ACCT 4100: Chapter 2 SB

An insurance policy was purchased on January 1 for $12,000. The policy was to cover twelve months. The adjusting entry to show that one month's coverage has lapsed on January 31 would be for what amount?

$1,000

The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10. Under the cash basis, how much revenue should Canon recognize in October?

$16,000

In January 2020, Livingston Publishing sells three-year subscriptions to its annual publication to 500 customers for $30 each. Publishing and distribution expenses each year are $3,000. Under the accrual basis of accounting, net income for 2021 is

$2,000 [Reason: Revenue = ($500 x $30) / 3 years = $5,000 per year. $5,000 revenues - $3,000 expenses = $2,000 net income.]

In January 2020, Livingston Publishing sells three-year subscriptions to its annual publication to 500 customers for $30 each. Under the accrual basis of accounting, the revenue recognized in 2020 is

$5,000 [Reason: (500 x $30) / 3 years = $5,000]

Under Hart Company's accounting system, all insurance premiums paid are debited to Prepaid insurance. Hart then makes monthly charges to Insurance expense with credits to Prepaid insurance as the insurance coverage period is used up. Additional information follows: Prepaid insurance at 12/31/20X0: $210K Charges to Insurance expense during 20X1: $875K Prepaid insurance at 12/31/20X1: $245K What was the total amount of insurance premiums Hart paid during 20X1?

$910K [insurance expense + prepaid insurance at 12/31/20X0 - prepaid insurance at 12/31/20X1 = $875K + $245K - $210K]

An insurance policy was purchased on January 1 for $12,000. The policy was to cover the entire year. The adjusting entry to show that one month's coverage has lapsed on January 31 would include which of the following?

- A credit to Prepaid Insurance. - A debit to Insurance Expense.

Adjusting entries include which of the following categories?

- Adjustments for prepayments. - Adjustments for deferred revenues. - Adjustments for accrued revenues.

Which of the following statements are true regarding debits and credits?

- Debits increase asset and expense accounts. - Debit means the left side of accounts and credit means the right side of accounts.

Examples of unusual or infrequently occurring items include

- Gains or losses from the exchange or translation of foreign currencies. - Gains or losses from the sale of investments. - Losses from floods, fires, or other disasters.

A disposal group is considered held for sale if which of the following conditions are met?

- Management has committed to a plan to sell the component. - The component is available for immediate sale in its present condition.

Which of the following elements must be reported as part of discontinued operations when the discontinued component is sold before the end of the reporting period?

- Operating income or loss from operating the component from the beginning of the reporting period to the disposal date. - Gain or loss on disposal computed as the net sale price minus book value of net assets disposed of.

Brighton Corporation buys an office building for $350,000, paying $30,000 in cash and financing the remainder with a note payable. The journal entry for this transaction would include

- a debit to Buildings for $350,000. - a credit to Loan Payable for $320,000. - a credit to Cash for $30,000.

Closing entries would include

- a debit to a revenue account. - a credit to Retained Earnings when there is net income.

Sedona Corporation receives $7,500 in consulting fees in advance of providing services. By year end, 40% of this work has been completed. The adjusting entry at year end would

- decrease the liability account, Fees Received in Advance, to $4,500. - increase the owners' equity account, Consulting Fees Revenue, by $3,000.

A contra account

- for assets would carry a credit balance. - is an account that is subtracted from another account.

During December, Howard Corporation provides services to a customer and sends them a bill for the amount due of $1,750. The adjusting entry at year end

- increases owners' equity. - increases assets.

When income is recognized,

- owner's equity increases. - net assets increase.

Under accrual accounting, revenue is recorded when (select all that apply)

- the seller has performed a service. - the seller has conveyed an asset to a buyer.

Classify the following costs as period or traceable costs. 1. Administrative expenses 2. Bad debt expense 3. Advertising expense 4. Research and development 5. Warranty expense 6. Electricity for plant

1. period cost 2. traceable cost 3. period cost 4. period cost 5. traceable cost 6. traceable cost

Classify the following costs as period or traceable costs. 1. Depreciation on office building 2. Insurance expense for factory building 3. Product liability insurance premium 4. Transportation charges for raw materials 5. Factory repairs and maintenance 6. Rent for inventory warehouse

1. period cost 2. traceable cost 3. period cost 4. traceable cost 5. traceable cost 6. period cost

Classify the following costs as period or traceable costs. 1. Cost of raw materials 2. Factory wages 3. Salary to chief executive officer 4. Depreciation on factory 5. Bonus to factory workers 6. Salary to marketing staff

