BUS-A200 Exam 2

Coffee Company had a $500 beginning balance in its supplies account. The company purchased $2,000 of supplies during the accounting period. A physical count of supplies determined that $400 of supplies were on hand at the end of the accounting period. The amount of supplies expense to be recognized is ______.

$2,100 Reason: $500 beginning balance + $2,000 purchased - $400 ending balance = $2,100 supplies used.

Coffee Company had a $500 beginning balance in its supplies account. The company purchased $2,000 of supplies during the accounting period. A physical count of supplies determined that $400 of supplies were on hand at the end of the accounting period. The amount of supplies available for use during the accounting period was ______.

$2,500 Reason: $500 beginning balance + $2,000 purchased = $2,500 supplies available for use.

During Year 1, Silver Sinks, Inc. earned $33,000 of revenue on account. Cash collections of receivables were $28,000. The remainer of the receivables were collected in Year 2. As a result of these transactions, Silver Sink will report Year 1 net income of ______.

$33,000 and cash inflow from operating activities of $28,000 in Year 1 and $5,000 in Year 2

If cost of goods available for sale is $60,000, beginning inventory was $10,000 and ending inventory is $12,000, cost of goods sold is ______.

$48,000 Reason: $60,000 cost of goods available for sale - $12,000 ending inventory = $48,000

Green Company incurred $5,000 of accrued expenses during Year 1, but paid the cash associated with the payables in Year 2. Based on this information alone, under accrual accounting, the company would report a net loss of ______.

$5,000 and cash outflow from operations of zero in Year 1 zero and cash outflow from operations of $5,000 in Year 2

If beginning inventory is $14,000, ending inventory is $12,000, and purchases are $64,000, then cost of goods sold is ______.

$66,000 Reason: $14,000 beginning inventory + $64,000 purchases - $12,000 ending inventory = $66,000

Which of the following accounts are reported on the balance sheet?

Accounts receivable Salaries payable

How will the adjusting entry that recognizes the inventory shrinkage affect the statement of cash flows?

Cash flow from operating activities will not be affected.

Which of the following are found on the statement of changes in stockholders' equity?

Dividends Beginning retained earnings Common stock Net income

Which of the following describes the matching concept?

Expenses should be matched with the revenue they produce.

True or false: The purchase of supplies on account impacts both the balance sheet and income statement.

False

Which financial statement is not affected when merchandise inventory is purchased for cash?

Income Statement

On September 1 of Year 1, a law firm collected cash for services to be provided in Year 2. Based on this information, how will the recognition of earned revenue affect the Year 2 balance sheet?

Liabilities will decrease and equity will increase.

On September 1 of Year 1, a law firm collected cash for services to be provided in Year 2. Based on this information, how would the recognition of earned revenue affect the Year 2 income statement and statement of cash flows?

Net income will increase and cash flows will not be affected.

When a company recognizes revenue on account, the balance in the ______.

accounts receivable account increases and balance in the revenue account increases

The entry to recognize accrued salary expense is called a(n) ________ entry.

adjusting

An expense is ______.

an economic sacrifice resulting from operating activities undertaken to generate revenue

The purchase of supplies on account is a(n) ______ transaction.

asset source

On June 1 of Year 1, a company paid $2,400 cash to rent office space for one year beginning immediately. Based solely on this information, how this transaction would affect the Year 2 financial statements? Assume that the company's accounting year is same as the calender year. (Select all that apply.)

assets

An entity's assets, liabilities and stockholders' equity are disclosed on the ______.

balance sheet

Salaries payable is reported on the ______.

balance sheet

The Merchandise Inventory account appears on the ______.

balance sheet

Unearned revenue appears on the ______.

balance sheet

An accrued expense is the recognition of an expense ___________ (before/after) cash is paid

before

Cost of goods available for sale is calculated as ______.

beginning inventory balance + inventory purchased during the period

The cost of supplies used during the period is determined by the calculation ______.

beginning supplies balance + supplies purchased - ending supplies balance

When an employee works in Year 1 but is paid in Year 2, ______.

both an expense and liability are recorded in Year 1 there is no income statement affect in Year 2 there is no cash flow affect in Year 1

Recognizing a cash expense for advertising will ______.

cause a decrease in the net cash flow from operations shown on the statement of cash flows cause the amount of assets shown on the balance sheet to decrease

The beginning balance in the inventory account plus the amount of inventory purchased during the accounting period is equal to ______.

cost of goods available for sale

On August 1 of Year 2, a company paid cash to purchase prepaid rent. The December 31st adjusting entry will ______.

decrease assets, net income and stockholders' equity

When a company sells inventory using the perpetual inventory system, the balance in the inventory account ______.

decreases

Westchester Company signed a legally binding contract to provide $3,000 of services to be performed in the future. Signing the agreement ______.

