Fall 2010_Section Problem Set 4 (Chap 4, 5) me

Fall 2010_Section Problem Set 4 (Chap 4, 5) me - AEM 2210...

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AEM 2210 Section Problem Set 4 Covering Material from Chapter 4 and Chapter 5 Name: Section: Material Review. Accumulated Depreciation – contra-asset account that is placed in the asset section of the balance sheet, but has the opposite balance of an asset (credit instead of debit) o The book value of an asset = Cost – Accumulated Depreciation o Depreciation is the allocation of a long-lived asset’s cost to the multiple periods it is used to generate revenue o At the end of an accounting period, “depreciation expense” is debited and “accumulated depreciation” is credited Accruals – revenues earned or expenses incurred, but no cash has moved o Example: wages incurred in the current period that will be paid in the future o Journal Entry after hours of worked and before wages are paid: Wages Expense $200 Wages Payable $200 o Journal Entry when wages are paid: Wages Payable $200 Cash $200 Deferrals – cash has moved but revenue has not yet been earned or expense incurred o Example: subscription payment received in advance o Journal Entry at receipt of payment: Cash $120 Deferred Subscription Revenue (liability) $120 o Journal Entry following delivery of subscription: Deferred Subscription Revenue $120 Subscription Revenue $120 Remember: Revenues – Expenses = Net Income, which increases (credit) Retained Earnings;
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Dividends decrease (debit) Retained Earnings; Retained Earnings is part of Stockholder’s Equity on the Balance Sheet
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Multiple Choice. 1. On December 31, 2009, the effect of recording an adjustment for accrued wages of $2,000 would be A) a decrease in stockholders' equity and decrease in an asset. B) a decrease in liabilities and increase in stockholders' equity. C) a decrease in stockholders' equity and an increase in liabilities. D) an increase in stockholders' equity and increase in an asset. E) none of the above is correct. 2. On April 1, 2009, the premium on a one-year insurance policy on equipment was paid amounting to $3,000. At the end of 2009 (end of the accounting period), the financial statements for 2009, would report A) Insurance expense, $3,000; Prepaid insurance $0. B) Insurance expense, $0; Prepaid insurance $3,000. C)
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Fall 2010_Section Problem Set 4 (Chap 4, 5) me - AEM 2210...

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