Intermediate Accounting 1 Ch.2 B

On September 1, Year 1, Great Lakes Equipment receives $24,000 from a customer for work to be performed 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 Year 1?

$4,000

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 the cost equally over the period of use so the depreciation expense that must be recognized for the year is

20,000

On January 1, Poodle Company purchases equipment for $120,000. The equipment is expected to have a useful life of 4 years and will have no value a the end of that period. Poodle allocates the cost equally over the period of use so the depreciation expense that must be recognized for the year is

30,000

If a company fails to record depreciation expense for the year, what are the effects on the financial statements?

Assets are overstated. Expenses are understated.

When are adjusting entries recorded?

At the end of a period when preparing financial statements.

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

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.

On October 1, Year 1, Swift Corporation received $1,200 from customers for services to be performed evenly over the next 12 months. Swift recorded the original transaction in a balance sheet account. The adjusting journal entry on December 31, Year 1, will include which of the following entries?

Debit to deferred revenue $300.

Conner Corp. accrues interest on a note payable at year-end. The adjusting journal entry to record the accrual will include which of the following?

Debit to interest expense. Credit to interest payable.

Longine Co. accrues 1 week of salaries at the end of November. The adjusting journal entry to record this accrual will include which of the following?

Debit to salary expense. Credit to salary payable.

True or false: Prepayments are transactions in which the cash flow follows the expense or revenue recognition.

False

Match each item with its classification on the income statement.

Interest expense <----> Nonoperating item Depreciation expense <----> Operating item

On August 1, 2017, Clerk Company receives $15,000 from a customer on account for work to be performed evenly over the next 18 months. Clerk records this transaction in the deferred revenue account. If Clerk fails to record the adjusting entry on December 31, 2017, what is the effect on the financial statements?

Liabilities are overstated.

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

Liabilities are understated. Expense is understated. Net income is overstated.

Majerek Company accrues salaries at year-end. What is the financial statement effect of this adjusting entry?

Net income is decreased. Expense is increased. Retained earnings is decreased.

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

Net income is overstated

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

Overstate

Which of the following are examples of prepayment

Purchasing supplies that will be used later

Which of the following are examples of prepayments?

Purchasing supplies that will be used later

Which transaction or event required the journal entry: debit Interest expense for $250 and credit Interest payable for $250?

Record interest at the end of the period.

Which of the following is an example of an accrued receivable?

Recording interest revenue before it is received.

If a company fails to record an adjusting entry for accrued interest on a note payable, what are the financial statement effects? (Select all that apply.)

Retained earnings is overstated. Expenses are understated.

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

The statement of comprehensive income

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

True

True or false: The stated interest rate on debt instruments is always stated as an annual rate.

True

Which formats are acceptable for reporting comprehensive income?

Two separate but consecutive statements A single, continuous statement of comprehensive income

Which of the following is an example of an estimate?

accounting for depreciation accounting for bad debts

Adjusting entries are recorded for (Select all that apply.)

accruals prepayments estimates

Expenses incurred in one accounting period and paid for in a future accounting period are ______ liabilities

accrued

The contra account used to record depreciation is

accumulated

The balance sheet account that depreciation is recorded to is:

accumulated depreciation

To record depreciation expense (Select all that apply.)

accumulated depreciation is credited depreciation expense is debited

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

adjusted

The account balances shown in the trial balance include adjusting entries.

adjusted

Accruals occur when cash flow comes:

after revenue recognition after expense recognition

Prepaid expenses are the cost of acquired in one accounting period and in a future period. (Enter one word per blank.)

assets or asset expensed or expense

Accrued receivables involve situations when the revenue is earned in a period ______ the cash receipt.

before

Accrued liabilities are costs incurred in an accounting period:

before a cash payment

Prepayments occur when:

cash flow precedes expense or revenue recognition

A deferred revenue liability appears on the balance sheet for:

cash received before revenue is earned

On November 1, Year 1, 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, Year 1 requires a

credit to rent expense $11,000.

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

debit

The adjusting journal entry required to record depreciation includes a(n) ______ entry to depreciation expense and a(n) ______ entry to accumulated depreciation. Multiple choice question.

debit credit

On October 1, Calloway signs a 5-year interest-bearing note payable for $4,000. The note bears interest of 10%. The journal entry required on December 31 to accrue interest will include a

debit to interest expense $100.

On April 1, Gemini signs a 5-year interest-bearing note payable for $1,000. The note bears interest of 12%. The journal entry required on December 31 to accrue interest will include a

debit to interest expense $90.

An accrual expense is recorded by:

debiting an expense and crediting a payable

Which of the following items are classified as operating items on the income statement?

employee salary expense utility expense

Accountants often have to make of future amounts to comply with the accrual accounting model.

estimates or estimate

Adjusting journal entries are necessary for three situations: deferrals, accruals, and

estimates, prepayments, estimate, or prepayment

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

estimating bad debts.

