Accounting Midterm Quiz 2

Accounts Receivable

Asset - Permanent

Accounts Receivable

IGNORED IN THE POST CLOSING BALANCE

which of these items decreases with a credit entry

INVENTORY

Accumulated Depreciation

Ignored

Notes Payable

Ignored

The following information is provided by the Franco Harris Corporation: Beginning retained earnings $50,000 Ending retained earnings 35,000 Expenses 50,000 Revenue 45,000 Unearned Revenue 10,000 Calculate Harris Corporation's dividends declared during the year.

$10,000 Closing Retained Earnings = Opening Retained Earnings + Net Income (Loss) - Dividends declared, Thus, using the above equation and rearranging the variables we get, Dividend declared = Opening Retained Earnings + Net Income (Loss) - Closing Retained Earnings Thus, Dividends declared = 50,000 + (45,000 - 50,000) - 35,000 = $10,000

On July 1, 2019, Allen Company signed a $100,000, one-year, 6 % not payable. The principal and interest will be paid on June 30,2020. How much interest expense should be reported on the income statement for the year ended December 31, 2019?

$100,000 * 6% * 6/12 = $3,000 6 months btw July and December

In December 2017, Serena Williams purchased season tickets to all the Washington Wizards 2018-2019 home games for $4,100. As of December 31, 2018, the Wizards had played 20 of their 41 total home games. How much revenue should the Wizards recognize in 2018 from Serena's season ticket? For the purpose of this problem, assume the Wizards are not expected to play in any post-season games.

$2,000 only counts the games that have been played

Smith & Sons reports interest expense of $90,000 on its 2028 income statement. The January 1, 2028 interest payable balance is $10,000, and the December 31, 2028 interest payable balance is $15,000. How much cash did Smith & Sons pay for interest during 2028?

10 + 90 - x = 15 x = 85 Total Interest Expense for 2028: $90,000 Less: Increase in Interest Payable (Interest that was accrued but not paid during 2028) Increase in Interest Payable = Interest Payable at the End - Interest Payable at the Beginning Increase in Interest Payable = $15,000 - $10,000 = $5,000 Cash Paid for Interest: $90,000 - $5,000 = $85,000

On January 1, 2030, two individuals invested $800,000 to form Hoya Saxa Corp. Hoya Saxa had $220,000 in total expenses for 2030. Dividends declared and paid to stockholders totaled $45,000 in 2030. The ending balance for Hoya Saxa's stockholders' equity on December 31, 2030 was $930,000. What was Hoya Saxa's total revenue for 2030?

395,000 Beginning Equity + Net Income - Dividends = Ending Equity 800,000 + (Revenue - $220,000) - $45,000 = $930,000

Below is some information from the financial statements of Rand Company. 12/31/2015 12/31/2014Assets$220 million$180 millionLiabilities 80 million 50 million During 2015, Rand issued $16 million of stock, earned revenues of $64 million, and declared and paid dividends of $4 million. What was the amount of total expenses that Rand recorded during fiscal year 2015? $66 million

66 million, We know that Equity (E) = Contributed Capital + Retained Earnings (RE) Equity in 2014 = 180 -50 = 130 Equity in 2015= 220 - 8- = 140 Change in Equity = + 10 The change in Contributed Capital was + 16. Hence, the change in Retained Earnings must have been - 6 We know that RE at the beginning + Net Income (NI) - Dividends = RE at the end. Here, the change in Retained Earnings was -6 and the dividend - 4. Hence, the Net Income was -2. We know that NI = Revenues - Expenses (ignoring the gains and losses). Hence, Expenses = Revenues + NI. Here, Expenses = 64 +2 = 66.

Which of the following scenarios increases accounts payable? - A customer fails to pay an invoice. - Office supplies are purchased with cash. - A supplier delivers raw materials on credit. - None of the above.

A supplier delivers raw materials on credit. Explanation: when a supplier delivers raw material a liability is incurred. Customer payments relate to accounts receivable, not accounts payable. Expenses paid with cash do not generate accounts payable bc the payment is made concurrent with incurring the liability.

For the following transaction for Tian Company in 2028, state whether the total effect of the transaction results in an increase, decrease, or has no effect on Tian Company's assets, liabilities, equity, and net income. Tian Company collected $1,000 in sales tax during the month.

