ACCT370 Read & Interact: Revsine, Collins, Johnson, Mittelstaedt, & Soffer: Chapter 2

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 $12,000 / 12 months = 1,000

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

$2,000 (500 * $30) / 3 years = $5,000 per year $5,000 - $3,000 = $2,000

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 ($500 * $30) / 3 years = $5,000

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 credit to Prepaid Insurance. - A debit to Insurance Expense.

The balance sheet equation can be stated as

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

Components of gross profit include (select all that apply) General and administrative expenses Cost of goods sold Selling expenses Net sales

- Cost of good sold - Net sales

Which of the following statements are true regarding debits and credits?

- Debit means the left side of accounts and credit means the right side of accounts. - Debits increase asset and expense accounts.

Examples of unusual or infrequently occurring items include

- Losses from floods, fires, or other disasters. - Gains or losses from the exchange or translation of foreign currencies. - Gains or losses from the sale of investments.

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.

A disposal group is considered held for sale if which of the following conditions are met?

- The component is available for immediate sale in its present condition. - Management has committed to a plan to sell the component.

Brighton Corporation buys an office building for $350,000, paying $30,000 in cash and financing the remainder with a note payable. The journal entry for this transaction would include

- a debit to Buildings for $350,000. - a credit to Cash for $30,000. - a credit to Loan Payable for $320,000.

Under U.S. GAAP, a component of an entity may include

- a subsidiary - an operating segment

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

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

A contra account

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

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

- increases owners' equity. - increases assets.

When income is recognized,

- owner's equity increases. - net assets increase.

Under accrual accounting, revenue is recorded when (select all that apply)

- the seller has performed a service. - the seller has conveyed an asset to a buyer.

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 $15,000 500 customer * $30 = $15,000 in credit

Adjusting entries include which of the following categories?

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

Excessive write-offs and overstated estimated charges for future expenditures are known as:

Big bath restructuring charges.

____ EPS reflects what basic EPS would have been if all potentially dilutive securities were converted into common shares.

Diluted.

____ ____ occurs when managers exploit the flexibility in GAAP to achieve particular reporting results which may mask the company's underlying performance.

Earnings Management.

Credits increase which of the following accounts?

Liability, owners' equity, and revenue accounts

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

Pressure to meet analysts' earnings forecasts.

True or false: 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.

True or false: 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.

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).

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. $7,500 * 0.4 = $3,000

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.

Which transaction would increase the inventory account?

a purchase of inventory.

After the closing process is complete,

all income statement accounts will have zero balances.

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.

The most common category of separately disclosed earnings components are reported

as part of income from continuing operations.

____ Transactions whose ultimate payoffs result from events that have already occurred and whose dollar flows can be predicted fairly accurately are known as transactions. (Enter one word only per blank.)

closed.

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

closing.

A change in equity of a business entity that occurs during a reporting period from transactions or events from nonowner sources is know as ____ ____

comprehensive income.

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

continuing operations and discontinued operations.

A ____ account is an account that is subtracted from another account to which it relates.

contra.

Sales on account are recorded on the ______ side of Accounts Receivable and collections on account are recorded on the ______ side.

debit, credit.

Expenses result in ____ in owners' equity.

decrease or decreases

U.S. GAAP requires firms to display the components of comprehensive income in

either a single-statement or a two-statement format.

Revenues result in ____ in owners' equity.

increase or increases.

Debits

increase asset and expense accounts.

Brighton Corporation buys an office building for $350,000, paying $30,000 in cash and financing the remainder with a note payable. The journal entry for this transaction would

increase assets by $320,000.

Macomb Corporation purchases inventory on account for $75,000. The journal entry for this transaction would

increase assets by $75,000.

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.

Deferred subscription revenue is a(n) ______ account.

liability.

The approach of tying expense recognition to revenue recognition is know as the

matching principle.

A type of income statement that subdivides income in order to facilitate forecasting is call a ________ income statement.

multiple-step

Comprehensive income includes

net income and other comprehensive income.

Publicly traded companies must report earnings per share (EPS) numbers

on the face of their income statements.

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.

If a component becomes a discontinued operation in a reporting period but has not been sold by the end of the period, the income effects of the discontinued operations that are reported include

operating income or loss and impairment loss if needed, net of tax affects.

The process used to transfer journal entries to T-accounts is called ____.

posting.

Costs of physically producing a good are called ____ costs.

product.

Marketing costs like advertising and sales commissions are

selling expenses.

Under the accrual basis of accounting, expenses are based on

the consumption of resources.

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

traceable.