALFOCUS In this chapter, we consider the highest profile segment of the venture investing markets: professional venture capital. We discuss the origins of venture capital and the periodic fluctuations accompanying maj
CSU Dominguez Hills - FIN - Fin 595
Chapter 12 OTHER FINANCING ALTERNATIVES FOCUS In this chapter, we consider a variety of government and private sources of new venture funding. We also consider financing traditionally available only to more mature ventures including commercial banking loa
CSU Dominguez Hills - FIN - Fin 595
Chapter 13 SECURITY STRUCTURES AND DETERMINING ENTERPRISE VALUES FOCUS In this chapter, we discuss important concepts in structuring securities a venture uses to raise funds. We introduce the notion of primitive securities (like bonds and common stocks) a
CSU Dominguez Hills - FIN - Fin 595
Chapter 14 HARVESTING THE BUSINESS VENTURE INVESTMENTFOCUS This chapter in our entrepreneurial finance text focuses on how a successful entrepreneur can harvest or exit the venture. LEARNING OBJECTIVES 1. 2. 3. 4. 5. 6. Plan an exit strategy Understand t
CSU Dominguez Hills - FIN - Fin 595
Chapter 15 FINANCIALLY TROUBLED VENTURES: TURNAROUND OPPORTUNITIES? FOCUS We direct attention in this chapter toward recognizing and managing financial distress. An inability to pay creditor obligations as they come due typically poses a major financial t
CSU Dominguez Hills - FIN - Fin 595
CAPSTONE CASE 1: CORAL SYSTEMS, INC.Suggested Case Discussions and Analyses A. Describe Coral Systems business model in terms of revenues, profits, and cash flows. Coral Systems business model was to develop and license software products for the telecomm
CSU Dominguez Hills - FIN - Fin 595
CHAPTER 15 FINANCIALLY TROUBLED VENTURES: TURNAROUND OPPORTUNITIES?TrueFalse Questions T. 1. During the development, startup, and survival stages of a ventures life cycle, the relevant financing and operating decisions faced are either restructuring or l
CSU Dominguez Hills - FIN - Fin 595
CHAPTER 1 INTRODUCTION AND OVERVIEWTrue-False Questions F. 1. Entrepreneurs provide the financing to individuals who think, reason, and act to convert ideas into commercial opportunities and create opportunities. 2. Entrepreneurship is the process of cha
CSU Dominguez Hills - FIN - Fin 595
CHAPTER 2 FROM THE IDEA TO THE BUSINESS PLANTrue-False Questions T. F. 1. For ventures that first get to market or create intellectual property rights, its common to price new products or services at high markups or profit margins. 2. Lifestyle firms are
CSU Dominguez Hills - FIN - Fin 595
CHAPTER 3 ORGANIZING AND FINANCING A NEW VENTURETrue-False Questions T. 1. The difference between a limited partnership and a general partnership is that the limited partnership has partners who actively manage the day-to-day operations but also has pass
CSU Dominguez Hills - FIN - Fin 595
CHAPTER 4 MEASURING FINANCIAL PERFORMANCETrue-False Questions T. F. F. F. F. F. T. 1. Assets are financial and physical items controlled or owned by the business. 2. The practice of recording economic activity when realized is known as accrual accounting
CSU Dominguez Hills - FIN - Fin 595
CHAPTER 5 EVALUATING FINANCIAL PERFORMANCETrue-False Questions T. 1. Showing the relationships between two or more financial variable and /or time, financial ratios are useful means of summarizing large amounts of financial data for comparative purposes.
CSU Dominguez Hills - FIN - Fin 595
CHAPTER 6 FINANCIAL PLANNING: SHORT TERM AND LONG TERMTrue-False Questions T. T. F. 1. The weighted average of a set of possible outcomes or scenarios is known as expected values. 2. The rate at which a firm can grow sales based on the retention of busin