intermediate Ch 2 smartbook

Bigelow Company purchases supplies on account. What are the effects on the balance sheet equation? (Select all that apply.)

increase liabilities increase assets

Pluto Corporation borrows $20,000 from the bank. What are the balance sheet effects of this transaction? (Select all that apply.)

increase liabilities increase assets

Conner Corporation purchases supplies on account. This transaction will Blank______ assets and Blank______ liabilities.

increase; increase

Purchasing supplies on account Blank______ the supplies account and Blank______ accounts payable.

increases; increases

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 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 Reason: $24,000/24 months = $1,000 per month x 4 months = $4,000 revenue recognized.

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?

$7,000 Reason: $24,000/24 months = $1,000 per month x 7 months = $7,000 revenue.

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

Which transaction would result in the following journal entry: debit Cash for $40,000 and credit Notes payable for $40,000?

Borrow from a bank.

What account is debited when cash is collected from customers for a previous sale on account?

Cash

On July 1, Davis Corporation pays $10,000 for August rent. Which of the following are correct? (Select all that apply.)

Davis credits cash $10,000 Davis debits prepaid rent $10,000

On July 1, Davis Corporation receives $10,000 for rent in advance from a tenant. Which of the following are correct for Davis to record? (Select all that apply.)

Debit cash $10,000 Credit deferred rent revenue $10,000

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

Debit cash $500.

Majerek Company accrues salaries at year-end. What is the financial statement effect of this adjusting entry? (Select all that apply.)

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

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.

True or false: Retained earnings equals net income plus distributions to shareholders.

False

Hargrave Professional Group performs legal services on account. What is the effect of this transaction on the balance sheet equation for Hargrave?

Increase assets

An individual invests $10,000 to open a new business. What is the effect on assets?

Increase in total assets

Galaxy Corporation issues 500 shares of $1 par value common stock for $5,000. What is the total effect on owners' equity?

Increases $5,000

Identify which transaction would result in the following journal entry: debit to Cash for $60,000 and credit to Common stock for $60,000.

Issue stock to investors

Which accounts are closed to retained earnings at the end of an accounting period?

Temporary

What transaction results in a debit to cash and a credit to deferred rent revenue?

The receipt of rent in advance.

Which of the following statements most accurately describes the purposes of the closing entries?

To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings

Brunson Company pays employees $4,000 for work performed in the current month. The journal entry to record the transaction will include (Select all that apply.)

a debit to salary expense a credit to cash

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 depreciation

accumulated

The contra account used to record depreciation is depreciation. (Enter only one word.)

accumulated

The balance sheet account that depreciation is recorded to is:

accumulated depreciation

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

after

Accruals occur when cash flow comes: (Select all that apply.)

after revenue recognition after expense recognition

Which of the following make up shareholders' equity? (Select all that apply.)

amounts earned by the corporation amounts invested by shareholders

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

an asset.

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

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)

asset expense

The effect on the accounting equation from using supplies which had been previously recorded as an asset is:

assets decrease and owners' equity decrease

The portrays the equality between the total economic resources of a company and the total claims to those resources by creditors and owners.

basic accounting equation

Accrued liabilities are costs incurred in an accounting period:

before a cash payment

Prepaid expenses are costs of assets acquired in an accounting period:

before they will be expensed

Which of the following are permanent accounts? (Select all that apply.)

common stock cash equipment

Which accounts require a credit to increase the account? (Select all that apply.)

common stock revenue

In a double entry accounting system, the right side of the account is represented by a(n)

credit

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

credit

To record the purchase of supplies on account: (Select all that apply.)

credit accounts payable debit supplies

Drake Corp. received $5,000 from customers for goods sold on account in the previous month. The journal entry for this transaction will include a

credit to accounts receivable.

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

credit to interest revenue.

Klondike Inc. sold goods to customers for $5,000 cash. The cost of the goods was $3,000. The journal entries to record this transaction include (Select all that apply.)

credit to inventory $3,000. credit to sales $5,000. debit to cost of goods sold $3,000. debit to cash $5,000.

