Chapter 2

Gomez company borrowed $10,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest expense that Gomez would report on its Year 1 income statements would be

$10,000 principal x .06 interest x 9/12 months = $450

Gomez company borrowed $6,000 from the State Bank on June 1, Year 1. The one-year note carried a 8% rate of interest. The amount of interest expense that Gomez would report on its Year 1 income statements would be

$280 $6,000 x .08 x 7/12 = $280

Gomez company borrowed $6,000 from the State Bank on June 1, Year 1. The one-year note carried a 8% rate of interest. The amount of interest expense that Gomez would report on its Year 2 income statements would be

$6,000 x .08 x 5/12 = 200

Gomez company borrowed $10,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of cash outflow from operating activities that Gomez would report on its Year 2 income statements would be

$600 the total amount of cash is paid at the maturity date march 31, Year 2

In which situation will Anna's Catering recognize revenue Anna's Catering agreed to cater an office lunch for All Business next week. Anna's Catering received a $500 deposit to cater a wedding reception next summer. Anna's catering catered a dinner meeting for arts and such and billed the customer $850 Anna's month collected $900 from Football Corporation for a meal that was created last month.

Anna's catering catered a dinner meeting for arts and such and billed the customer $850

When is rent expense recorded?

At the end of each month by a company who rents their facility.

When is rent revenue recorded by a property owner?

At the end of each month when the property is occupied by a tenant.

When is insurance expense recorded?

At the end of the month by a company who is covered by insurance policies.

Arbor Company borrowed $16,000 at 5% interest from a bank on April 30, 2018. The loan must be repaid on April 30, 2019. How much interest expense should Arbor Company show in the income statement for the year ended December 31, 2018? A $0 B $533 C $600 D $800

B $533

The account salaries payable is reported on the

Balance Sheet

Collecting an account receivable affects which of the following financial statements? (Select all that apply) Balance Sheet Statement of changes in stockholders equity Statement of cash flows Income Statement

Balance Sheet+++ Statement of changes in stockholders equity Statement of cash flows+++ Income Statement

When a company pays cash to settle accounts payable, which financial statements are affected? (Select all that apply) Balance Sheet Statement of changes in stockholders' equity Income statement Statement of cash flows

Balance Sheet+++ Statement of changes in stockholders' equity Income statement Statement of cash flows+++

Anabelle Corporation received and paid its August utility bill. How does this transaction impact the Statement of Cash Flows? This transaction does not impact the Statement of Cash Flows. Cash outflow in the investing section Cash outflow in the financing section Cash outflow in the operating section

Cash outflow in the operating section

Arbor Company borrowed $16,000 at 5% interest from a bank on April 30, 2018. The loan must be repaid on April 30, 2019. Which liability account will be impacted by the interest accrual on December 31, 2018? A Unearned revenue B Accounts payable C Notes payable D Interest payable

D Interest payable

Candle Company made a $6,400 sale on account to a customer in February. That customer paid Candle Company in April. What is the impact on Candle Company's April income statement? A Net income increases. B Net income decreases. C Cash increases. D There is no impact to the April income statement.

D There is no impact to the April income statement.

Where is Net Income from the Income Statement is added to?

Retained Earnings within the statement of stockholders' equity.

Alan company reported $224,000 of net income during 2017. How will this impact December 31, 2017 balance sheet?

Retained earnings will increase by $224,000

What does revenue increase?

Revenue increases net income, which increases retained earnings.

JT's Lawn Care applies fertilizer to a company's yard and send the customer and invoice. When is revenue earned?

Revenue is earned on the date the fertilizer was applied, even though the customer did not pay.

The ending cash balance on the statement of cash flows matches what?

The cash section on the balance sheet.

Which transaction will increase a company's retained earnings? The company received a $10,000 contribution from a shareholder in exchange for common stock. The company incurred $200 of utilities expense. The company paid a $1,000 dividend to its shareholders. Correct! The company earned $700 of revenue.

The company earned $700 of revenue.

When is repairs and maintenance expense recorded?

If a company hired a plumber to fix a faucet.

