Chapter 2 Lecture
On October 1 of Year 1 Zeta Company collected $1,200 cash for services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information, the amount of revenue appearing on the Year 1 income statement would be
$300
On August 1 of Year 1 Accounting Associates collected $1,200 cash for consulting services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information, the amount of unearned revenue appearing on the Year 2 balance sheet would be
0
The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the balance sheet?
1, 2, 4, 7, 8, 11, and 14
The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the statement of changes in stockholders' equity?
11, 12, and 14
Which of the following is not one of the steps in the accounting cycle? Record transactions Adjust accounts Prepare Statements
All the above are steps in the accountings cycle
Which of the following best describes an accrued expense?
An expense that is recognized prior to being paid
The title of the balance sheet contains the statement
As of the end of
Mary Company collected cash from an account receivable. The recognition of the cash collection will affect which of the following financial statements?
Balance sheet and the statement of cash flows
Garcia Company recognized revenue on account. The recognition will affect which of the following financial statements?
Income statement and the balance sheet
Yang Company recognized accrued salary expense. The recognition will affect which of the following financial statements?
Income statement and the balance sheet
Assume a company has Year 1 ending total assets of $50,000, total liabilities of $48,000 and total stockholders' equity of $2,000. Which of the follow is true in regards to this scenario?
Most assets are owned by creditors in this scenario.
Which of the following accounts would be closed at the end of an accounting period? Accounts receivable Land Account payable
None of the accounts listed would be closed at the end of an accounting period.
Bookmyer Company experienced a business event that affected its financial statements as indicated below. Balance Sheet Income Statement Statement of Cash FlowsAssets=Liab.+Equity Rev.−Exp.=Net Inc. NA=NA+NA NA−NA=NA −OA Which of the following events could have caused these effects?
Paid cash to purchase supplies
Which of the following statements is false?
Prepaid insurance is shown on the income statement.
Kim Company recorded a claims exchange transaction that had the following effects on its financial statements: Balance sheetIncome Statement Assets=Liabilities+EquityRev.-Exp.=Net Inc.Statement ofCash Flows NA=-+++-NA=+NA Which of the following adjustments could have caused these effects?
Recognized a portion of unearned revenue as earned revenue.
Knopp Company experienced an event that had the following effects on its financial statements. Balance sheetIncome StatementStatement ofCash FlowsAssets=Liabilities+EquityRev.-Exp.=Net Inc.NA + −NA + −NA Which of the following events would have caused these effects?
Recognized accrued salary expense
Brown Company's December 31, Year 1 balance sheet showed $1,800 cash, $200 accounts payable, $600 common stock, and $1,000 retained earnings. The company experienced the following events during year 2. (1) On April 1, Year 2 the company paid $1,800 cash to rent office space for the coming year starting immediately. (2) Earned $1,700 cash revenue. (3) Paid a $300 cash dividend. Based on this information, the company would report
a $1,050 balance in retained earnings on the Year 2 balance sheet.
Which of the following would require an adjusting entry during the accounting cycle?
accrued expenses
On December 1, Year 3 Walton Company paid $3,600 cash for office space to be used during the coming year. This event is
an asset exchange transaction.
Styles Company paid cash to purchase supplies. This event is
an asset exchange transaction.
Crowe Company collected $18,000 in advance for services to be performed in the future. This event is
an asset source transaction.
During its Year 2 accounting cycle Styles Company had $4,000 of supplies available for use. A year-end physical count of supplies found $300 of supplies on hand. Based on this information, the year-end adjusting entry necessary to recognize supplies expense is
an asset use transaction.
On December 1, Year 3 Walton Company paid $3,600 cash for office space to be used during the coming year. This transaction was recorded as an asset exchange transaction. Based on this information, the year-end adjusting entry to recognize rent expense is
an asset use transaction.
On December 31, Year 3 Snack, Inc. adjusted its records to recognize $5,000 of accrued salaries. Based on this information alone, the
balance sheet at the beginning of Year 4 would show $5,000 of accrued salaries payable.
On December 31, Year 1 Adam Company incurred $3,000 of accrued salary expense. The Year 2 recognition of the cash payment for these expenses
decreases the amount of liabilities shown on the Year 2 balance sheet.
Lawyers Inc. accepted a $12,000 retainer for which the company agreed to provide services in the future. Recognizing this event would
defer the recognition of revenue. cause the company's assets to increase. cause the company's liabilities to increase.
An accrual
exists when a company pays cash after recognizing the associated expense.
A deferral
exists when a company pays cash before recognizing the associated expense.
accrued revenue
exists when a company receives cash after recognizing the associated revenue.
deferred revenue
exists when a company receives cash before recognizing the associated revenue.
