Accounting 201

How many of the following accounts (line items) are found on the balance sheet?

(4) Assets, liabilities, stock and retained earnings are on the balance sheet. Accounts Payable (L), Inventory (A), Wages Payable (L), and Deferred Revenue (L) are found on the balance sheet.

Pane in the Glass, Inc., earned $350,000 during its first month of business of which $100,000 was collected during the month. Match the amounts that will be reported on each of the first month's financial statements listed below.

- $100,000 - $250,000 - $350,000 The income statement reports the amount earned, Revenue. The statement of cash flows reports the amount of Cash Collected from Customers, which often differs from the amount earned. Accounts Receivable on the balance sheet reports the timing difference, the amount earned but not yet collected.

The adjusting entry to record amounts earned that were collected in advance include a(n) ______. (Select all that apply.)

- increase to Revenues - decrease to Deferred Revenue - increase to Revenues - decrease to Deferred Revenue

Cash-basis accounting may distort net income when a company ______. (Select all that apply.)

-pays for expenses in advance of when the resources are used -pays for expenses in a later accounting period than when the resources are used -collects cash in advance of providing services to customers -makes credit sales

collected $28,000 from customers in advance during May. During May, it performed $10,000 of services. What is the balance of the Deferred Revenue account at the end of the month?

18,000 ± 0

On May 1, the bank said it may lend money to Nim Com Soup, Inc. The amount will depend on Nim Com Soup's income statement for the month of May. Since the bank did not specify, Nim Com Soup did not follow generally accepted accounting principles (GAAP). It reported net income for the month ended May 31 of $60,000. The revenue included $3,000 of cash collected in advance from customers for services to be performed in June. The revenue also included a $12,000 increase in the value of its land. The expenses excluded $3,000 it owed for services it received in May. What is Nim Com Soup's GAAP Net Income?

42,000 ± 0% revenue recognition principle by reporting revenue amounts collected in advance but not yet earned. Thus, net income must be reduced by this amount. It should have increased Deferred Revenue (+L), instead of Revenue (+SE), for the cash collected in advance. historical cost principle by increasing the value of its land and reporting the increase as revenue. Thus, net income must be reduced by this amount. Later, if the company sells the land, then it can report a Gain (+SE) if it receives a price higher than its cost. expense recognition principle by not recording expenses for services received in May but not yet paid. Thus, net income must be reduced by this amount. Expenses must be recorded when incurred; it should have recorded an Expense (-SE) for the services it received and a Payable (+L) for the amount owed.

Eel Electronics paid $4,000 of the $5,000 its employees had earned during the period. Eel Electronics should report Wages Expense of ______ on the income statement and Wages Payable of ______ on the balance sheet prepared in accordance with generally accepted accounting principles.

5,000; 1,000 Accrual accounting requires companies to record all expenses incurred during the period. Since the company received the employees' services, it must make an adjusting entry to increase Wages Expense (-SE) and increase Wages Payable (+L) for the amount owed. Later when the employees are paid, the company will decrease Wages Payable (-L) and Cash (-A). The income statement reports the amount of wages incurred, Wages Expense. The statement of cash flows reports Cash Paid for Wages, which often differs from the amount incurred. The balance sheet reports Wages Payable, the amount incurred that has not yet been paid.

During the year, A Salt & Buttery, Inc., had revenue of $84,000 of which $7,000 was collected from customers. It also had expenses of $31,000 of which $3,000 was paid. The owners were paid $20,000 in dividends. Net income for the year equals ______.

53,000 ± 0% Net income equals Revenue minus Expenses. Revenue earned often differs from the Cash Collected from Customers because customers may pay later (Accounts Receivable) or pay in advance ( Deferred Revenue). Likewise, expenses incurred often differs from the Cash Paid because it may have been paid in advance (Prepaids) or still owed (Payable). Dividends is not an expense and is thus not subtracted in arriving at net income. Dividends is found on the statement of shareholders' equity, which reports the beginning retained earnings plus net income minus dividends to get ending retained earnings. The statement of shareholders' equity also reports the changes in stock during the period.

Jim's Jungle Gyms reported the following information in its year ended December 31 financials:

68,000 ± 0% Expenses are on the income statement. Revenue minus Expenses equals Net Income. Since both Net Income and Revenue were given, subtracting Net Income from Revenue gives you Expenses.

Indicate the financial statement where you would expect to find each line item:

Advertising expense: Income Statement Cash Paid for Advertising: Statement of Cash Flows Prepaid Advertising: Balance Sheet

On February 28, Wursthaus, Inc., adjusted for insurance used during the month. It had paid $600 in advance on January 1 for three months of insurance beginning on January 1, its first month of business. Show the effect of the adjusting entry on the accounting equation.

Asset: (200) Prepaid Insurance Liabilities: 0 No Effect Shareholders Equity: (200) Insurance Expense

In May, Rec Rooms, Inc., collected $8,000 owed by customers for services performed in April. Show the effect of this collection on the accounting equation.

Asset: D. 8,000 Cash; (8,000) Accounts Receivable Liabilities: 0 No Effect Shareholders Equity: 0 No Effect

In the first week of the new year, Just In Thyme, Inc., paid its employees $500 for the wages they had earned and recorded in the prior accounting period.

Assets: (500) Cash Liabilities: (500) Wages Payable A. 500 Wages Payable Shareholders' Equity = 0 No Effect

Indicate whether the account is an Asset, Liability or Shareholders' Equity account:

Balance Sheet: Assets report the company's economic benefits and include Cash, Accounts Receivables, Inventory, Supplies, Prepaids, and Long-lived Assets, such as Property, Plant and Equipment. Liabilities report the amount the company owes and includes Payables and Deferred Revenue, which is the amount collected in advance but not yet earned. Shareholders' equity consists of Stock (or Contributed Capital) and Retained Earnings (=Beginning Retained Earnings + Net Income - Dividends). Income Statement: Revenue minus Expenses Statement of Shareholders' Equity:Changes in Stock Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings Statement of Cash Flows: All cash collections and cash payments

Which of the following statements concerning GAAP and IFRS are false? (Select all that apply.)

C. GAAP are concepts-based principles.

February 1: Wursthaus, Inc., paid $600 cash for three months of insurance coverage that begins February 1.

E. 600 Prepaid Insurance; (600) Cash H. 0 No Effect Shareholders' Equity 0 No Effect

Which of the following characteristics are needed in order for information to be useful? (Select all that apply.)

Faithful representation Relevancy

Miss Krupt, accountant of Dewey, Cheatum and Howe, increased the company's long-term assets to their fair market values on the balance sheet. Which of the following assumptions/principles did she violate?

Historical Cost Principle

Which of the following VIOLATES the expense recognition (matching) principle?

Inventory is expensed when purchased

Indicate the financial statement where you would expect to find each line item:

The financial statements include: Income Statement: Wages Expense (amount of services received from employees during the period) Statement of Cash Flows: Cash Paid for Wages Balance Sheet: Wages Payable (amount owed for services received from employees)

Loco for Cocoa began May with $300 of supplies. It purchased $650 of supplies on account during May. It paid $430 of the amount it owed for its supplies in May. At May 31, it only has $120 of supplies left. Supplies Expense for the month ended May 31 equals _________.

beginning supplied+purchased-supplies left

Accounts Receivable is ______.

the amount the company expects to collect from sales made on account