Provided services on account affects which of the following financial statements? Income Statement Balance Sheet Statements of cash flows Statement of changes in stockholders equity

Income Statement Balance Sheet Statement of stockholders

Incurring a cash expense affects which of the following financial statements? (Select all that apply) Income statement Statement of changes in stockholders equity only the balance sheet and income statement statement of cash flows balance sheet only the income statement and the statement of cash flows

Income statement+++ Statement of changes in stockholders equity+++ only the balance sheet and income statement statement of cash flows+++ balance sheet+++ only the income statement and the statement of cash flows

Kelly's Lawn Care had the following transactions in September. In which situation would Kelly's Lawn Care recognize revenue in September? Kelly's Lawn Care received $10,000 cash from a stockholder in exchange for common stock. Kelly's Lawn Care agreed to aerate and overseed a customer's lawn in October. Kelly's Lawn Care collected $100 on account from a customer for landscaping services provided in August. Kelly's Lawn Care completed a landscaping project and billed a customer $900.

Kelly's Lawn Care completed a landscaping project and billed a customer $900.

Kelly's Lawn Care had the following transactions in September. In which situation would Kelly's Lawn Care recognize salaries expense in September? Kelly's Lawn Care hired five new employees who will start work on October 1. Kelly's Lawn Care paid a $500 dividend to its shareholders. Kelly's Lawn Care employees earned $500 for working the last week of September and will be paid on October 15. Kelly's Lawn Care paid employees for $1,100 of salaries accrued in August.

Kelly's Lawn Care employees earned $500 for working the last week of September and will be paid on October 15.

Which accounting concept requires companies to record revenue and related expenses in the same accounting period? Matching principle Accrual principle Income principle Articulation

Matching principle

Employee of Pete's Plates earned $7,420 for hours worked in September and will be paid during the first week of October. How is the September income statement affected? Net income increases Net income decreases Cash decreases The September income statement is not affected by this transaction.

Net income decreases

Grey Company earned $5,000 of revenue on account during Year 1, but collected the cash associated with the receivable in Year 2. Based on this information alone, under accrual accounting, the company would report: Net income of $5,000 and cash inflow from operations of zero in year 1 Net income of zero and cash inflow from operations of $5,000 in year 1 Net income of zero and cash inflow from operations of $5,000 in year 2 Net income of $5,000 and cash inflow from operations of zero in year 2

Net income of $5,000 and cash inflow from operations of zero in year 1 Net income of zero and cash inflow from operations of $5,000 in year 2

What is the equation for determining interest?

Principal x Annual interest rate x Time outstanding = interest expense

What is accrual accounting?

Recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash transfers. required by generally accepted accounting principles (GAAP)

Under Generally Accepted Accounting Principles (GAAP), revenue is recognized: when a company provides services to a customer. when a company signs a contract for future services for a customer. when a company collects cash from a customer. when a company utilizes or consumes resources.

When a company provides services to a customer.

According to Generally Accepted Accounting Principles (GAAP), when should a company recognize expense? When cash is paid When cash is received When resources are utilized When earned

When resources are utilized

When is revenue recognized?

When the company transfers goods or services to customers in the amount the company expects to receive

When is salaries/wage expense recorded?

When the employees of a company work.

Adjusting entries are normally prepared: At the end of an accounting period after financial statements are prepared during an accounting period to record events in real time at the end of an accounting period before financial statements are prepared at the beginning of an accounting period before transactions are recorded.

at the end of an accounting period before financial statements are prepared.

When is utilities expense recorded?

when a company receives a utility bill.

When is advertising expense recorded?

when an advertisement appears in a local newspaper.

The ending common stock balance in the Statement of Stockholders' Equity: must match the ending cash balance in the Statement of Cash Flows. must match net income in the Income Statement. will appear in the revenue section of the Income Statement. will appear in the stockholders' equity section of the Balance Sheet.

will appear in the stockholders' equity section of the Balance Sheet.

Cooper CPAs is an accounting firm that provides audit and tax services to clients. The following events occurred in September. Which would result in revenue recognized in the September income statement for Cooper CPAs? A Cooper CPAs completed an audit for Apple Company and billed Apple Company $12,000. B Cooper CPAs collected $1,000 from Banana Company for tax services provided in July. C Cooper CPAs received a $1,500 deposit from Cherry Company for audit services to be provided in January of next year. D Cooper CPAs agreed to prepare Date Company's tax return in February of next year.

A Cooper CPAs completed an audit for Apple Company and billed Apple Company $12,000.

Family Fun Company received its July electric bill in August and paid the bill in September. In which monthly income statement should Family Fun Company recognize utilities expense? A July, when the electricity was used. B August, when the bill was received. C September, when the bill was paid.

A July, when the electricity was used.

