ACCT370 Chapter 2

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.

The most common category of separately disclosed earnings components of unusual or infrequently occurring items 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

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

closing.

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

continuing operations and discontinued operations

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

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).

Revenues result in__________ in owners' equity.

increase

Debits

increase asset and expense accounts.

Costs that are difficult to associate with a specific revenue are called costs

period

Retained earnings

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

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

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

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

2000

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

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 debit to Insurance Expense. A credit to Prepaid Insurance.

Adjusting entries include which of the following categories?

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

The balance sheet equation can be stated as (check all that apply).

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

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

Components of gross profit include

Cost of good sold Net sales

Components of gross profit include (select all that apply)

Cost of good sold Net sales

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. Losses from floods, fires, or other disasters. Gains or losses from the sale of investments.

Deferred subscription revenue is a(n) ______ account.

Liability

Credits increase which of the following accounts?

Liability, owners' equity, and revenue accounts

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.

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

Pressure to meet analysts' earnings forecasts.

Costs of physically producing a good are called costs.

Product

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

Traceable

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

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

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.

Expenses result in________ in owners' equity.

decrease

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

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

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

A contra account

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

Deferred subscription revenue is a(n) ______ account.

liability

When income is recognized,

net assets increase. owner's equity increases.

Comprehensive income includes

net income and other comprehensive income

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

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

traceable