ASSETS = increase when Tian Company collects salex tax, it's essentially collecting money on the behalf of the government. This means the company's cash (an asset) increase by the amount of the sales tax collected. LIABILITIES = increase, the collected sales tax isn't Tian company's revenue; its a liability bc the company owes this amount to the government. Until the company remits this amount to the appropriate tax authority , it reamins a liability EQUITY = no effect equity looks at owner's capital, retained earnings, and overall earnings. since sale tax doesnt represent earnings for Tian Company (it is not revenue, just money collected on behalf of the government) NET INCOME = no effect affected by expenses and revenues.

Which of these accounts is included in the post-closing trial balance ?

Accounts Payable

Salaries owed but not paid yet is an example of which of the following

Accrued expense

The T-Account is used to summarize which of the following?

All of the above describe how T-accounts are used by accountants

Trevor Williams Company borrowed $10,000 from Mike Trout National Bank on May 1, 2019. Interest on the note, which accumulates at 6% annually, is paid when the loan principal is repaid. The loan remains outstanding on June 30 when both the Williams Company's and the Trout National Bank close their books to prepare financial statements. Other than cash, Trout National Bank's balance sheet shows which of these amounts related to the loan?

An asset = $10,100 The loan remains outstanding on June 30. This means the duration of the loan for which interest will accumulate by June 30 is 2 months (May and June). Now we will calculate the interest for these two months: Annual interest = $10,000 x 6% = $600 Interest for two months = ($600 / 12 months) x 2 months =$100 $10,000 (principal) + $100 (interest) = $10,100 This $10,100 represents both the principal and the accumulated interest that Trevor Williams Company owes to Mike Trout National Bank. This amount is considered an asset for Trout National Bank because it's an amount they expect to receive in the future.

Easter Bunny Corporation prepared its annual financial statements for its shareholders for the fiscal year ending December 31, 2018. Record whether the transaction below for Easter Bunny Corporation overstated (O), understated (U), or correctly stated (C) total assets, total liabilities, stockholders' equity, and net income in 2018. Easter Bunny Corporation calculated depreciation expense to be $100,000. When Easter Bunny recorded the depreciation in its journal, it debited accumulated depreciation for $100,000 and credited depreciation expense for $100,000.

Assets "O" This might seem counterintuitive initially because they recorded the depreciation, but it is essential to remember that the question is assuming the depreciation recorded was in error. Since they incorrectly recorded the depreciation (as implied by the scenario), the assets are indeed overstated. Liabilities "C" Depreciation doesn't directly impact liabilities. Equity "O" depreciation reduces net income for the year bc its an expense. A lower net income, in turn, decreases retained earnings, a component of stockholders' equity. If depreciation is incorrectly recorded, equity would be overstated. Net Income "O" Depreciation is an expense so it reduces net income. If the depreciation was recorded higher than it should have been, the expense for the yr would be overstated.

Easter Bunny Corporation prepared its annual financial statements for its shareholders for the fiscal year ending December 31, 2018. Record whether the transaction below for Easter Bunny Corporation overstated (O), understated (U), or correctly stated (C) total assets, total liabilities, stockholders' equity, and net income in 2018. Easter Bunny Corporation failed to recognize amortization on its patents in the amount of $42,000.

Assets - O Liabilities - C Equity - O Net Income - O

For the following transactions for Hoya Company in January of 2020, state whether the total effect of the transaction results in an increase, decrease, or has no effect on Hoya Company's assets, liabilities, equity, net income, and cash flows. Hoya paid $5,000 to its landlord at the end of the month for the current month's rent.

Assets - decrease liabilities - no effect equity - decreases net income -decreases cash flows - decreases

For the following transactions for Hoya Company in January of 2020, state whether the total effect of the transaction results in an increase, decrease, or has no effect on Hoya Company's assets, liabilities, equity, net income, and cash flows. Hoya sold inventory costing $400,000 to customers for $800,000 cash. Hoya uses a perpetual inventory system.

Assets - increase Liabilities - no effect Equity - increase Net Income - Increase Cash Flows - Increase

For the following transaction for Tian Company in 2028, state whether the total effect of the transaction results in an increase, decrease, or has no effect on Tian Company's assets, liabilities, equity, and net income. Tian Company recognized $1,000 of impairment on its manufacturing equipment.

