ACC 301 Ch.2 Smartbook Questions

On July 1, Perry Company signed a note with principal of $80,000 and a stated interest rate of 4%. The principal and interest are due on April 1 of the following year. Perry will accrue interest on December 31st of $0 $4,800 $3,200 $1,600

$1,600

Millburg Corp. uses the periodic inventory method. Millburg's beginning inventory is $10,000. During the year, Millburg purchases $8,000 of inventory. Ending inventory is $5,000. Cost of goods sold is $7,000. $3,000. $18,000. $13,000.

$13,000.

On January 1, Poodle Company purchases equipment for $120,000. The equipment is expected to have a useful life of 4 years and will have no value a the end of that period. Poodle allocates the cost equally over the period of use so the depreciation expense that must be recognized for the year is $30,000. $120,000. $25,000. $5,000.

$30,000.

On September 1, Year 1, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December Year 1? -$12,000 -$3,000 -$24,000 -$4,000

$4000

Which of the following make up shareholders' equity? (Select all that apply.) -amounts earned by the corporation -liabilities owed by the corporation assets owned by shareholders -assets purchased by the corporation -amounts invested by shareholders

-amounts earned by the corporation -amounts invested by shareholders

On May 1, Year 1, Garcia Company paid $1,200 for 12 months of rent and recorded the transaction in an income statement account. The adjusting journal entry required on December 31, Year 1, will require a -credit rent expense $400 -credit prepaid rent $400. -debit rent expense $400 -credit rent expense $800. -debit rent expense $800. -debit to prepaid rent $400.

-credit rent expense $400 -debit to prepaid rent $400.

Revenue of $1,000 was collected in advance from customers for goods and was recorded as sales revenue. At year end, $600 of the revenue collected in advance is earned. The adjusting entry includes a: -debit to deferred revenue of $400 -credit to revenue of $400 -credit to deferred revenue $600 -debit to revenue of $600 -credit to deferred revenue of $400 -debit to revenue of $400

-credit to deferred revenue of $400 -debit to revenue of $400

Logan Corp. purchases supplies on account and appropriately records the transaction in an asset account. The adjusting journal entry at year-end when accounting for supplies used will require a (Select all that apply.) -credit to supplies expense -debit to supplies -credit to supplies -debit to supplies expense

-credit to supplies -debit to supplies expense

To record an adjusting entry when deferred revenue is recognized: Multiple select question. -deferred revenue is debited -deferred revenue is credited -revenue is credited -revenue is debited

-deferred revenue is debited -revenue is credited

Operating items include (Select all that apply.) -gains and losses from peripheral activities. -revenues and expenses from peripheral activities. -expenses from the principal revenue-generating activities of the company. -revenues from the principal revenue-generating activities of the company.

-expenses from the principal revenue-generating activities of the company. -revenues from the principal revenue-generating activities of the company.

Accrued liabilities are: -expensed in a later period than the cash was paid -expenses paid at the time incurred -expenses incurred before cash was paid

-expenses incurred before cash was paid

One of the purposes of adjusting entries is to -ensure debits equal credits. -recognize all revenues earned during the period. -record all external transactions at the end of the year. -make assets equal liabilities plus owners' equity.

-recognize all revenues earned during the period.

Adjusting entries help a company accurately measure (Select all that apply.) -the company's financial performance. -revenues and expenses for the period. -the cash received and paid during the year.

-the company's financial performance. -revenues and expenses for the period.

On October 1, Hill Corporation signed a 6-month note with principal of $10,000 and interest of $600 due in six months. The stated rate of interest on the note is 3% 12% 6%

12% Reason: $10,000 x 6/12 x I = $600; $5,000 x I = $600; I = 12% $10,000 x 12% x 6/12 = $600 - Interest is an annual rate regardless of the length of the loan so 12% for the year x 6/12.

The contra account used to record depreciation is _________depreciation.