ABC Attorneys provided legal services and billed a client $2,000. Which asset account is impacted by this transaction? Accounts payable Cash Accounts receivable Revenue

Accounts receivable

During September, Pete's Plates collected $5,000 from a customer for a sale made in July. How is this transaction captured in the September statement of cash flows?

Cash inflow from operating activities

Bill's Boats purchased $1,000 of office supplies on account from a supplier in June. Bill's Boats paid for the supplies in July. Bill's Boats used the supplies in August. When should Bill's Boats recognize supplies expense? A In June, when the supplies were purchased. B In July, when the bill was paid. C In August, when the supplies were used.

C In August, when the supplies were used.

Candle Company's employees earned $4,100 in salaries during the month of March. Paychecks will be issued on April 15. What is the impact to the March balance sheet? A Assets decrease. B Liabilities decrease. C Retained earnings decreases. D There is no impact to the March balance sheet.

C Retained earnings decreases.

How does declaring and paying a cash dividend affect the balance sheet?

Cash decrease and retained earnings decrease

Which of the following shows how issuing a note to borrow money affects financial statements? Cash flow decreases Revenue increase Liabilities increase Total assets increase

Cash flow decrease Revenue Liabilities +++ Total assets increase +++

What do expenses decrease?

Expenses decrease net income, which decreases retained earnings.

Which of the following shows how recognizing an expense on account affects financial statements? (Select all that apply) Expenses increase Liabilities decrease Assets increase Cash flow decreases Net Income decreases

Expenses increase+++ Liabilities decrease Assets increase Cash flow decreases Net Income decreases+++

Paying a cash dividend has what affect on the statement of cash flows?

Decrease cash flow from financing activities

Burns company borrowed $4,000 from the State Bank on December, Year 1. The one-year note carried a 9% rate of interest. The effect of paying the maturing note would be to Increase cash and decrease notes payable Decrease cash, decrease notes payable and decrease interest payable decrease cash and increase notes payable decrease cash, decrease expenses and increase interest payable

Decrease cash, decrease notes payable and decrease interest payable.

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

Decreases and cash increases

An employees of JT's lawn care works 40 hours during the week but will not be paid until the end of the month. When is salaries expense incurred?

Salaries expense in incurred when the employee works, even though JT's has not yet issued the paycheck

When a company recognizes an accrued salary expense, the amount of (Select all that apply) Salaries payable decreases cash decreases expense increase expense decreases cash is not affected salaries payable increases expenses is not affected salaries payable is not affected cash increases

Salaries payable decreases- cash decreases- expense increase+ expense decreases- cash is not affected+ salaries payable increases+ expenses is not affected- salaries payable is not affected- cash increases-

Anabelle Corporation incurred $5,200 of salaries expense in August but did not pay the employees until September. How will the September payment impact Anabelle Corporation's September Balance Sheet? Salaries payable will increase. Salaries payable will decrease. The September transaction does not impact the Balance Sheet. Cash will increase.

Salaries payable will decrease.

Sales revenue is recorded when a restaurant...

Sells food to a customer

Dividends appears on which of the following statements? Balance Sheet Income Statement Statement of Cash Flows Statement of Changes in Stockholders' Equity

Statement of Changes in Stockholders' Equity

When is Supplies expense recorded?

Supplies expense is recorded when a company uses office supplies

Anabelle Corporation incurred $5,200 of salaries expense in August but did not pay the employees until September. How will the September payment impact Anabelle Corporation's September Income Statement? Revenue will increase. The September transaction does not impact the Income Statement. Revenue will decrease. Cash will decrease.

The September transaction does not impact the Income Statement.

The ending balances of common stock and retained earnings in the statement of stockholders' equity appears in what?

The stockholders's equity section of the balance sheet.

Alan company received $1,000,000 for the issuance of common stock. How does this transaction impact Alan company's income statement

This transaction does not affect the income statement.

When are expenses recognized?

Under GAAP, expenses are triggered by the consumption or utilization of resources, not by the payment of cash.

Signing a contract to provide future services. has no effect on financial statements affects the income statements only affects the income statement and the statement of cash flows affects the balance sheet and the statement of cash flows

has no effect on financial statements

When a company collects an account receivable, the amount of revenue is not affected decreases increases

is not affected

how does declaring and paying a cash dividend affect the income statement

no effect

Fee revenue is recorded by an attorney who....

provides legal services to a client.