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Exam 3: Accrual Accounting

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Question 21

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Which one of the following is an example of an accrued liability?

A) Rent that has been incurred,but have not been paid at the end of the period.
B) Equipment that will benefit several periods has been purchased.
C) An insurance policy that expires in a future period has been acquired.
D) Supplies are purchased and used over several months.

E) B) and C)
F) B) and D)

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Question 22

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Adjusting entries are prepared using the accrual basis of accounting for preparing financial statements.

A) True
B) False

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Question 23

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A tool company purchased equipment at a cost of $100,000 in January,2004.As of January 1,2013,depreciation of $45,000 had been recorded on this asset.Depreciation expense for 2013 is $5,000.After the adjustments are recorded and posted at December 31,2013,what are the balances for the Depreciation Expense and Accumulated Depreciation?

Which one of the following steps in the accounting cycle is completed only at the end of an accounting period?

Which of the following places the steps in preparing a worksheet in the correct order: 1 - Adjusted trial balance 4 - Income statement 2 - Adjustments 5 - Retained earnings 3 - Balance sheet 6 - Unadjusted trial balance

One effect of recognizing depreciation is to decrease net income.

Closing entries are necessary to assure that the company's net income for an accounting period is accurately determined.

Which of the following concepts is important to accrual accounting?

Carithers Cleaning Service received advance payments from customers during 2013 of $24,000.At December 31,2013,$5,000 of the advance payments still had not been earned.After the adjustments are recorded and posted at December 31,2013,the balances in the Unearned Service Revenue and Service Revenue accounts will be:

Every adjustment involves at least one income statement and one balance sheet account.

Matching requires expenses be recorded and reported in the same period as the revenue that it helped to generate.

The financial statements are prepared after

A(n)____________________ revenue results when cash is received before it is earned and reported on the income statement.

What does the phrase,"Revenue is recognized when earned" mean?

Accrued revenue is recognized when cash is received.

"You Decide" Essay You are the CFO for Cabbage Patch Toys.The Board of Directors is meeting this afternoon.While reviewing your company's financial statements just minutes before the meeting you notice that no depreciation expense has been reported. A)Describe to the board the impact that omitting this adjustment has had on your financial statements. B)The Board has asked you whether this mistake would impact their plan to declare a cash dividend during the meeting.Respond.

A company borrowed $500,000 on a one-year,10% note on October 1,2013,with interest and principal to be paid at maturity.How much interest should be reported on the income statement for the year ending December 31,2014?

California Condos California Condos uses the accrual basis of accounting,and had the following account balances on its financial statements at December 31,2013. $\begin{array}{ll} \text { Rent Revenue } &\$ 340,000 \\ \text { Accounts Receivable } &89,200 \\ \text { Utilities Payable } &12,000 \\ \text { Rent Expense } &22,000 \\ \text { Unearned Revenue } &17,000 \\ \text { Depreciation Expense } &12,000 \\ \text { Salaries Expense } &45,000 \\ \text { Salaries Payable } &4,000 \\ \text { Retained Eanings, January 1 } &60,000 \\ \text { Dividends } &2,500 \\ \text { Interest Revenue } &10,000\end{array}$ -Refer to California Condos.On January 1,the balance of Unearned Rent Revenue was $0.The company collected cash from tenants of its apartment building totaling $600,000 during 2013.How much should be reported as unearned rent revenue as of December 31,2013?

On October 1,2013,a company paid $9,000 rent in advance.The rent per month is $1,000.Assuming the company's accounting period ends on December 31,2013,what will be reported on the financial statements?

Since dividends do not impact income,the dividends account is not closed to the income summary account.