CH 4 - Accrual Accounting Concepts

Brief Exercise 4-06 At the end of its first year, the trial balance of Pharoah Company shows Equipment $23,400 and zero balances in Accumulated Depreciation—Equipment and Depreciation Expense. Depreciation for the year is estimated to be $2,400. #1 (Chart) Post the adjustments to T-accounts. #2 (Chart) Indicate the balance sheet presentation of the equipment at December 31. #3 (Chart)

#1 Chart 1st: Dec. 31 - Depreciation Expense - Debt: 2400 2nd: Accumulated Deprec. Equipment - Cred: 2400 #2 Chart Depreciation Expense 1st: 12/31 - 2400 ___ ____ Accumulated Depreciation - Equipment 2nd: ____ ____ - 12/31 - 2400 #3 Chart: Pharoah Company Partial Balance Sheet 1st: Equipment - 23400 2nd: less - accumulated depreciation-equipment - 2400 - 21000

Brief Exercise 4-05 Pharoah Company's trial balance at December 31 shows Supplies $8,760 and Supplies expenses $0. On December 31, there are $2,140 of supplies on hand. #1 (chart) Using T-accounts, enter the balances in the accounts, post the adjusting entry, and indicate the adjusted balance in each account. #2 (chart)

#1 Chart Dec. 31 - Supplies Expense (1st), Supplies (2nd) - Debit: (1st) 6620 - Credit: (2nd) 6620 #2 Chart Supplies 1st: Op. Bal. - 8760 - 12/31 - 6620 2nd: 12/31 Bal - 2140 Supplies Expense 3rd: 12/31 - 6620

All of the following are required steps in the accounting cycle except: (a)journalizing and posting closing entries. (b)preparing an adjusted trial balance. (c)preparing a post-closing trial balance. (d)prepare financial statements from the unadjusted trial balance.

(d) prepare financial statements from the unadjusted trial balance

Each of the following is a major type (or category) of adjusting entry except: (a)prepaid expenses. (b)accrued revenues. (c)accrued expenses. (d)unearned expenses.

(d) unearned expenses Unearned expenses are not a major type of adjusting entry Choices (a) prepaid expenses, (b) accrued revenues, and (c) accrued expenses are all a major type of adjusting entry.

Brief Exercise 4-09 The unadjusted trial balance of Pharoah Exposure Inc. had these balances for the following select accounts: Supplies $3,950, Unearned Service Revenue $8,900, and Prepaid Rent $2,050. At the end of the period, 1. A count showed $820 of supplies on hand. 2. Services of $3,750 had been performed related to the unearned revenue account 3. One month's worth of rent, worth $570, had been consumed by Pharoah Exposure.

1. Supplies Expense - (debit)3130 Supplies - (credit)3130 2. Unearned Service Revenue - (debit)3750 Service Revenue - (credit)3750 3. Rent Expense - (debit) 570 Prepaid Rent - (credit)570

Brief Exercise 4-01 Number the following steps of the revenue recognition process (from 1-5) to place in the correct order: *Allocate the transaction price to the separate performance obligations. * Identify the contract with customers. * Identify the separate performance obligations in the contract. * Recognize revenue when each performance obligation is satisfied. * Determine the transaction price.

1. Identify the contract with customers. 2. Identify the separate performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the separate performance obligations. 5. Recognize revenue when each performance obligation is satisfied.

Exercise 4-09 The ledger of Skysong, Inc. on March 31 of the current year includes the selected accounts below before adjusting entries have been prepared. Supplies - (d) 2700 Prepaid Insurance - (d) 3240 Equip - (d) 22500 Accum Depre - Equip - (c) 7560 Notes Payable - (c) 18000 Unearned Rent Revenue (c) - 11160 Rent Revenue - (c) 54000 Interest Expense - (d) 0 Salaries and Wages Expense - (d) 12600 An analysis of the accounts shows the following. 1. The equipment depreciates $252 per month. 2. Half of the unearned rent revenue was earned during the quarter. 3. Interest of $360 is accrued on the notes payable. 4. Supplies on hand total $765. 5. Insurance expires at the rate of $360 per month.

1. Mar. 31 Depreciation Expense - (d)756 Accum Depre-Equip - (c)756 2. Mar 31 Unearned Rent Rev - (d)5580 Rent Rev - (c)5580 3. Mar 31 Interest Expense - (d)360 Interest payable - (c)360 4. Mar 31 Supplies Expense - (d)1935 Supplies - (c)1935 5. Mar 31 Insurance Expense - (d)1080 Prepaid Insurance - (c)1080

Q13 - Adjusting entries are made to ensure that

All of these answer choices are correct.

