Int Acct CH 2 MC

Pat's Custom Tuxedo Shop maintains its records on the cash basis. During this past year Pat's collected $42,000 in tailoring fees, and paid $14,000 in expenses. Depreciation expense totaled $2,000. Accounts receivable increased $1,500, supplies increased $4,000, and accrued liabilities increased $2,500. Pat's accrual basis net income was:

$29,000.

Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of merchandise, costing $620, and sold on account for $960?

Accounts receivable 960 Sales revenue 960 Cost of goods sold 620 Inventory 620

On December 31, 2016, the end of Larry's Used Cars' first year of operations, the accounts receivable was $53,600. The company estimates that $1,200 of the year-end receivables will not be collected. Accounts receivable in the 2016 balance sheet will be valued at:

Accounts receivable = $53,600 - 1,200 = $52,400

Adjusting entries are primarily needed for:

Accrual accounting.

When the amount of interest receivable decreases during an accounting period:

Accrual-basis interest revenues are less than cash collections from borrowers.

When the amount of revenue collected in advance decreases during an accounting period:

Accrual-basis revenues exceed cash collections from customers.

Which of the following accounts has a normal credit balance?

Accrued income taxes payable.

Compared to the accrual basis of accounting, the cash basis of accounting produces a higher amount of income by the net decrease during the accounting period of:

Accts Rec, yes Accrued liab. , no

An example of a contra account is:

Accumulated depreciation.

Which of the following accounts has a normal debit balance?

Advertising expense.

Recording revenue that is earned, but not yet collected, is an example of:

An accrued receivable transaction.

Cost of goods sold is:

An expense account.

Somerset Leasing received $12,000 for 24 months' rent in advance. How should Somerset record this transaction?

Debit cash 12000 Credit deferred revenued 12000

Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a:

Debit to note receivable.

On September 1, 2016, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to deferred subscriptions revenue. What is the required adjusting entry at December 31, 2016?

Deferred subscriptions revenue 16,200 Subscriptions revenue 16,200

Examples of external transactions include all of the following except:

Depreciating equipment

A reversing entry at the beginning of a period for salaries would include a debit to salaries expense

false

Accruals occur when the cash flow precedes either revenue or expense recognition.

false

After an unadjusted trial balance is prepared, the next step in the accounting processing cycle is the preparation of financial statements.

false

Balance sheet accounts are referred to as temporary accounts because their balances are always changing

false

The adjusted trial balance contains only permanent accounts

false

The balance sheet can be considered a change or flow statement

false

The income statement summarizes the operating activity of a firm at a particular point in time

false

The payment of cash to a supplier would be recorded in a purchases journal

false

The statement of shareholders' equity discloses the changes in the temporary shareholders' equity accounts.

false

In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What is the balance in income tax payable at the end of the year?

$10,000 credit. Income tax expense = $400,000 × 40% = $160,000

Fink Insurance collected premiums of $18,000,000 from its customers during the current year. The adjusted balance in the Deferred premiums account increased from $6 million to $8 million dollars during the year. What is Fink's revenue from insurance premiums recognized for the current year?

$16,000,000. Cash collections $18,000,000 Deduct increase in deferred premiums ( 2,000,000 ) Premiums earned $16,000,000

Eve's Apples opened business on January 1, 2016, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What is the balance in Eve's prepaid insurance as of December 31, 2016?

$18,000. Prepaid liability insurance: $36,000 x 6/18 $12,000 Prepaid hazard insurance: $12,000 x 12/24 6,000 Total prepaid insurance at 12/31/16 $18,000

Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Dave's purchased during the year?

$2,200,000.

When Castle Corporation pays insurance premiums, the transaction is recorded as a debit to prepaid insurance. Additional information for the year ended December 31 is as follows: Prepaid insurance at January 1 $52,500 Insurance expense recognized during the year 218,750 Prepaid insurance at December 31 61,250 What was the total amount of cash paid by Castle for insurance premiums during the year?

$227,500

Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year?

$260,000.

In its first year of operations Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?

$300,000.

On November 1, 2016, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What is the balance of interest payable for the loan as of December 31, 2016?

$450,000. Accrued interest payable = $30,000,000 × 9% × 2/12 = $450,000

Molly's Auto Detailers maintains its records on the cash basis. During 2016, Molly's collected $72,000 from customers and paid $21,000 in expenses. Depreciation expense of $5,000 would have been recorded on the accrual basis. Over the course of the year, accounts receivable increased $4,000, prepaid expenses decreased $2,000, and accrued liabilities decreased $1,000. Molly's accrual basis net income was:

$49,000.

