Accounting Ch 1-3

Fragment Company leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $1,000. Fragment collected the entire $8,000 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made on December 31 would be:

$1,000/month * 3 months = $3,000 Unearned revenue is at $8,000 but you need to remove $3,000 from the months used so you debit it and credit rent revenue

A company opened on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books: 1. The company received $15,400 cash for services provided. 2. The company paid $4,000 cash for an insurance policy covering the next 24 months. 3. The company received $7,600 cash for services provided. 4.The company purchased $8,100 of office equipment on credit. 5. The company provided $4,650 of services to customers on account. 6. The company paid cash of $3,400 for monthly rent. 7. The company paid $5,000 on the office equipment purchased in transaction #5 above. 8. Paid $465 cash for January utilities. Based on this information, the balance in the cash account at the end of January would be:

$10,135.

A company purchased a new delivery van at a cost of $55,000 on January 1. The delivery van is estimated to have a useful life of 5 years and a salvage value of $4,300. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the van during the first year ended December 31?

$10,140

A company is considering purchasing a parcel of land that was originally acquired by the seller for $85,000. While the land is currently offered for sale at $150,000, it is considered by the purchaser as easily being worth $140,000, and is finally purchased for $137,000, the land should be recorded in the purchaser's books at:

$137,000.

Lito Company had cash inflows from operating activities of $36,000; cash outflows from investing activities of $31,000, and cash outflows from financing activities of $21,000. Calculate the net increase or decrease in cash.

$16,000 decrease.

A company is considering purchasing a parcel of land that was originally acquired by the seller for $105,000. While the land is currently offered for sale at $190,000, it is considered by the purchaser as easily being worth $180,000, and is finally purchased for $177,000, the land should be recorded in the purchaser's books at:

$177,000.

If assets are $388,000 and liabilities are $185,000, then equity equals:

$203,000.

A company had no office supplies available at the beginning of the year. During the year, the company purchased $440 worth of office supplies. On December 31, $160 worth of office supplies remained. How much should the company report as office supplies expense for the year?

$280

The Retained earnings account has a credit balance of $23,800 before closing entries are made. If total revenues for the period are $75,200, total expenses are $55,000, and dividends are $12,600, what is the ending balance in the Retained earnings account after all closing entries are made?

$31,400

A company's balance sheet shows cash of $25,000, accounts receivable of $31,000, equipment of $52,000, and equity of $73,000. What is the amount of liabilities?

$35,000.

On January 1, Northern College received $1,400,000 from its students for the spring semester that it recorded in Unearned Revenue. The term spans four months beginning on January 1 and the college earns the revenue evenly over the months of the term. Assuming the college prepares adjustments on January 31, what amount of tuition revenue should the college recognize for the month of January?

$350,000

On May 1, a two-year insurance policy was purchased for $14,400 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?

$4,800

On April 1, a company paid the $2,100 premium on a three-year insurance policy with benefits beginning on that date. What amount of insurance expense will be reported on the annual income statement for the first year ended December 31?

$525.00

Debits- Cash $11,900 Accounts Receivable $2,380 Prepaid Insurance $3,160 Supplies $1,380 Credits- Accounts Payable $5,950 Total Equity $6,040 Service Revenue $8,900 Salaries Expense $690 Utilities Expense $1,380 Total Debits = $20,890 Total Credits = $20,890 Using the information in the table, calculate the company's reported net income for the period.

$6,830.

If equity is $420,000 and liabilities are $200,000, then assets equal:

$620,000.

Doc's Ribhouse had beginning equity of $59,500; net income of $23,000. The company has no other transactions impacting equity. Calculate the ending equity.

$82,500.

. A company reported net income of $4,805 for October. Its net sales for October were $15,500. Its profit margin is:

31%

A company had $7,060,000 in net income for the year. Its net sales were $15,800,000 for the same period. Calculate its profit margin.

44.7%

Flitter reported net income of $19,500 for the past year. At the beginning of the year the company had $204,000 in assets and $54,000 in liabilities. By year end, assets had increased to $304,000 and liabilities were $79,000. Calculate its return on assets:

7.7%.

Identify which error will cause the trial balance to be out of balance.

A $280 cash receipt from a customer in payment of her account posted as a $280 debit to Cash and a $28 credit to Accounts Receivable.

A corporation is:

A business legally separate from its owners.

On July 1 of the current calendar year, Olive Company paid $8,700 cash for management services to be performed over a two-year period beginning July 1. The adjusting entry on December 31 of the current year for Olive would include:

A debit to an expense and a credit to a prepaid expense for $2,175.

On December 1, Oren Marketing Company received $7,800 from a customer for a 2-month marketing plan to be completed January 31 of the following year. The cash receipt was recorded as unearned revenue. The adjusting entry for the year ended December 31 would include:

A debit to unearned revenue for $3,9000

The description of the relation between a company's assets, liabilities, and equity, which is expressed as Assets = Liabilities + Equity, is known as the:

Accounting equation.

A credit is used to record an increase in which of the following accounts?

Accounts Payable

Identify the account below that is classified as an asset in a company's chart of accounts:

Accounts Receivable

Prepaid accounts (also called prepaid expenses) are:

Assets from prepayments of future expenses.

If a company receives $12,900 from a client for services provided, the effect on the accounting equation would be:

Assets increase $12,900 and equity increases $12,900.

If a company purchases equipment costing $4,100 on credit, the effect on the accounting equation would be:

Assets increase $4,100 and liabilities increase $4,100.

If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

Assets, net income, and equity understated

Resources a company owns or controls that are expected to yield future benefits are:

Assets.