Brief Exercise 4-02 Transactions that affect earnings do not necessarily affect cash. Identify the effect, if any, that each of the following transactions would have upon cash and net income. The first transaction has been completed as an example. a. Purchased $135 of supplies for cash. b. Recorded an adjusting entry to record use of $20 of the above supplies. enter a dollar amountEntry field with correct answer c. Made sales of $1,370, all on account. enter a dollar amountEntry field with correct answer d. Received $800 from customers in payment of their accounts. enter a dollar amountEntry field with correct answer e. Purchased equipment for cash, $2,600. enter a dollar amountEntry field with correct answer f. Recorded depreciation of building for period used, $500.

Cash, Net income a. (given) -135, 0 b. 0, -20 c. 0, 1370 d. 800, 0 e. -2600, 0 f. 0, -500

Q8 - Which one of these statements about the accrual-basis of accounting is false?

Companies record revenue only when they receive cash, and record expense only when they pay out cash.

Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?

Expense recognition principle

Brief Exercise 4-13 The adjusted trial balance of Flint Corporation at December 31, 2022, includes the following accounts: Retained Earnings $17,400, Dividends $5,400, Service Revenue $37,400, Salaries and Wages Expense $14,200, Insurance Expense $1,830, Rent Expense $3,900, Supplies Expense $1,460, and Depreciation Expense $980. Prepare an income statement for the year.

Flint Corporation Income Statement For the Year Ended DEc. 31, 2022 Revenue * Service Revenue - 37400 Expenses * Salaries and Wages Expense - 14200 * Insurance Expense - 1830 * Rent Expense - 3900 * Supplies Expense - 1460 * Depreciation Expense - 980 Total Expenses - 22370 Net Income / (Loss) - 15030

Brief Exercise 4-17 The income statement for the Sage Hill Inc. for the month ended July 31 shows Service Revenue $17,470, Salaries and Wages Expense $8,870, Maintenance and Repairs Expense $3,370, and Income Tax Expense $1,470. The statement of retained earnings shows an opening balance for Retained Earnings of $20,520 and Dividends $1,760. Prepare closing journal entries. What is the ending balance in Retained Earnings?

July 31 Service Revenue - (debit) 17470 Income Summary - (credit) 17470 July 31 Income Summary - (d) 13710 Salaries and Wages Expense - (c) 8870 Maintenance and Repairs Expense - (c) 3370 Income Tax Expense - (c) 1470 July 31 Income Summary - (d) 3760 Retained Earnings - (c) 3760 July 31 Retained Earnings - (d) 1760 Dividends - (c) 1760 Ending balance in Retained Earnings: 22520

Which types of accounts will appear in the post-closing trial balance?

Permanent accounts

Which account will have a zero balance after a company has journalized and posted closing entries?

Service Revenue

Which statement is incorrect concerning the adjusted trial balance?

The adjusted trial balance does not list temporary accounts.

Q3 - What is the periodicity assumption?

The economic life of a business can be divided into artificial time periods.

What are the first step and the final step in the revenue recognition process?

The first step is identify the contract with customers, and the final step is recognize revenue when each performance obligation is satisfied.

Brief Exercise 4-15 The following selected accounts appear in the adjusted trial balance for Deane Company. Indicate the financial statement on which each account would be reported.

a. Accumulated Depreciation - Balance Sheet b. Depreciation Expense - Income Statement c. Retained Earnings - Retained Earnings Statement d. Dividends - Retained Earnings Statement e. Service Revenue - Income Statement f. Supplies - Balance Sheet g. Accounts Payable - Balance sheet

Brief Exercise 4-10 The bookkeeper for Blossom Company asks you to prepare the following accrual adjusting entries at December 31. a. Interest on notes payable of $250 is accrued. b. Services performed but unbilled totals $1,950. c. Salaries of $900 earned by employees have not been recorded.

a. Dec 31 Interest Expense - (debit)250 Interest Payable - (credit)250 b. Dec. 31 Accounts Receivable - (debit)1950 Service Revenue - (credit)1950 c. Dec. 31 Salaries and Wages Expense - (debit)900 Salaries and Wages Payable - (credit)900

Brief Exercise 4-18 The required steps in the accounting cycle are listed in random order below. List the steps in proper sequence:

a. Prepare a post-closing trial balance. - Step 9 b. Prepare an adjusted trial balance - Step 6 c. Analyze business transactions - Step 1 d. Prepare a trial balance - Step 4 e. Journalize the transactions - Step 2 f. Journalize and post-closing entries - Step 8 g. Prepare financial statements. select the proper step - Step 7 h. Journalize and post adjusting entries - Step 5 I. Post to ledger accounts - Step 3

Adjustments for prepaid expenses:

decrease assets and increase expenses

Adjustments for unearned revenues:

decrease liabilities and increase revenues

Adjustments for accrued revenues:

increase assets and increase revenues