1. traceable cost 2. traceable cost 3. period cost 4. traceable cost 5. traceable cost 6. period cost

In January 2020, Livingston Publishing sells three-year subscriptions to its annual publication to 500 customers for $30 each. Under the accrual basis of accounting, the entry to record the cash received includes

A credit to Deferred subscription revenue for $15,000

The balance sheet equation can be stated as

Assets = Liabilities + Owners' Equity Assets - Liabilities = Owners' Equity

Which statement below is not correct with respect to earnings management? A. It is increasingly common because of the pressure to meet analysts' expectations. B. In a recent survey, more than 80% of CFOs surveyed indicated that meeting or beating consensus EPS is an important benchmark. C. More firms just beat rather than just miss the analyst expectations. D. In a recent survey, more than 65% of CFOs surveyed indicated that reporting a profit is an important benchmark.

B.

Excessive write-offs and overstated estimated charges for future expenditures are known as:

Big bath restructuring charges

Other Comprehensive Income (OCI) is used both in U.S. GAAP and IFRS. Which of the following statements is correct?

Both IFRS and U.S. GAAP require companies to report in other comprehensive income each period the valuation changes from changes in actuarial estimates affecting defined benefit pension plans.

Which of the following may cause fully diluted EPS to differ from basic EPS? A. Convertible preferred stock. B. Management stock options. C. All of these answer choices are correct. D. Warrants.

C. All of these answer choices are correct.

Which of the following statements best describes expenses? A. They are recorded in the accounting period when they are "purchased." B. They consist of amounts paid for consumable items and services rendered to the organization during the accounting period. C. They consist of cash payments to employees during the period for services rendered. D. They are the expired costs or assets "used up" during the accounting period.

D.

Which one of the following is part of other comprehensive income (OCI)? A. Sale of common stock above par. B. Receipt of land donated by a governmental unit. C. Gains on sales of treasury stock. D. Unrealized gains resulting from remeasuring foreign currency financial statements of majority-owned subsidiaries to U.S. dollar amounts.

D.

_______ EPS reflects what basic EPS would have been if all potentially dilutive securities were converted into common shares.

Dilutive or Diluted

Hentzel Landscaping commenced its business on January 1, 20X1. 5. On January 1, 20X1, the company purchased 10 lawnmowers at $3,000 each. It debited fixed assets. The lawnmowers are expected to last for three years with no salvage value.

Dr Depreciation expense 10,000 Cr Accumulated depreciation 10,000

Hentzel Landscaping commenced its business on January 1, 20X1. 3. The company's gasoline bill for $2,500 for the month of December 20X1 was not received until January 15, 20X2. No entry was made.

Dr Gasoline expense 2500 Cr Accounts payable 2500

Hentzel Landscaping commenced its business on January 1, 20X1. 4. The company borrowed $50,000 from HomeTown Financing on April 1, 20X1, at a 5% interest rate per annum. It credited a liability for notes payable. The principal, along with all the interest, is due on April 1, 20X2.

Dr Interest expense 1875 Cr Interest payable 1875 [$50,000 x 5% = $2500 x 9/12 = $1875]

Hentzel Landscaping commenced its business on January 1, 20X1. 1. During its first year of operations, Hentzel purchased supplies in the amount of $12,000 (debited to Supplies inventory), and of this amount, $3,000 were unused as of December 31, 20X1.

Dr Maintenance expense 9000 Cr Supplies inventory 9000

Hentzel Landscaping commenced its business on January 1, 20X1. 2. On March 1, 20X1, Hentzel received $18,000 for landscaping services to be rendered for 18 months (beginning July 1, 20X1). This amount was credited to a liability called Deferred landscaping revenue.

Dr Deferred landscaping revenue 6000 Cr Landscaping revenue 6000

_____ _____ occurs when managers exploit the flexibility in GAAP to achieve particular reporting results which may mask the company's underlying performance.

Earnings management

Credits increase which of the following accounts?

Liability, owners' equity, and revenue accounts

Which of the following is a reason for earnings management becoming increasingly common in today's marketplace?

Pressure to meet analysts' earnings forecasts.

True or false: If a component has been disposed of, it is treated as a discontinued operation if the disposal represents a strategic shift that has a major effect on an entity's operations and financial results.

True

True or false: Separate T-accounts are maintained for each asset, liability, and owners' equity account.

True

Which of the following is the most common category of separately disclosed earnings component?

Unusual or infrequent items

Sedona Corporation receives $7,500 in consulting fees in advance of providing services. The journal entry to record this transaction would include

a credit to Fees Received in Advance (a liability).