Accumulated

Which of the following represents the accounting equation? Assets = Liabilities + Owners' Equity Assets + Liabilities = Owners' Equity Assets = Liabilities - Owners' Equity Owners' Equity - Liabilities = Assets

Assets = Liabilities + Owners' Equity

Which of the following is the correct formula to calculate cost of goods sold? Beginning inventory + ending inventory - purchases Ending inventory + purchases - beginning inventory Beginning inventory + purchases - ending inventory Beginning inventory - purchases + ending inventory

Beginning inventory + purchases - ending inventory

Which of the following steps occurs only at the end of the year? Prepare the financial statements Close the temporary accounts to retained earnings Obtain information about external transactions from source documents Record adjusting entries and post to the general ledger accounts

Close the temporary accounts to retained earnings

On October 1, Company B records 1 year of prepaid rent in an income statement account then adjusts for the unexpired prepaid rent at the end of the period. Which of the following statements is true for Company B's financial statements at December 31 year-end? Company B's assets will be lower than if the original entry were recorded in a balance sheet account. Company B's assets and expense should be the same regardless of which account was used to record the original transaction. Company B would have more expense than if the original entry were recorded in a balance sheet account.

Company B's assets and expense should be the same regardless of which account was used to record the original transaction.

True or false: Retained earnings equals net income plus distributions to shareholders

False

Which of the following are examples of prepayments? Expense paid when it is incurred Revenue collected when it is earned Purchasing supplies that will be used later

Purchasing supplies that will be used later

True or false: The purpose of the statement of cash flows is to summarize the transactions that caused cash to change during the period. True false question.

True

Accumulated depreciation is (Select all that apply.) an expense account a stockholder's equity account a balance sheet account a contra asset account

a balance sheet account a contra asset account

Accumulated depreciation is (Select all that apply.) a contra asset account a balance sheet account a stockholder's equity account an expense account

a contra asset account a balance sheet account

An external event involves an exchange between the company and upper management. the FASB. the Board of Directors. a separate economic entity

a separate economic entity

Expenses incurred in one accounting period and paid for in a future accounting period are ________ liabilities.

accrued

The balance sheet account that depreciation is recorded to is: plant and equipment accumulated depreciation depreciation expense

accumulated depreciation

Which of the following items is prepared at the end of the accounting period immediately before the financial statements are prepared? -post-closing trial balance -adjusted trial balance -unadjusted trial balance

adjusted trial balance

Which of the following items is prepared at the end of the accounting period immediately before the financial statements are prepared? post-closing trial balance adjusted trial balance unadjusted trial balance

adjusted trial balance

Entries made at the end of the accounting period before the financial statements are prepared are called ________ entries.

adjusting

Accruals occur when cash flow comes: (Select all that apply.) -after revenue recognition -after expense recognition -before revenue recognition -before expense recognition

after revenue recognition after expense recognition

Which of the following make up shareholders' equity? (Select all that apply.) amounts earned by the corporation assets purchased by the corporation liabilities owed by the corporation amounts invested by shareholders assets owned by shareholders

amounts earned by the corporation amounts invested by shareholders

Recognizing revenue before cash flow is an example of: a prepayment adjusting entry an accrual adjusting entry an estimate adjusting entry

an accrual adjusting entry

Recognizing revenue before cash flow is an example of: an accrual adjusting entry a prepayment adjusting entry an estimate adjusting entry

an accrual adjusting entry

A company paying rent in advance for the month of April records: revenue an asset an expense a liability

an asset

Accrued liabilities are costs incurred in an accounting period: after a cash payment at the same time of a cash payment before a cash payment

before a cash payment

Accrued liabilities are costs incurred in an accounting period: -after a cash payment -at the same time of a cash payment -before a cash payment

before a cash payment

Which of the following are permanent accounts? (Select all that apply.) cash equipment cost of goods sold revenue common stock

cash equipment common stock

The adjusting journal entry required when deferred revenue is recognized includes a ________ entry to revenue.

credit

The normal balance in a contra asset account is credit debit either debit or credit

credit

Which of the following represents the right side of an account? decrease credit debit increase

credit

On October 1, Arcelia Corp. pays $24,000 for two years of rent. The transaction is appropriately recorded in a prepaid rent account. On December 31, of the same year Arcelia should make an adjusting entry for the rent expired, which includes (Select all that apply.) credit to prepaid rent $3,000 credit to rent expense $9,000 debit to rent expense for $9,000. debit to prepaid rent for $3,000. credit to rent expense $3,000 debit to rent expense for $3,000.

credit to prepaid rent $3,000 debit to rent expense for $3,000.