At the beginning of the year, a company's balance sheet reported the following balances: Total Assets = $135,000; Total Liabilities = $22,950; Common Stock of $53,550; and Retained Earnings = $58,500. During the year, the company reported revenues of $46,900 and expenses of $30,600. In addition, dividends for the year totaled $20,400. Assuming no other changes to Retained earnings, the balance in the Retained earnings account at the end of the year would be:

Beginning Retained earnings $58,500 + Revenues $46,900 − Expenses $30,600 − Dividends $20,400 = Ending Retained earnings $54,400.

Marsha Bogs is the owner of Bogs Legal Services. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogs Legal Services?

Business entity assumption.

The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

Business entity assumption.

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the:

Business entity assumption.

The system of preparing financial statements based on recording revenues when cash is received and reporting expenses when the cash is paid is called:

Cash basis accounting

GreenLawn Company provides landscaping services to clients. On May 1, a customer paid GreenLawn $65,000 for 6-months services in advance. GreenLawn's general journal entry to record this transaction will include a:

Credit to Unearned Revenue for $65,000.

A law firm billed a client $3,100 for work performed in the current month. Which of the following general journal entries will the firm make to record this transaction?

Debit Accounts Receivable, $3,100; credit Services Revenue, $3,100.

A company receives $8,300 cash for performing landscaping services. Which of the following general journal entries will the company make to record this transaction?

Debit Cash $8,300; credit Landscaping Revenue, $8,300.

Green Cleaning purchased $620 of office supplies on credit. The company's policy is to initially record prepaid and unearned items in balance sheet accounts. Which of the following general journal entries will Green Cleaning make to record this transaction?

Debit Office supplies, $620; credit Accounts payable, $620.

What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $8,350 before adjustment, and the unexpired amount per analysis of policies is $3,550?

Debit insurance expense $4,800 and credit prepaid insurance $4,800

A company paid $19,000 in dividends during the current year. The entry needed to close the dividends account is:

Debit retained earnings and credit dividends for $19,000

A company pays each of its two office employees each Friday at the rate of $140 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

Debit salaries expense $560 and credit salaries payable $560

A physical count of supplies on hand at the end of May for Masters, Incorporated indicated $1,243 of supplies available. The general ledger balance before any adjustment is $2,030. What is the adjusting entry for supplies that should be recorded on May 31?

Debit supplies expense $787 and credit supplies $787

Edison Consulting received a $450 utilities bill and immediately paid it. Edison's general journal entry to record this transaction will include a:

Debit to Utilities Expense for $450.

Chapter 3

Don't forget to drink water

The principle that requires expenses be reported in the same period as the revenues that were recognized as a result of those expenses is the:

Expense recognition (matching) principle

A partnership:

Has unlimited liability for its partners.

The group that sets international preferred accounting practices is called the:

IASB.

The process to go from transactions and events to financial statements begins with:

Identifying each transaction and event from source documents.

Adjusting entries affect:

Income statements AND balance sheets

A debit:

Is the left side of a T-account.

A credit:

Is the right side of a T-account.

Prepaid expenses, depreciation expense, accrued expenses, unearned revenues, and accrued revenues are all examples of:

Items that require adjusting entries

The collection of all accounts and their balances is called a(n):

Ledger (or General Ledger).

Which of the following is an external user of accounting information?

Lender

The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

Measurement (Cost) principle.

If a company uses $1,330 of its cash to purchase supplies, the effect on the accounting equation would be:

One asset increases $1,330 and another asset decreases $1,330, causing no effect.

The primary objective of financial accounting is to:

Provide accounting information that serves external users.

Which of the following is not an external user of accounting information?

Purchasing Managers

The main purpose of adjusting entries is to:

Recognize transactions and events that are not yet recorded

The accounting principle that requires revenue to be recorded when goods or services are provided customers and at an amount expected to be received from customers is the:

Revenue Recognition Principle

Increases in equity that result from providing products or services to customers are called:

Revenues.

A tool that represents a ledger account and is used to show the effects of transactions is called a:

T-account.

Interim financial statements refer to financial reports:

That cover less than one year

At year-end, a trial balance showed total credits exceeding total debits by $5,800. This difference could have been caused by:

The balance of $6,520 in the Office Equipment account being mistakenly entered on the trial balance as a debit of $720.

An account balance is:

The difference between the total debits and total credits for an account including the beginning balance.

The credit purchase of a new oven for $5,600 was posted to Kitchen Equipment as a $5,600 debit and to Accounts Payable as a $5,600 debit. What effect would this error have on the trial balance?

The total of the Debit column of the trial balance will exceed the total of the Credit column by $11,200.

The assumption that presumes that an organization's activities can be divided into specific time periods such as a month, a three-month quarter, a six-month interval, or a year is called the:

Time Period Assumption

Unearned revenues are:

Transferred to revenue when products and services are delivered.

Which of the following is not an equity account:

Unearned Revenue

Revenue is properly recognized:

When goods or services are provided to customers and at the amount expected to be received from the customer.

START OF CHAPTER 2

You're doing so good

Identify the statement below that is correct: a. When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense. b. Accounts receivable are held by a seller and are promises of payment from customers to sellers. c. Prepaid revenue accounts are used to record when customers pay in advance for products or services. d. A liability account is commonly used to record increases and decreases in both the land and buildings owned by a business. e. Accrued liabilities include accounts receivable.

b. Accounts receivable are held by a seller and are promises of payment from customers to sellers.

Which of the following statements is false: a. Accounts receivable are held by a seller b. Accounts receivable arise from credit sales c. Accounts receivable are increased by customer payments d. Accounts receivable are classified as assets e. Accounts receivable are increased by billings to customers

c. Accounts receivable are increased by customer payments.

Russell Company collected cash of $740 immediately after providing consulting services to a client. Which of the following general journal entries will Russell Company make to record this transaction?

debit cash $740 credit consulting revenue $740