ac ch 4
Able Industries has the following information is related to its adjusting entries at the end of December. On December 31, 2017, the insurance expired amounted to $140. Of the unearned revenue, $265 of services had been performed. What is the net effect that the necessary adjusting entries for this information have on net income for Able?
Decrease in net income for $140. Increase in net income for $265. Results are a net increase of $125.
Which of the following describes the receipt of $6,000 from the issuance of common stock?
Increase assets and increase shareholders' equity for $6,000
What effect does recognizing accrued wages expense at the end of the accounting period have on the accounting equation?
Liabilities increase and shareholders' equity decreases.
On December 31, 2017, immediately after all the adjustments were made to Kingman Corp's accounting records for the 2017 fiscal year, but before the closing entries were made to update retained earnings, the retained earnings account reflected a balance of $60900. Kingman Corp's net income for 2017 was $11400. Kingman paid no dividends during 2017. On the balance sheet for January 1, 2018, what will be the beginning balance in the retained earnings account?
Net income would be closed into retained earnings so that ending retained earnings for 2017 would be reported on the December 31, 2017 balance sheet as $72300. Thus, beginning retained earnings for 2018 would be $72300.
Which of the following changes describes the payment of $30,000 for a new bulldozer?
No net change in total assets.
Dobson Company sold stock for cash and received cash for services performed during the current month. Which of the following summarizes the income statement impact of these transactions for the current month?
Only the performance of services or delivery/sale of goods caused an increase in sales or service revenues.
On January 1 Kitakis Company paid $12,000 in advance for the upcoming year's insurance coverage. Carry out transaction analysis to record this on January 1.
Prepaid insurance --> balance sheet --> asset --> 12000 cash --> balance sheet --> asset --> (12000)
On November 1, 2017 Phoenix Corp. paid rent of $15,000 per month for 3 months (November, December, and January) or $45,000 total. The company's accounting period ends on December 31, 2017. Which amount will be reported at December 31, 2017?
Prepaid rent of $15,000 on its balance sheet.
Assume that a company received rent in advance in an earlier period and recorded it appropriately. What effect does recognizing revenue at the end of the current accounting period for the portion of that rent that has been earned have on the accounting equation?
Revenues increase and liabilities decrease.
On August 1, Amy Company borrowed $40,000 from another company on a 6%, one-year note. Carry out transaction analysis to record this entry on August 1.
cash --> balance sheet --> asset --> 40000 notes payable --> balance sheet --> liability --> 40000
During Bisbee's first year of business, office supplies were purchased for cash in the amount of $4390. At the end of the first year, the physical count indicated that $450 of supplies was unused. How much should be reported on the income statement for the year as office supplies expense?
$0 beginning supplies + $4390 purchases - $450 ending supplies (unused) = $3940 supplies used (supplies expense)
If assets are $1200, liabilities are $570, and contributed capital is $230, what is total shareholders' equity? (Ignore any items that are irrelevant to the calculation).
$1200 assets - $570 liabilities = $630 shareholders' equity
Total assets, end of year $110500 Total liabilities, end of year 35500 Contributed capital, end of year 11000 Retained earnings, beginning of year 16700 Dividends for the period 30700 Net income 78000 Calculate the amount of retained earnings at the end of the year.
$16700 beginning retained earnings + 78000 net income - $30700 dividends = $64000 or $110500 assets - $35500 liabilities - $11000 contributed capital = $64000
If accounts receivable on January 1 totals $20000, and during the current year sales revenue is $122000, and cash receipts from customers is $94700, then what is the balance in Accounts Receivable on December 31? All sales are sales on account (e.g., "credit sales"). AR=
$20000 beginning accounts receivable + $122000 current year sales - $94700 current year collections from customers = $47300 ending accounts receivable
On December 3, 2017, Tucson Corp. paid $24,000 for a two-year property insurance policy covering their corporate headquarters for the period December 1, 2017 to December 1, 2019. The payment was initially recorded to prepaid insurance. Carry out transaction analysis to record this adjusting entry at the end of December 31, 2017.
$24,000 / 24 months = $1,000 of insurance expires each month. This adjusting entry recognizes the insurance coverage used in December. insurance expense --> income statement --> expense --> 1000 prepaid insurance --> balance sheet --> asset --> -1000
Which of the following changes describes a company's purchase of $3,000 of inventory on account?
assets and liabilities increase by $3,000.
Lakesha Corp. purchased $3,000 of supplies on account. The supplies will be used over the next few months. This purchase by Lakesha causes
assets and liabilities to increase by $3,000.
When an adjusting entry for depreciation expense for the accounting period is recorded,
assets and shareholders' equity decrease.