Assets = decrease liabilties = no effect equity = decrease net income = decrease

For the following transactions for Hoya Company in January of 2020, state whether the total effect of the transaction results in an increase, decrease, or has no effect on Hoya Company's assets, liabilities, equity, net income, and cash flows. Hoya paid $5,000 to its landlord at the end of the month for the current month's rent.

Assets = decrease bc cash goes down Liability = no effect Equity = decrease after closing Net Income = decreased as expense increased Cash Flow = decreased as a payment was made

For the following transaction for Tian Company in 2028, state whether the total effect of the transaction results in an increase, decrease, or has no effect on Tian Company's assets, liabilities, equity, and net income. Tian Company paid a total of $3,500 cash for oil changes for every delivery truck in its fleet.

Assets = decrease, The company paid $3,500 cash. Cash is an asset. As the company paid this amount, the cash asset will decrease. Liabilities = The company paid for the oil changes, which means there is no mention of taking on debt or any other obligations to pay later. Effect: No change Equity = Given that there's an expense (oil changes for delivery trucks) in the transaction, this will decrease net income and, in turn, decrease equity. Effect: Decrease Net Income = decrease Expenses reduce net income. The oil change cost for the delivery trucks is an expense. When the company records this expense, it will reduce the company's net income.

What is the impact on the accounting equation when a current month's utility expense is paid?

Both side decrease Decrease in assets = the cash is reduced by the amount of the utility expense Decrease in Equity = since the expense reduces the net income for the period; it in turn reduces the equity

What is the impact on the accounting equation when a payment of account payable is made ?

Both sides decrease

Accumulated amortization is an example of what type of account?

Contra account

Shown below is the adjusted trial balance for JHH Corporation on December 31, 2018. Cash Debit: 16,000 Prepare JHH's closing journal entries on December 31, 2018. In your response, indicate if the account should be "debited", "credited" or "ignored".

Ignored When preparing closing journal entries at the end of an accounting period, the goal is to reset the temporary accounts (revenues, expenses, income summaries, and withdrawals/dividends for owner's equity in a proprietorship or partnership or dividends for a corporation) to zero to prepare for the next accounting period. Permanent accounts, also known as real accounts (like assets, liabilities, and equity accounts excluding the aforementioned temporary equity accounts) remain open and are not closed to zero. Given that the only account provided is "Cash", which is an asset account and thus a permanent account, we would not prepare any closing entries for it.

Equipment

Ignored in the post closing balance

Shown below are accounts and their balances in alphabetical order (after adjusting entries have been posted) for Kline Inc. on December 31, 2015. Account Title Amount ($) Accounts Payable 4,200 Accounts Receivable 2,200 Cash 1,200 Contributed Capital 2,700 Depreciation Expense 500 Interest Expense 2,300 Equipment (net of accumulated depreciation = $500) 24,500 Office Supplies 1,750 Office Supply Expense 600 Rent Expense 2,400 Retained Earnings (as of 1/1/2015) ? Revenue 18,000 Salary Expense 6,900 Telephone Expense 250 Unearned Revenue 400 Which of the following journal entry descriptions correctly describes Kline Inc.'s closing process for total expenses on December 31, 2015?

Debit Retained Earnings for $12,950, and credit Expenses for $12,950 Explanation: Let's calculate the total expenses from the given information: Depreciation Expense = $500 Interest Expense = $2,300 Office Supply Expense = $600 Rent Expense = $2,400 Salary Expense = $6,900 Telephone Expense = $250 Total Expenses = $500 + $2,300 + $600 + $2,400 + $6,900 + $250 = $12,950 When we close out the expenses, we credit each individual expense to reduce its balance to zero, and we debit Retained Earnings for the total expense amount. This is because expenses reduce the retained earnings of the business.

Russell Company completed the following transaction(s) during 2015. No adjusting journal entries were made during the year. Provide the adjusting journal entries required on December 31, 2015. A. On December 31, 2015, Russell Company owed employees $3,750 for wages that were earned during December and were not recorded.

