Accounting BUS 121A Ch2

An adjusting entry to record depreciation expense for the period will _______ total assets

decrease

Match each item with its classification on the income statement

Interested expense --> Non operating Item Depreciation expense --> Operating item

A perpetual system requires that merchandise purchases be recorded in the _______ account

Inventory

The purchases account is debited to record purchases of inventory in a:

Periodic inventory system

The process of transferring information from the journal to the ledger is referred to as

Posting

If a company fails to record depreciation expense for the year, net income is

overstated.

Prepaid expenses are costs of assets acquired in an accounting period

BEFORE they will be expensed

The purpose of estimating bad debts is to

Comply with the accrual accounting model

Cost of assets acquired in one accounting period and expensed in future accounting period are

Prepaid expenses

Repetitive transactions such as sales or purchases are usually recorded in a(an) ________ rather than the general journal

Special journal

Which financial statement shows the sources of the changes in the various permanent equity account?

Statement of shareholder's equity

To accrue interest earned on a note receivable that has not yet been collected, _______ interest receivable and _______ interest revenue

debit, credit

How are items classified on the income statement?

operating and non operating

On July 1, Perry Company signed a note with principal of $80,000 and a stated interest rate of 4%. The principal and interest are due on April 1 of the following year. Perry will accrue interest on December 31st of

$1,600

On January 1, Noonan Company purchases equipment for $100,000. The equipment is expected to have a useful life of 5 years and will have no value at the end of that period. Noonan allocates to cost equally over the period of use so the depreciation expense that must be recognized for the year is

$20,000

On September 1, 2017, Great Lakes Equipment receives $24,000 from a customer for work to be preformed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December 2017?

$4,000

On June 1, 2017, receives $24,000 from customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the income statement for 2017?

$7,000

Beginning inventory was $50,000. Inventory purchased during the year cost $75,000. Inventory on hand at year-end was $40,000. Cost of goods sold was

$85,000

Jackson Corp. has beginning retained earnings of $400. During the year Jackson had $800 of revenues and $200 in expenses. Jackson paid a dividend of $100. What is retained earnings at year-end?

$900

Which of the following serves to relay important information about a transaction to the accountant?

1. sales invoices 2. bills from suppliers 3. cash register tapes

On October 1, Hill Corportation signed a 6-month note with principal of $10,000 and interest of $600 due in six months. THe stated rate of interest on the note is

12%

Flounder Corp. sold $12,000 of goods on account. The entry to record this transaction would include a debit to

Accounts receivable

After the adjusting entries have been posted to the general ledger, the next step in the accounting processing cycle is to prepare an _______ trial balance

Adjusted

Accruals occur when cash flow comes

After revenue recognition After expense recognition

The financial statement that presents the financial position of the company on a particular date is the

Balance sheet

Accrued liabilities are costs incurred in an accounting period

Before a cash payment

An accrued receivable occurs when revenue is earned

Before cash flow

Samuel Corporation purchased a building for $500,000. To record this transaction,

Building is debited $500,000; cash is credited $500,000

Which transaction will require the following journal entry? July 25 Cash 1,500 Account receivable 1,500

Collect from customer on account

On October 1, Company B records 1 year of prepaid rent in an income statement account that adjusts for the unexpired prepaid rent at the end of the period. Which of the following statements is true for company B's financial statement at December 31 year-end?

Company B's assets and expense should be the same regardless of which account was used to record the original transaction.

When inventory is sold in a perpetual inventory system

Cost of goods sold is debited; inventory is credited, sales revenue is credited.

An alternative approach to recording unearned revenue would be to _______ when cash is collected from a customer in advance of providing goods and services.

Credit sales revenue

Green Pro accrues interested at year-end on a note receivable. The adjusting journal entry to record the accrual will include a

Credit to interest revenue.

On November 1, 2017, Thomasson paid rent on its building for 2 years in the amount of $12,000. When the transaction was initially recorded, the full $12,000 was recorded as an expense using an alternative approach to record the prepayment. The adjusting journal entry on December 31, 2017 requires a

Credit to rent expense $11,000

Klondike Inc. sold goods to customers for $5,000 cash. The cost of the goods was $3,000. The journal entry to record this transaction would include a

Credit to sales $5,000.

_______ are those that are cash, will be converted into cash, or will be used up within 1 year or the operating cycle, whichever is longer

Current assets

On July 1, Davis corporation pays $10000 for August rent. Which of the follow are correct?

Davis debits prepaid rent $10000; Davis credits cash $10000

The adjusting journal entry required when deferred revenue is recognized includes a _______ entry to a liability

Debit

Carly enterprises borrows $3,000 on a 9-month 8% note from Second National Bank

Debit cash $3000; credit note payable $3000.

The journal entry to record the insurance of 100 shares of $5 par value common stock for $500 would include which of the following?

Debit cash $500

On September 1, Newman Company received $1,200 of revenue in advance from customers for work to be performed evenly over the next 12 months. The transaction was recorded in an income statement account. What is the adjusting journal entry required on December 31?

Debit revenue $800

Janet Company purchased supplies on account for $3000. The journal entry required to record this transaction is

Debit supplies on hand $3000; credit accounts payable $3000

Lemon Creek Industries purchased a building for $280,000.The journal entry to record this transaction would include a

Debit to building $280,000

Ferguson Corp. purchased inventory on account for $20,000. The entry to record this transaction would include

Debit to inventory $20,000; credit to accounts payable $20,000.