Adjusting journal entries are needed to record (Select all that apply.)

expense incurred, but not yet paid revenue earned, but not yet received

Prepaid expenses are:

expensed in a later period than cash was paid

Accrued liabilities are:

expenses incurred before cash was paid

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

The financial statement that summarizes revenues and expenses for a period of time is the

income statement

The financial statement that summarizes the profit-generating activities of a company during a particular period of time is the

income statement.

The balance sheet impact of accruing salaries expense is to:

increase liabilities

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

increases; increases

Which account is used to record the accrual of interest on a note receivable?

interest receivable

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

is not required to report comprehensive income

Deferred revenue is a(n):

liability on the balance sheet

Revenue and expenses on the income statement are classified as: (Select all that apply.)

non-operating items operating items

The components of the income statement are usually classified as: (Select all that apply.)

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/12.

How are items classified on the income statement?

operating and nonoperating

On the last day of the period, a journal entry is made to record the amount of interest that has been accrued but not

paid

To calculate interest the following information is needed:

period of time interest rate principal

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

prepaid expenses

Under the two statement approach, a statement of comprehensive income is

presented immediately after the income statement

One of the purposes of adjusting entries is to

recognize all revenues earned during the period.

When an adjusting entry is made to record depreciation expense, the effect on the balance sheet is to

reduce total assets.

To adjust for rent used up during the year that was recorded to the prepaid rent account when paid for,

rent expense is debited, prepaid rent is credited

To record an adjusting entry when deferred revenue is recognized:

revenue is credited deferred revenue is debited

Adjusting entries help a company accurately measure (Select all that apply.)

the company's financial performance. revenues and expenses for the period.

Prepayments are: (Select all that apply.)

transactions in which cash flow precedes revenue recognition. transactions in which cash flow precedes expense recognition.

The statement of comprehensive income reports the changes in shareholders' equity during the period that:

were not a result of transactions with owners

On June 1, Year 1 Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the December 31 income statement for Year 1?

7000

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.

Entries made at the end of the accounting period before the financial statements are prepared are called

adjusting entries

Accruals involve transactions where the cash outflow or inflow takes place in a period ______ expense or revenue recognition

after

Recognizing revenue before cash flow is an example of:

an accrual adjusting entry

A company paying rent in advance for the month of April records:

an asset

When rent is paid in advance for 2 years, it is appropriately recorded as a(n) , whereas when rent is paid and used during one month, it is appropriately recorded as a(n) . (Enter one word per blank)

asset expense

The purpose of estimating bad debts is to

comply with the accrual accounting model.

The adjusting journal entry required when deferred revenue is recognized includes a ____ entry to revenue.

credit

The normal balance of the contra asset accumulated depreciation account is a(n)

credit

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

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

credit to deferred revenue debit to sales revenue

On October 1, Callison accepts a 5-year interest bearing note receivable for $1,000. The note bears interest of 12%. Both principal and interest are received at maturity. The journal entry required on December 31, Year 1, to accrue interest will include (Select all that apply.)

credit to interest revenue $30 debit to interest receivable $30.

On September 1, Gina accepts a 6-month interest bearing note receivable for $1,000. The note bears interest of 12%. Both principal and interest are received at maturity. The journal entry required on December 31 to accrue interest will include a

credit to interest revenue $40.

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

credit to interest revenue.

On October 1, Arcelia Corp. pays $24,000 for two years of rent. The transaction is appropriately recorded in a prepaid rent account. On December 31, of the same year Arcelia should make an adjusting entry for the rent expired, which includes (Select all that apply.)

credit to prepaid rent $3,000 debit to rent expense for $3,000.

On May 1, Year 1, Garcia 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, Year 1, will require a

debit to prepaid rent $400. credit rent expense $400

On April 1, Larken Corp. pays $36,000 for 3 years of rent. The transaction is appropriately recorded as prepaid rent. The adjusting entry on December 31, of the same year, will require a (Select all that apply.)

debit to rent expense credit to prepaid rent

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 of $400

Logan Corp. purchases supplies on account and appropriately records the transaction in an asset account. The adjusting journal entry at year-end when accounting for supplies used will require a (Select all that apply.)

debit to supplies expense credit to supplies

Ragland Corp. purchases supplies on account for $1,000 and appropriately records the transaction in an asset account. A count of inventory at year-end indicates that $300 of supplies are remaining. The adjusting journal entry required at year-end includes (Select all that apply.)

debit to supplies expense $700. credit to supplies on hand $700

Depreciation expense is _____ and accumulated depreciation is ______ to record the cost of equipment used up generating revenue in the current period.

debited credited

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

decrease