Debit Wage Expense for $3,750 and Credit Wage Payable $3,750. Explanation: Russell Company owes its employees wages of. $3,750 for work done in December 2015, but this has not been recorded by the end of the year The wages were earned by the employees in December 2015, even though the cash hasn't been paid yet, under the accrual basis of accounting, expenses are recognized when they are incurred Hence we Debit Wage Expense for $3,750 Since the wages have not been paid by the end of December, the company has an obligation to pay this amount to its employees in the future. Hence, we credit Wages Payable for $3,750.

Which of the following is the entry to be recorded by a law firm when it receives a payment from a new client for a service to be provided in the future?

Debit cash; credit unearned revenue (is a liability) When the law firm receives a payment for a service that it will provide in the future, it means the firm has received cash (or some form of payment) but has not yet earned the revenue from a legal standpoint. It has an obligation to provide the service in the future. Debit cash: the law firm's cash balance increases bc it received payment, so it debits (increases) the cash account. Credit unearned revenue: unearned revenue is a liability account. it represents an obligation of the firm to provide a service in the future because it has already been paid for it. By crediting (increasing) the unearned revenue account, the firm acknowledges this obligation.

Rent collected in advance is an example of which of the following?

Deferred revenue (unearned revenue)

Online Inc. purchased a machine at a price of $90,000 on January 1, 2028. Online also paid $5,000 for installation and startup costs. Online also incurred some maintenance costs of $10,000 during 2028. Online expects to be able to sell the machine for scrap parts for $15,000 at the end of the useful life. Assume straight-line depreciation for 2028 is $5,000. What is the useful life of the asset (round to the nearest whole year)?

Depreciation basis = 90,000 + 5,000 - 15,000 = 80,000 These are capitalizable costs because they are necessary to get the machine ready for the use. Useful life: 80,000/5,000 = 16 years

Depreciation Expense

Expense - Temporary

cost of good sold

Expense - temporary

Assume that Wayne Gretzky has a 12/31 fiscal year end. On 12/29/2016, Sears Company paid Gretzky $250,000 (in cash) to appear in TV commercials during the two years encompassing 1/1/2017 to 12/31/2018. Half of the advertisements will be shown during fiscal 2017 and half will be shown during fiscal 2018. What is the effect of the 12/29/2016 payment on Gretzky's 12/31/2016 working capital? Working capital is defined as current assets minus current liabilities.

Gretzky's 12/31/2016 working capital is $125,000 greater than if the 12/29/2016 transaction had not been made

For each of the following transaction(s) that KLA engaged in during 2015, state the effect on KLA's assets, liabilities and stockholders' equity. KLA sold services to a customer for $26,000 on credit.

Increase in A/R (Accounts Receivable) & Increase in Sales Revenue $26,000

For each of the following transaction(s) that KLA engaged in during 2015, state the effect on KLA's assets, liabilities and stockholders' equity. KLA purchased a piece of manufacturing equipment with a cost of $100,000 by paying $25,000 in cash and signing a note for the remainder.

Increase in Equipment $100,000 & decrease in cash $25,000 & increase in Notes Payable $75,000

The following information is provided by the Franco Harris Corporation: Beginning retained earnings $50,000 Ending retained earnings 70,000 Expenses 10,000 Revenue 50,000 Calculate Harris Corporation's dividends declared during the year.

It is important to remember the formula: End retained earnings = Beginining Retained Earnings + Net Income (Revenue - Expenses) - Dividends the correct answer is $20,000

Accounts Payable

Liability - Permanent

Accrued Expenses

Liability - Permanent

Unearned Revenue

Liability - Permanent

Which of the following accounts is considered a permanent or real account?

Prepaid Insurance

On 7/1/19, the Hines Ward Company, who operates in a tax-free world, purchased a three month casualty insurance policy from the State Farm for $750. What is the account and the amount on the 8/31/19 balance sheet related to this policy ?

Prepaid Insurance = $250 Explanation: When a company purchases an insurance policy that covers multiple periods, the cost of the policy is initially recorded as a prepaid expense (insurance). As time progresses and the coverage periods elapse, the company will recognize the expense related to the elapsed period and reduce the prepaid amount accordingly. Initial purchase = the Hines Ward Company purchased a three-month casualty insurance policy on 7/1/19 for $750 this means the monthly cost of the insurance is 750/3 = 250 Period elapsed until 8/31/19: from 7/1/19 to 8/31/19 two months have passed so 250 x 2 = 500 Prepaid Amount on 8/31/19: Initial prepaid amount: $750 Less: Expense recognized for 2 months: $500 Remaining prepaid amount on 8/31/19: $250

On April 1, 2026, SBD Corp. paid $120,000 for rent on warehouse space one year in advance. On October 1, 2026, SBD Corp. entered into an agreement to rent out a different warehouse it was no longer using. This agreement calls for SBD to receive $8,000 per month from the renter, due and payable at the end of the 4-month lease term. At December 31, 2026, none of the rental payments from the renter had yet been received. If SBD makes the appropriate adjusting entry, how much will be reported on the December 31, 2026 balance sheet as prepaid rent and rent receivable, respectively?