On May 1, 2017, Gracia Company paid $1,200 for 12 months of rent and recorded the transaction in an income statement account. The adjusting journal entry required on December 31, 2017, will require a

Debit to prepaid rent $400 Credit rent expense $400

Revenue of $1,000 was collected in advance from customers for goods and was recorded as sales revenue. At year end, $600 of the revenue collected in advance is earned. The adjusting entry includes a:

Debit to revenue of $400 Credit to deferred revenue $400

Brunson Company pays employees $4.000 for work performed in the current month. The journal entry to record the transaction will include

Debit to salary expense; credit to cash

The adjusting entry to record deferred revenue originally recorded as sales revenue includes a

Debit to sales revenue Credit to deferred revenue

In a journal entry, the amount to be _______ is entered in the first column, and the amount to be _______ is entered in the second column

Debited; credited

Which transaction will require the following journal entry? July 30 Retained earnings 1,000 Cash 1,000

Declare and pay for dividend.

A situation that requires an adjusting entry that is not prepayment or an accrual entry is

Estimating bad debts

If a company fails to record an adjusting entry for accrued interest on a note payable, what are the financial statement effects?

Expenses are understated Retained earnings is overstated

Carradine Company prepares an adjusting journal entry to accrue salaries at year-end. What effect will this entry have on the financial statements?

Expenses will increase

Neumann Corporation prefers to present a separate income statement. Neumann can satisfy the requirements for reporting comprehensive income by presenting comprehensive income

Immediately following the income statement

Accruing a receivable _______ accounts receivable on the balance sheet and _______ revenues on the income statement.

Increases; increases

Inflows and outflows of cash involving the acquisition and sale of long-term assets are

Investing activities

Muller Company does not report other comprehensive income items. Muller Company

Is not required to report comprehensive income

Deferred revenue should be classified as a(n) _______ on the balance sheet

Liability

A company fails to accrue salaries at year-end. What is the financial statement effect of this error?

Net income is overstated

Persimmon Company fails to record an accrual for salaries at year-end. What are the financial statement effects of this error?

Net income is overstated Liabilities are understated Expense is understated

For manufacturing firm, the period of time necessary to convert cash to raw material, raw materials to a finished product, the finished product to receivable, and the the receivables back to cash is known as the _______ cycle

Operating

Cash flows are classified on the statement of cash flows as

Operating Financing Investing

Failure to record the adjusting entry for deferred revenue now earned causes liabilities on the balance sheet to be what?

Overstated

Which transaction or event required the following journal entry? Interest expense 250 Interest payable 250

Record interest at the end of the period

Paid-in-capital of common stock and _______ _______ are included in shareholders' equity

Retained earnings

Which transaction would require the following journal entry? July 9 Account receivable 3500 Sales revenue 3500 Cost of goods sold 2000 Inventory 2000

Sales on account

The justification for a company initially recording prepaid rent in either an income statement or balance sheet account is that

The accounts are adjusted at year-end to reflect the correct balances.

Which statement reports the changes in shareholder's equity during the period that were not a result of transactions by owners.

The statement of comprehensive income

The process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved is called

Transaction analysis

Prepayments are

Transaction in which cash flow precedes EXPENSE and REVENUE recognition

At the end of the period, an unadjusted _______ _______, a listing of all accounts with their respective balances, is used to assist in the preparation of adjusting entries, financial statements, and closing entries

Trial Balance

True of false: Under the one and two statement approaches to reporting comprehensive income the content is the same

True

True or false: The purpose of the statement of cash flows is to summarize the transactions that caused cash to change during the period.

True

True or false: The statement of shareholders' equity indicates the changes in the various permanent equity accounts.

True

True or false: it is acceptable accounting practice to initially record prepaid rent in either a balance sheet or income statement account

True

Place the steps at the end of the accounting period in the correct order

[1: Obtain information about external transaction from source documents 2: Analyze the transaction. 3: Record the transaction in a journal 4: Post from the journal to the general ledger accounts. (During accounting period)] [5: Prepare an unadjusted trial balance 6: Record adjusting entries and post to the general ledger accounts 7: Prepare an adjusted trial balance 8: Prepare financial statements. (At the end of the accounting period)] [9: Close the temporary accounts to retained earnings 10: Prepared a post-closing trial balance. (At the end of the year)]

Accumulated depreciation is

a contra asset account; a balance sheet account

The contra account used in record depreciation is _______ depreciation

accumulated

When rent is paid in advance, it is properly recorded on the balance sheet as

an asset

To increase the accumulated depreciation account, you would _______ the account, and to increase depreciation expense, you would _______ the account.

credit; debit

When a company pays rent in advance, prepaid rent is _______ and cash is _______

debited; credited

The two methods used to prepare a statement of cash flows are the _______ method and the _______ method

direct; indirect

When a company declares a dividend, the temporary _______ account is often debited.

dividend

Prepaid expenses are

expensed in a later period than cash was paid

In a perpetual system, each time goods are sold, cost of goods sold is debited and _______ is credited

inventory

Revenue and expenses on the income statement are classified as

non-operating items operating items

The general formula used to calculate interest accrued on a note payable is principal times rate times

number of months outstanding in the current year divided by 12

A prepayment may be recorded in prepaid rent, a balance sheet account. The alternative method to record the prepayment is to debit the _______ _______ account

rent expense