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.

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.)

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

To increase a liability, one should Blank______ the liability account and to increase an asset, one should Blank______ the asset account.

credit; debit

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

debit

Glasser Corp. sold goods on account. The journal entry to record this transaction includes (Select all that apply.)

debit accounts receivable credit inventory credit revenue debit cost of goods sold

To record the issuance of common stock at par value, (Select all that apply.)

debit cash credit common stock

Tindall Corp. purchased inventory for $50,000 cash. The entry to record this transaction is

debit inventory $50,000; credit cash $50,000.

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

debit to building $280,000.

Beck Company borrowed $50,000 from the bank and signed a note. The journal entry Beck makes to record this transaction includes (Select all that apply.)

debit to cash for $50,000 credit to notes payable $50,000

Kendall Corp. purchased equipment for $100,000 by paying $20,000 in cash and signing a note payable for $80,000. The journal entry to record this transaction would include a

debit to equipment $100,000.

Ferguson Corp. purchased inventory on account for $20,000. The entry to record this transaction would include (Select all that apply.)

debit to inventory $20,000. credit to accounts payable $20,000.

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

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.)

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

Brunson Company pays employees $4,000 for work performed in the current month. The journal entry to record the transaction will include a

debit to salary expense.

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

To accrue utilities expense at year-end that has not been paid,

debit utilities expense and credit utilities payable

James Corporation paid $5,000 cash for supplies. The supplies account is Blank______ and the cash account is Blank______.

debited, credited

Supplies expense is Blank______ and supplies is Blank______ for the amount of supplies used during the period that were originally recorded as an asset when purchased.

debited, credited

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

debited, credited

An accrual expense is recorded by:

debiting an expense and crediting a payable

Salaries paid to employees owners' equity for the expense incurred. (Enter only one word.)

decrease

The payment of an account for supplies purchased in the previous month will Blank______ the cash account.

decrease

Royce Corporation pays for supplies purchased in the previous month. What is the effect on the accounting equation for the payment of the supplies? (Select all that apply.)

decrease assets decrease liabilities

Londa Corporation pays employees $3,000 for the month. What is the effect on the balance sheet equation? (Select all that apply.)

decrease assets decrease owners' equity

The use of office supplies purchased on account in the previous month will have what effects on the balance sheet equation? (Select all that apply.)

decrease assets decrease retained earnings

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

True or false: Permanent accounts are closed at the end of the accounting period.

false

A transaction is an event that

has a dual effect on the accounting equation

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

income statement.

Ace Cleaning Services performs cleaning services for $2,000 cash. What are the effects on the balance sheet equation for Ace Cleaning Services? (Select all that apply.)

increase cash increase owners' equity

The balance sheet impact of accruing salaries expense is to:

increase liabilities

To calculate interest the following information is needed:

interest rate period of time principal

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

inventory

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

inventory

When inventory is sold in a perpetual inventory system (Select all that apply.)

inventory is credited cost of goods sold is debited sales revenue is credited

Deferred revenue should be classified as a(n) on the balance sheet. (Enter one word per blank)

liability

Deferred revenue is a(n):

liability on the balance sheet

Borrowing $50,000 from the bank and signing a note payable causes: (Select all that apply.)

notes payable to increase cash to increase

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

number of months outstanding in the current year/12.

A Blank______ account represents the basic financial position elements of the accounting equation and a Blank______ account keeps track of the changes in the retained earnings component of shareholders' equity.

permanent; temporary

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

prepaid expenses

The balance sheet:

presents a company's financial position at a particular date

One of the purposes of adjusting entries is to

recognize all revenues earned during the period.

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

Which of the following are temporary accounts? (Select all that apply.)

salary expense revenue

In an expanded accounting equation, revenues and expenses are an expanded part of

stockholders' equity retained earnings

Closing entries move the balances from the Blank______ accounts into the Retained Earnings account.

temporary

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

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

An event that has a dual effect on the accounting equation is referred to as a(n)

transaction

An unadjusted is labeled unadjusted because no end-of-period adjustments have been recorded.

trial balance