The Hamada Company sales for 2016 totaled $150,000 and purchases totaled $95,000. Selected January 1, 2016, balances were: accounts receivable, $18,000; inventory, $14,000; and accounts payable, $12,000. December 31, 2016, balances were: accounts receivable, $16,000; inventory, $15,000; and accounts payable, $13,000. Net cash flows from these activities were:

$58,000.

When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:

(S)he usually debits an expense account.

The accounting equation can be stated as:

A - L - OE = 0.

The adjusting entry required to record accrued expenses includes:

A credit to liability.

The adjusting entry required when amounts previously recorded as deferred revenues are recognized includes:

A debit to a liability.

When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?

A decrease in salaries payable decreases net income.

When a magazine company collects cash for selling a subscription, it is an example of:

A deferred revenue transaction.

Making insurance payments in advance is an example of:

A prepaid expense transaction.

The purpose of closing entries is to transfer:

Balances in temporary accounts to a permanent account.

Which of the following is not an adjusting entry?

Cash Deferred revenue

Prepayments occur when:

Cash flow precedes expense recognition.

On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $2,000,000. The company provided $6,400,000 of services in June and received full payment in July. Royal also incurred expenses of $3,000,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $1,000,000. What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting?

Cash: $6,400,000 Accrual: $3,400,000

On December 31, 2015, Coolwear, Inc. had a balance in its prepaid insurance account of $48,400. During 2016, $86,000 was paid for insurance. At the end of 2016, after adjusting entries were recorded, the balance in the prepaid insurance account was 42,000. Insurance expense for 2016 would be:

Insurance expense = $48,400 + 86,000 - 42,000 = $92,400

Mama's Pizza Shoppe borrowed $8,000 at 9% interest on May 1, 2016, with principal and interest due on October 31, 2017. The company's fiscal year ends June 30, 2016. What adjusting entry is necessary on June 30, 2016?

Interest expense 120 Interest payable 120

Permanent accounts would not include:

Interest expense.

On September 15, 2016, Oliver's Mortuary received a $6,000, nine-month note bearing interest at an annual rate of 10% from the estate of Jay Hendrix for services rendered. Oliver's has a December 31 year-end. What adjusting entry will the company record on December 31, 2016?

Interest receivable 175 Interest revenue 175 Accrued interest revenue: $6,000 × 10% × 3.5/12 = $175

Ace Bonding Company purchased merchandise inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase?

Inventory 2,000 Accounts payable 2,000

When converting an income statement from a cash basis to an accrual basis, expenses:

May exceed or be less than cash payments to suppliers.

When converting an income statement from a cash basis to an accrual basis, cash received for services:

May exceed or be less than service revenue.

Accruals occur when cash flows:

Occur after revenue or expense recognition.

Examples of internal transactions include all of the following except:

Paying salaries to company employees.

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:

Plus net income, minus dividends.

Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2016, and charged the $4,200 premium to Insurance expense. At its December 31, 2016, year-end, Yummy Foods would record which of the following adjusting entries?

Prepaid insurance 3,325 Insurance expense 3,325

The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000. The current pay period ends on Friday, July 3. Neat Clothes is now preparing quarterly financial statements for the three months ended June 30. What is the adjusting entry to record accrued salaries at the end of June?

Salaries expense 22,400 Salaries payable 22,400

Temporary accounts would not include:

Salaries payable.

Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Cal Farms purchased during the year?

Supplies purchases: $400,000 + 2,000,000 - 600,000 = $1,800,000

When a business makes an end-of-period adjusting entry with a debit to supplies expense, the usual credit entry is made to:

Supplies.

An economic resource of an entity is:

asset

Permanent accounts would not include:

cost of goods sold

XYZ Corporation receives $100,000 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a:

credit to capital stock

Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a:

debit to investments

Incurring an expense for advertising on account would be recorded by:

debiting an expense

A sale on account would be recorded by:

debiting assets

Adjusting journal entries are recorded at the end of any period when financial statements are prepared

true

Debits increase asset accounts and decrease liability accounts

true

Owners' equity can be expressed as assets minus liabilities

true

The closing process brings all temporary accounts to a zero balance and updates the balance in the retained earnings account.

true

The post-closing trial balance contains only permanent accounts

true

The sale of merchandise on account would be recorded in a sales journal.

true

The statement of cash flows summarizes transactions that caused cash to change during a reporting period

true