Williams Corporation purchased an insurance policy with an annual premium of $5,000 on July 1. The adjusting entry on December 31 includes

a credit to Prepaid Insurance for $2,500.

During December, Howard Corporation provides services to a customer and sends them a bill for the amount due of $1,750. The adjusting entry at year end includes

a debit to Accounts Receivable.

Sedona Corporation receives $7,500 in consulting fees in advance of providing services. By year end, 40% of this work has been completed. The adjusting entry at year end would include

a debit to Fees Earned in Advance for $3,000.

Blaze Corporation incurs salaries of $12,000 for employees for the month of December but the paychecks will not be processed until January 3 of the following year. The adjusting entry at year end would include

a debit to Salary and Wages Expense.

Ludington Corporation receives a utility bill for December but the bill will not be paid until January 7, its due date. The adjusting entry at year end would include

a debit to Utilities Expense.

Marley Corporation issues $500,000 common stock for cash. The journal entry to record this transaction would include

a debit to cash and a credit to common stock for $500,000.

Which transaction would increase the inventory account?

a purchase of inventory

Williams Corporation purchased an insurance policy with an annual premium of $5,000 on July 1. The journal entry to record this transaction represents an

adjustment for a prepayment.

After the closing process is complete,

all income statement accounts will have zero balances.

An increase in an asset can be offset by

an increase in a corresponding liability

Unusual or infrequently occurring items

are reported as a separate line item within continuing operations

The most common category of separately disclosed earnings components are reported

as part of income from continuing operations.

Income attributable to common shareholders divided by the weighted average number of common shares outstanding results in _____ EPS.

basic

Transactions whose ultimate payoffs result from events that have already occurred and whose dollar flows can be predicted fairly accurately are known as _____ transactions.

closed

The process of getting revenue and expense accounts ready for the next period's transactions is known as

closing.

A change in equity of a business entity that occurs during a reporting period from transactions or events from nonowner sources is know as _____ _____.

comprehensive income

The multiple-step income statement separates earnings into two components which include

continuing operations and discontinued operations

A _____ account is an account that is subtracted from another account to which it relates.

contra

Sales on account are recorded on the ______ side of Accounts Receivable and collections on account are recorded on the ______ side.

debit; credit

Expenses result in _____ in owners' equity.

decrease

U.S. GAAP requires firms to display the components of comprehensive income in

either a single-statement or a two-statement format.

Revenues result in _____ in owners' equity.

increase

Debits

increase asset and expense accounts.

Brighton Corporation buys an office building for $350,000, paying $30,000 in cash and financing the remainder with a note payable. The journal entry for this transaction would

increase assets by $320,000

Macomb Corporation purchases inventory on account for $75,000. The journal entry for this transaction would

increase assets by $75,000

The calculated misapplication of GAAP such as capitalizing an amount when it should be expensed is known as

intentional errors.

Income or loss from operating a discontinued component and any gain or loss from disposal or impairment are reported net of tax effects. This is called _____ income tax allocation.

intraperiod

Deferred subscription revenue is a(n) ______ account.

liability

The approach of tying expense recognition to revenue recognition is know as the

matching principle.

The process of recognizing traceable costs in expense in the same period as the corresponding revenue is referred to as

matching.

A type of income statement that subdivides income in order to facilitate forecasting is call a ________ income statement.

multiple-step

Net income recognition always increases:

net assets.

Comprehensive income includes

net income and other comprehensive income

Publicly traded companies must report earnings per share (EPS) numbers

on the face of their income statements.

When the discontinued component is sold before the end of the reporting period, they must report

operating income or loss and gain or loss on disposal, both after related tax effects

If a component becomes a discontinued operation in a reporting period but has not been sold by the end of the period, the income effects of the discontinued operations that are reported include

operating income or loss and impairment loss if needed, net of tax affects

The statement, "linkage between these costs and individual sales is difficult to establish," refers to

period costs.

The process used to transfer journal entries to T-accounts is called _____.

posting

Costs of physically producing a good are called _____ costs.

product

Retained earnings

represents the accumulation of all of the company's earnings since its inception.

Marketing costs like advertising and sales commissions are

selling expenses.

Under the accrual basis of accounting, expenses are based on

the consumption of resources.

Revenue is recognized when:

the seller completes performance required by an agreement.

Costs that are easily matched to the revenue earned are called _____ costs.

traceable

Gains and losses that arise from a firm's continuing operations but that are not typical, recurring costs are called _____ or _____ occurring items.

unusual; infrequently