Prepaid Rent for Warehouse Space: SBD Corp. paid $120,000 on April 1, 2026, for one year of rent in advance. By December 31, 2026, 9 months (from April to December, inclusive) of this rent would have been used up. Amount of rent used per month = $120,000 ÷ 12 months = $10,000/month Amount used up in 9 months = $10,000/month × 9 months = $90,000 So, the amount remaining as prepaid rent by December 31, 2026 = $120,000 - $90,000 = $30,000 SBD Corp. entered into an agreement on October 1, 2026, to rent out a different warehouse. The rental agreement was for $8,000 per month, but the payment would only be received at the end of the 4-month lease term. By December 31, 2026, 3 months would have passed (October, November, and December). Rent to be received per month = $8,000 Rent to be received for 3 months = $8,000/month × 3 months = $24,000 This amount, $24,000, is considered rent receivable on December 31, 2026, because the renter owes SBD Corp. this amount but hasn't paid yet. On the December 31, 2026 balance sheet: Prepaid Rent: $30,000 Rent Receivable: $24,000

Trevor Williams Company borrowed $10,000 from Mike Trout National Bank on May 1, 2019. Interest on the note, which accumulates at 6% annually, is paid when the loan principal is repaid. The loan remains outstanding on June 30 when both the Williams Company's and the Trout National Bank close their books to prepare financial statements monthly. What is the effect on Williams Company pre-tax June 2019 income related to the loan?

Reduce June's pre-tax income by $50. Note that the company closes on a monthly basis, so there will only be one month of interest in the monthly income statement.

Which account would be credited when closing the account for rent expense for the year?

Rent expense

Interest Revenue

Revenue - Temporary

Which of these accounts is increased by a debit ?

Supplies

A liability arises when a firm

Takes delivery of inventory at a discount

If an expenditure related to a depreciable asset is incorrectly treated as a capital expenditure, instead of as repairs and maintenance expense, which of the following statements is true?

The correct answer is: the current year's net income will be higher and future depreciation expense will be higher. Explanation: Capital Expenditures: When an expenditure related to a depreciable asset is treated as a capital expenditure, it is added to the asset's carrying amount (book value) on the balance sheet. This amount is then depreciated over the asset's remaining useful life. This means that the entire expenditure isn't immediately expensed in the current year, but spread out as depreciation over several years. Repairs and Maintenance: On the other hand, if the expenditure was treated as repairs and maintenance, it would be expensed entirely in the year it was incurred, thus reducing that year's net income by the full amount of the expenditure. In conclusion, incorrectly treating the expenditure as a capital expenditure will result in higher net income in the current year (because the whole amount isn't immediately expensed) and higher depreciation expense in future years (because the asset's carrying amount has been increased).

Hill Corp makes and sells wooden chairs. On July 1, It purchases a machine for $100 to cut woods. Hill pays $50 cash at delivery and signs a note with the equipment supplier for the remainder. The note terms include 10% annual interest due at the end of each quarter (March, June, September, and December). The $50 of principal is due on June 30, 2026. Consider the journal entry on July 1.

The first account PP&E is debited for 100 The second account none is debited for 0 the third account note payable is credited for 50 the fourth account cash is credited for 50

If depreciation expense is calculated without taking into account the asset's residual value, depreciation expense will be overstated

True

At what point does revenue recognition occur?

When the seller has met 'performance'

MD Inc. acquires a machine for $48,829. It spends an additional $13,946 in installing the machine and $6,393 in sales tax on the machine. The transportation costs of the machine were $9,774. The firm expects to use the machine for 5 years. At the end of the 5 years, MD expects to be able to sell the machine for $2,707. How much should MD record the machine for at the time of acquisition?