Normally a company closes its books and then adjusts its records to update the account balances before preparing the financial statements. This statement is
false
Transactions including the phrase "on account" will only impact expense and liability accounts. This statement is
false
When a company purchases supplies on account
liabilities increase
Which of following is the best measure of performance for an accounting period?
net income
Assume in Year 1, a company signs a contract worth $50,000 to perform services in Year 2. This transaction will affect which of the following financial statements in Year 1?
no affect on all statements
Unearned revenue
occurs when a Company receives a benefit from a customer but have not yet earned that benefit.
If a company recognizes $5,000 of accrued salary expense on December 31, Year 1,
on January 1, Year 2 there will be a zero balance in the Accrued Salaries Expense account. on January 1, Year 2 there will be a $5,000 balance in the Accrued Salaries Payable account. the December 31, Year 1 expense recognition will not affect the cash account.
Paying cash to settle a salaries payable obligation will affect which section of the statement of cash flows?
operating activities
Which of the following most accurately depicts the steps in an accounting cycle?
record transaction data → Adjust accounts → Prepare Statements →Close temporary accounts
Revenue
represents all the benefits earned during an accounting period.
The matching principle states that
revenues should be recorded in the same period as the related expenses
Alpha Company's December 31, Year 1 balance sheet showed $1,700 cash, $1,000 common stock, and $700 retained earnings. The company experienced the following event during Year 2. (1) On March 1, paid $1,200 to purchase insurance coverage for one year beginning immediately. Based on this information alone,
the Year 2 balance sheet would show $200 of prepaid insurance.
A company using accrual accounting may report revenue on the income statement even if it does not collect cash. This statement is
true
A cost may be recorded as an expense or as an asset purchase. This statements is
true
Accrued revenues and expenses will cause differences between the statement of cash flows and the income statement. This statement is
true
The after closing balance in a revenue account will always be zero. This statement is
true
The amount of revenue shown on the income statement may differ from the amount of cash inflow from operating activities shown on the statement of cash flows. This statement is
true
The ending balances for an accounting period become the beginning balances of the subsequent accounting period. This statement is
true
financial statements are presented
vertically
If a company performs and completes all services in year 1, but does not receive cash for the services until year 2, in which year should the company record revenue?
year 1
On August 1 of Year 1 Presco Enterprises paid $1,200 cash for an insurance policy that would provide protection for a one year term. The company's fiscal closing date is December 31. Based on this information, the amount of insurance expense appearing on the Year 1 income statement would be
$500
Knoll Company started Year 2 with a $500 balance in its Cash account, a $500 balance in its Supplies account and a $1,000 balance in its common stock account. During Year 2 the company experienced the following events. (1) Paid $400 cash to purchase supplies (2) Physical count revealed $100 of supplies on hand at the end of Year 2 Based on this information the amount of supplies expense reported on the Year 2 income statement is
$800
On November 1 of Year 1 Falloch, Inc. paid $2,400 cash for a contract allowing the company to use office space for one year. The company's fiscal closing date is December 31. Based on this information, the amount of cash flow from operating activities appearing on the Year 1 statement of cash flows would be
(-$2,400)
The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the statement of cash flows?
3, 6, and 13
The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the income statement?
5, 9, and 10
Assume a company has Year 1 beginning common stock of $10,000 and Year 2 ending stockholders' equity of $150,000. Which of the following is true in regards to this scenario?
Revenues have exceeded expenses over the last two accounting cycles.
Guadalupe, Inc. provided $5,000 of services in Year 1 but did not collect cash from its customers until Year 2. Select the correct answer from the following options assuming Guadalupe used accrual accounting.
The Company will recognize $5,000 of revenue in Year 1 and $5,000 of cash flow from operations in Year 2.
GreyCo and Sons earns $6,900 of revenue on account in Year 1. Cash collections of receivables amount to $6,300 in Year 1 with the remainder being collected in Year 2. Based on this information alone the company's financial statements would show
a balance of $600 in accounts receivable at the beginning Year 2.
Adams Company adjusted its records to recognize accrued salary expense at the end of its Year 1 accounting period. The recognition is
a claims exchange transaction.
Crowe Company collected $18,000 in advance for services to be performed in the future. The year-end adjusting entry necessary to recognize the portion of the revenue that was earned during the year is
a claims exchange transaction.
When a company collects cash from accounts receivable,
total assets are not affected
Alpha Company's December 31, Year 1 balance sheet showed $1,700 cash, $1,000 common stock, and $700 retained earnings. The company experienced the following event during Year 2. (1) On March 1, paid $1,200 to purchase insurance coverage for one year beginning immediately. Based on this information alone,
the Year 3 statement of cash flows would show zero outflow to purchase insurance.
When a company earns revenue on account
the asset account, accounts receivable, increases. A revenue account increases. liabilities are not affected.
If a company recognizes accrued salary expense
the employees have completed work but have not been paid.
The closing process normally occurs at
the end of an accounting cycle.
When a company incurs accrued expenses
the liability account, accounts payable, increases. stockholders' equity decreases. assets are not affected.