On November 1, Year 1, Thomasson paid rent on its building for 2 years in the amount of $12,000. When the transaction was initially recorded, the full $12,000 was recorded as an expense using an alternative approach to record the prepayment. The adjusting journal entry on December 31, Year 1 requires a -credit to rent expense $11,000. -credit to prepaid rent $11,000. -debit to prepaid rent $1,000. -debit to rent expense $200.

credit to rent expense $11,000.

The adjusting journal entry required when deferred revenue is recognized includes a ______ , Correct Unavailable entry to a liability.

debit

The adjusting entry to record deferred revenue originally recorded as sales revenue includes a: debit to deferred revenue debit to sales revenue credit to deferred revenue

debit to sales revenue credit to deferred revenue

Ragland Corp. purchases supplies on account for $1,000 and appropriately records the transaction in an asset account. A count of inventory at year-end indicates that $300 of supplies are remaining. The adjusting journal entry required at year-end includes (Select all that apply.) debit to supplies on hand $300. debit to supplies expense $700. credit to supplies expense $700. credit to supplies on hand $700 debit to supplies on hand $700. credit to supplies on hand $300

debit to supplies expense $700. credit to supplies on hand $700

In a double-entry accounting system, each transaction has a ________effect on the accounting equation.

dual

A(n) _______ event is any event that directly affects the financial position of the company.

economic

Adjusting journal entries are necessary for three situations: deferrals, accruals, and ________ . (Enter only one word.)

estimates

An account should have an account title, account number, a place for the date of the transaction, and two columns for revenues and expenses. increases and decreases. closing and post-closing. assets and liabilities.

increases and decreases.

Deferred revenue is a(n): -asset on the balance sheet -liability on the balance sheet -revenue on the income statement -expense on the income statement

liability on the balance sheet

Revenue and expenses on the income statement are classified as: (Select all that apply.) non-operating items investing items financing items operating items

non-operating items operating items

The components of the income statement are usually classified as: (Select all that apply.) non-operating items operating items financing items investing items

non-operating items operating items

A ______ liability is a liability that will be satisfied in more than 1 year or operating cycle, whichever is longer, in the future. noncurrent current

noncurrent

Inflows and outflows of cash related to transactions that impact net income are financing activities. operating activities. investing activities.

operating activities.

Which of the following make up shareholders' equity of a corporation? (Select all that apply.) -long-term liabilities -paid-in capital -retained earnings -property and equipment -current assets

paid-in capital retained earnings

A ______ account represents the basic financial position elements of the accounting equation and a _____ account keeps track of the changes in the retained earnings component of shareholders' equity. temporary; permanent subsidiary; control permanent; temporary control; subsidiary

permanent; temporary

Cost of assets acquired in one accounting period and expensed in a future accounting period are ____________ ___________ .

prepaid expenses

One of the purposes of adjusting entries is to -recognize all revenues earned during the period. -record all external transactions at the end of the year. -make assets equal liabilities plus owners' equity. -ensure debits equal credits.

recognize all revenues earned during the period.

When an adjusting entry is made to record depreciation expense, the effect on the balance sheet is to increase total liabilities. reduce total assets. increase retained earnings.

reduce total assets.

A prepayment may be recorded in prepaid rent, a balance sheet account. The alternative method to record the prepayment is to debit the __________. ___________ account.

rent expense

The first step in the closing process is to reduce the balances in the temporary accounts to zero. The second step is to transfer the effects of step 1 to which account? cash retained earnings dividends common stock

retained earnings

Which of the following are temporary accounts? (Select all that apply.) accounts payable salary expense retained earnings revenue

salary expense revenue

The justification for a company initially recording prepaid rent in either an income statement or balance sheet account is that the balance sheet and income statement accounts are classified as current. the accounts are adjusted at year-end to reflect the correct balances. the same accounts are used to record the initial transaction regardless of which type of account is used.

the accounts are adjusted at year-end to reflect the correct balances.

An event that has a dual effect on the accounting equation is referred to as a(n) investment. direct effect. transaction. indirect effect.

transaction.

The statement of comprehensive income reports the changes in shareholders' equity during the period that: equal the difference between assets and liabilities equal the difference between revenues and expenses were not a result of transactions with owners were the result of transactions with owners

were not a result of transactions with owners

Adjusting entries are recorded: at the beginning of an accounting period after the financial statements have been prepared after closing entries have been prepared when the financial statements are prepared

when the financial statements are prepared