did not affect cash flow did not affect retained earnings

An economic sacrifice resulting from operating activities undertaken to generate revenue is called a(n)

expense

The statement of cash flows ______.

explains the change in cash from the beginning to the end of the accounting period

If a merchandising company sells land for more than its cost, it will report a(n) ______.

gain on the sale of land

Signing a contract to provide future services ______.

has no effect on financial statements

Cost of goods sold appears on the ______.

income statement

Recognizing revenue on account affects the ______.

income statement statement of changes in stockholders equity balance sheet

When a company purchases inventory using the perpetual inventory system, the balance in the inventory account ______.

increases

When a company collects cash from an account receivable, cash ______.

increases and accounts receivable decreases

Acquiring cash by issuing common stock ______.

increases common stock increases cash

Period costs include ___.

interest administrative salaries sales commissions

The products that merchandising companies sell to their customers are called merchandise _______

inventory

The chief advantage of the perpetual inventory system is ______.

inventory control

A change in stockholders' equity is caused by ______.

issuing stock earnings incurring a cash expense

The Unearned Revenue account is shown in the ______.

liabilities section of the balance sheet

Inventory shrinkage may be caused by ______.

lost or damaged inventory shoplifting

Chambers Inc. recognizes all expenses in the same period the revenue is recognized, regardless of when cash changes hands. This is known as the _______ concept.

matching

Income statements that display additional relationships rather than a single comparison of all revenues minus all expenses are called ____ income statements

multistep

Recognizing revenue on account affects financial statements by increasing ______.

net income revenue accounts receivable

Salaries payable represents an ______ in the future.

obligation to pay employees cash

The adjusting entry for shrinkage impacts ______.

only the balance sheet and income statement

Adjusting journal entries ______.

only update accounting records

An obligation to pay cash to employees in the future is normally called salaries _______.

payable

The statement of changes in stockholders' equity reports ______.

paying dividends issuing common stock earning net income

Since selling and administrative expenses are usually recognized when they are incurred, they are sometimes called ____ costs

period

Advances in technology have spurred the growth of the _______ inventory system. (Enter only one word per blank.)

perpetual

Product costs include the ______.

purchase price of an item held for resale cost paid to have an item delivered to a retail company

The chief advantage of the periodic inventory system is ______.

recording efficiency

When merchandise inventory is purchased for cash, total assets ______.

remain unchanged

Recognizing revenue on account affects the financial statements by increasing ______.

revenue accounts receivable retained earnings

Merchandising businesses generate revenue by ______.

selling goods to customers

A term that reflects decreases in inventory for reasons other than sales to customers is ______.

shrinkage

Income statements that display a single comparison of all revenues minus all expenses are called ______ income statements.

single-step

The change in cash is explained by the ______.

statement of cash flows

If a company has assets of $65,000 and liabilities of $30,000 then ______ must equal $35,000.

stockholders' equity

Purchasing prepaid rent has no effect on ______.

the income statement total assets

The purchase of merchandise on account affects ______.

total assets total liabilities

When cash is received in advance of providing a service both the cash and ______ _______ accounts increase.

unearned revenue

Product costs are normally expensed in the period ______.

when inventory is sold

When merchandise inventory is purchased on account, total assets ______.

will increase

Accrued salary expense occurs when an employee ______.

works in Year 1, but is paid in Year 2

Which of the following are reported on the income statement?

Consulting revenue Advertising expense Salary expense Net income

Which of the following items appears on the income statement?

Cost of Goods Sold Selling and Administrative Expenses Gross Margin

Which of the following statements is true?

Product costs are expensed in the period in which inventory is sold. Period costs are expensed in the period in which they are incurred.

On September 1 of Year 1, an accountant collected $2,400 cash in exchange for an agreement to provide consulting services for one year beginning immediately. Assuming a December 31 year end, how will the Year 2 financial statement be affected?

The income statement will show $1,600 of earned revenue. The statement of cash flows would show zero inflow from operating activities. The balance sheet will show a zero balance in the Unearned Revenue account.

On June 1 of Year 1, a company paid $2,400 cash to rent office space for one year beginning immediately. Based solely on this information, how this transaction would affect the Year 2 financial statements? Assume that the company's accounting year is same as the calender year. (Select all that apply.)

The income statement would show $1,000 of rent expense. The statement of cash flows would not be affected.

On August 1 of Year 1, a company paid $1,200 cash in exchange for an insurance policy that protects the company from loss due to fire for a one year term. Based solely on this information, how will the December 31, Year 1 financial statements be affected?

The statement of cash flows will show $1,200 outflow from operating activities. The income statement will show $500 of insurance expense. The balance sheet will show $700 of prepaid insurance.

Ron Company sold land that cost $150,000 for $160,000. The company also sold inventory that cost $60,000 for $85,000. Based on this information, the company will report ______

a gain of $10,000 and gross margin of $25,000