Accounting 6

What is the normal balance for an asset account?

Asset accounts normally have debit balances.

Notes Payable could not appear as a line on the balance sheet in which classification?

Current Assets Notes Payable cannot appear as a current asset. It is either a current liability or a long-term liability.

The third line of the balance sheet at the end of the year should begin with "For the Year Ended".

False The balance sheet reports amounts at a moment in time such as the last instant of an accounting period.

The total amount reported for stockholders' equity is the approximate fair value or net worth of the corporation as of the balance sheet date.

False The corporation's fair value is often significantly different than the stated amounts for the assets reported on the balance sheet.

Deferred credits will appear on the balance sheet with the

Liabilities

Which of the following is an asset account?

Prepaid Insurance is a current asset. Prepaid costs that have not yet expired are considered to be assets.

What is the normal balance for contra asset accounts?

Since asset accounts normally have debit balances, a contra asset account would have a credit balance

Another name for the balance sheet is

The balance sheet is also referred to as the statement of financial position or the statement of financial condition.

On December 1, ABC Co. hired Juanita Perez to begin working on January 2 at a monthly salary of $4,000. ABC's balance sheet of December 31 will show a liability of

There is no liability for ABC until Juanita performs work for ABC. Prior to January 2, ABC has a commitment but will not have a liability.

The book value of a corporation is the total amount of stockholders' equity reported on the balance sheet.

True

Client Jay pays ABC Co. $1,000 in December for ABC to perform services for Jay in 45 days. ABC uses the accrual basis of accounting. In December ABC will debit Cash for $1,000. What will be the other account involved in the December accounting entry prepared by ABC (and what type of account is it)?

Unearned Revenue (liability) should be credited because ABC has not earned the $1,000 and ABC has an obligation to perform the service in the future.

Which of the following would normally be a current liability?

Unearned Revenue will most likely be earned within one year of the balance sheet date. Therefore it is a current liability. (As it is earned, it moves from the balance sheet to the income statement as revenue.)

When an owner draws $5,000 from a sole proprietorship or when a corporation declares and pays a $5,000 dividend, the asset Cash decreases by $5,000. What is the other effect on the balance sheet?

Owner's/Stockholders' equity will decrease—keeping the accounting equation and the balance sheet in balance.

What is the normal balance for stockholders' equity and owner's equity accounts?

Owner's/stockholders' accounts normally have credit balances.

The balance sheet heading will specify a

Point In Time

ABC Co. has current assets of $50,000 and total assets of $150,000. ABC has current liabilities of $30,000 and total liabilities of $80,000. What is the amount of ABC's owner's equity?

$70,000: Total assets of $150,000 minus total liabilities of $80,000 equals owner's equity of $70,000.

ABC Co. performed services for Client Kay in December and billed Kay $4,000 with terms of net 30 days. ABC follows the accrual basis of accounting. In January ABC received the $4,000 from Kay. In January ABC will debit Cash, since cash was received. What account should ABC credit in the January entry?

Accounts Receivable In January ABC is collecting an account receivable. The account receivable was established in December when ABC performed the service and earned the revenue and also established a right to receive the money in January.

Which of the following is a contra account?

Accumulated Depreciation is a contra asset account. It is located in the long-term asset section of the balance sheet under the heading of property, plant, and equipment.

The amount reported on the balance sheet for Property, Plant and Equipment is the company's estimate of the fair market value as of the balance sheet date.

False The amounts listed on the balance sheet are the costs of these long-term assets minus the amount of accumulated depreciation. Rarely, would the net of those amounts be any indication of the fair market value of those assets.

ABC Co. follows the accrual basis of accounting and performs a service on account (on credit) in December. The service was billed at the agreed upon amount of $3,500. ABC Co. debited Accounts Receivable for $3,500 and credited Service Revenue for $3,500. The effect of this entry on the balance sheet of ABC is to increase assets by $3,500 and to

Increase Owner's (Stockholders') Equity By $3,500 The credit to the income statement account Service Revenues will have the effect of increasing owner's/stockholders' equity.

Which of the following would not be a current asset? -Accounts Receivable -Land -Prepaid Insurance -Supplies

Land is not a current asset, because land will NOT turn to cash within one year of the balance sheet date, or within the operating cycle if the operating cycle is longer than one year.

ABC Co. incurs cleanup expense of $500 on December 30. The supplier's invoice states that the $500 is due by January 10 and ABC will pay the invoice on January 9. ABC follows the accrual basis of accounting and its accounting year ends on December 31. What is the effect of the cleanup service on the December balance sheet of ABC?

Liabilities Increased In December an expense and a liability are recorded. So liabilities increased and owner's equity decreased.

Which of the following is a category or element of the balance sheet?

Liabilities are an element of the balance sheet along with assets and owner's/stockholders' equity.

What is the normal balance for liability accounts?

Liability accounts normally have credit balances.