You need to add up every cost that are needed for the machine to work so 48,829 + 13,946 + 6,292 + 9,774 = 78,942 Fixed assets should be recorded at cost of acquisition. Cost includes all expenditures directly related to the acquisition or construction of and the preparations for its intended use. Such costs as freight, sales tax, transportation, and installation should be capitalized.

the step by step process to record business activities and events to keep financial records up to date is

accounting cycle

Which sets of accounts has the same type of normal balance

accounts payable and retained earnings (both credit)

If an adjustment includes an entry to a payable or receivable account, which type of adjustment is it?

accrual

If an adjustment includes an entry to a payable or receivable account, which type of ajustement is it?

accrual

which of these accounts is never closed

accumulated depreciation

Ramamurthy Corporation plans to prepare its annual financial statements for its shareholders for fiscal year ending June 30, 2032. Record whether each transaction for Ramamurthy Corporation overstated (O) or understated (U) net income, total assets, total liabilities, or stockholders' equity. You may assume closing entries have been made. If a category is correct, then write (C). Ramamurthy Corporation pays salaries to its employees on the 15th of every month. Ramamurthy did not record salaries for the last 15 days of June 2032.

assets = C liability = U net income = O stockholder's equity = O

what is the impact on the accounting equation when a payment of account payable is made?

both side decrease

What is the impact on the accounting equation when stock is issued in exchange for assets?

both sides increase

what is the impact on the accounting equation when stock is issued, in exchange for assets?

both sides increase - keeping balance

Accumulated Depreciation

contra account - permanent

Allowance for doubtful accounts

contra-account - permanent

Which of the following is an example of revenue or expense to be recognized in the current period's income statement?

cost of utilities used during the period

Supplies Expense

credited

advertising expense

credited

rent expense

credited

wage expense

credited

Russell Company completed the following transaction(s) during 2015. No adjusting journal entries were made during the year. Provide the adjusting journal entries required on December 31, 2015. A. On December 31, 2015, Russell Company owed employees $3,750 for wages that were earned during December and were not recorded.

debit wage expense for $3,750 and credit wage payable for $3,750

Retained earnings

debited

rent paid in advance is an example of which of the following?

deferred expense (prepaid expense)

which of the following pairs of accounts are impacted the same with debits and credits

electricity expense and office supplies

Which of these accounts is not included in the post-closing trial balance?

gains on disposal of assets

once journal entries are recorded, they can be posted to

general ledger

Accounts Payable

ignored

Building

ignored in the post closing balance

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were

less than the book value

which process of the accounting cycle often requires the most analytical thought?

making a journal entry

Accounts with balances that are carried over to future years

permanent accounts

on which of the following would the year-end Retained Earnings balance be stated correctly?

post closing trial balance

___ takes all transactions from the journal during a period and moves the information to a general ledger (ledger)

posting

which of the following accounts is considered a permanent or real account?

prepaid insurance

which of these accounts is never closed

prepaid rent

Which of these transactions requires a credit entry to Revenue?

received cash from services performed this month. 1. services were performed this month, which means the company has earned the revenue in the current period. 2. the company received cash for these services we credit revenue bc the company earned revenue by providing the services.

which of the following account normally has a debit balance

rent expense Unearned revenue is a liability, retained earnings is part of equity. Sales revenue typically has a credit balance.

which of these accounts is included in the post-closing trial balance?

retained earnings

Which if these transactions requires an adjusting entry (debit) to unearned revenue?

revenue collected before being earned, when its later earned

Which of these accounts would be present in the closing entries?

revenues

which of the following accounts is increased by a debit

supplies

Which accounts would be credited when closing the account for rent expense for the year ? - rent revenue - prepaid rent - unearned rent revenue - rent expense

the correct answer is rent expense bc rent expense is a temporary account

A company purchased supplies for cash which will be consumed during the future months. Which of the following correctly describes the impact of the supplies purchase on the financial statements?

total assets will remain unchanged

which trial balance lists all the business accounts before year-end adjusting journal entries are made

unadjusted trial balance

Which of the following is incorrect

unearned revenue is ALWAYS a current liability

which of the following pairs increase with credit entries?

unearned service revenue and accounts payable

when are the cost of benefits like sick days and bonuses accounted for

when the benefit is earned