ACCT 2100 Chap 2 Practice Quiz
Krakenshield, Inc. experienced several events during its first year of operations as follows:
Issued stock in return for $40,000 cash
Borrowed $25,000 from a Bank to purchase a plot of land
Performed services for $60,000 on account
Paid salaries of $10,000
Collected $48,000 of the accounts receivable
Paid advertising bill of $16,500
Recorded $10,000 of accrued salaries at the end of the period
Paid a $5,000 cash dividend to owners.
The amount of income that Krakenshield should report on its year ending Income Statement is:
In the accrual basis of accounting, we recognize income when it is earned, i.e. when the work is performed,
not when the money changes hands. Likewise, we recognize expenses when the benefit is received or the
obligation arises, not when the money changes hands. Dividends are not an expense of operation, but are
paid through Retained Earnings.
LO: LO 1, 2, 3
Using the same information given in #1 above, what would be the cash balance shown on
Krakenshield's year ending Balance Sheet?
None of the Above
The activities that affect the cash balance of the company were the issuance of stock, the bank borrowing,
the purchase of the land, the collection of monies owed from services, the payment of salaries, the
payment of the advertising bill, and the payment of dividends. (40,000 + 25,000 – 25,000 – 10,000 + 48,000 –
16,500 – 5,000)$56,500. The actual provision of the services was on account, while the salaries owed at the
end of the year were not actually paid.
LO: LO 1, 2, 3
The following events took place in 2009, the first year of operations for Ravenspear, Inc.:
Acquired $44,000 from the sale of common stock
Paid $24,000 in advance, on April 1 for a one year lease on office space
Purchased $16,400 in office supplies on account