Providing $5,000 of services to customers on account causes
assets and shareholders' equity to increase by $5,000.
Inventory on January 1 and December 31 is $40200 and $45700, respectively. During the year, cash paid to suppliers of inventory is $104500. If all purchases of inventory are for cash, how much is the current year's cost of goods sold?
$40200 beginning inventory + $104500 purchases during the current period (whether or not cash was paid in the current period) - $45700 ending inventory = $99000 cost of goods sold.
During Bisbee's first year of business, office supplies were purchased for cash in the amount of $4990. At the end of the first year, the physical count indicated that $460 of supplies was unused. How much should be reported on the balance sheet for office supplies at year end?
$460 (Unused supplies are reported on the balance sheet; those supplies still have future economic benefit.)
Mingo Company has been in business several years. During January 2018, the following transactions occurred: Paid employees $6900 for wages during January. Paid $2890 cash for other operating expenses of which $1400 related to December 2017 and the balance related to January 2018. Paid a cash dividend to shareholders in the amount of $860 during January. How much is total Expenses that Mingo Company will report for January 2018?
$6900 wage expense for January + $1490 operating expenses for January = $8390
Liabilities are $3380, retained earnings are $1250, and contributed capital is $4100. How much are total assets?
$8730. Assets = Liabilities + Stockholders' Equity. Stockholders' equity includes both retained earnings and contributed capital accounts. $3380 liabilities + $1250 retained earnings + $4100 contributed capital = $8730
Dena, Inc. began operations during 2017. During January of 2017, the following transactions occurred: Received $80500 from shareholders as initial investments Received cash of $52500 for services performed during January Billed customers an additional $14000 for services performed during January Borrowed $5300 from Nations Bank Company, and signed a one-year note payable Paid rent in the amount of $5300 for January Paid dividends in January amounting to $7960 Paid wages of $33200 for January How much Net Income should Dena, Inc. report for January?
($52500 service revenue + $14000 service revenue) - $5300 rent expense - $33200 wage expense = $28000 net income.
Meadville, Inc. began operations during 2015. During January of 2015, the following transactions occurred: Received $94500 from shareholders as initial investments Received cash of $87000 for services performed during January Billed customers an additional $13000 for services performed during January Borrowed $11300 from Regions Bank Company, and signed a one-year note payable Paid rent in the amount of $5000 for January Paid dividends in January amounting to $8300 Paid wages equal to $33400 for work performed during January How much Net Income should Meadville, Inc. report for January?
($87000 + 13000) service revenue - $5000 rent expense - $33400 wage expense = $61600 net income
A sale of inventory on account for $10,000 would be recorded as
+AR $10,000 + Stockholder's equity $10,000
A receipt of $10,000 cash from a customer paying his account from a prior sale on account would be recorded as
+Cash $10,000 -Accounts Receivable $10,000
which transaction is incorrectly recorded?
+Cash $10,000 -Liability $10,000
A cash payment of $10,000 for an item that is immediately used up on that date would be recorded as
-Cash $10,000 -Stockholder's Equity $10,000
**IMPORTANT**
-There are always at least two accounts involved in every transaction that is recorded. -The Balance Sheet Accounting Equation (A= L + SE) must remain in balance after each transaction is recorded. This acts as a check.
Sedona Times Publishing Inc. sells two-year magazine subscriptions. Cash receipts from subscribers are recorded to Unearned Subscriptions. On December 31, 2016, immediately before the company made adjusting entries, the Unearned Subscriptions account had a balance of $7830. Outstanding subscriptions relating to magazines that have not been delivered as of December 31, 2016, will be mailed to customers as follows: During 2017 $3510 During 2018 $2470 At December 31, 2016, what amount should Sedona Times Publishing Inc. report as the balance for Unearned Subscriptions?
3510 + $2470
On December 31, 2018, the actual supplies on hand amounted to $1,400 but the unadjusted balance in the supplies account was $1,900. Carry out transaction analysis to record the adjusting entry required at the end of December 31, 2018.
: $1,900 - $1,400 = $500 of supplies used that should be expensed. supplies expense --> income statement --> expenses --> 500 supplies --> balance sheet --> asset --> -500
Which one of the following statements is true?
Accruals are adjustments that are recorded prior to or after the associated cash flow taking place.
Which one of the following is a required characteristic of accruals and deferrals that are recorded in adjusting entries at the end of an accounting period?
An asset or a liability will always be affected.
Which of the following changes describes the purchase of $4,000 of equipment financed by the issuance of a long-term note payable?
Assets and liabilities increase by $4,000.
Which one of the following changes describes the receipt of $4,000 from the issuance of a long-term note payable?
Assets and liabilities increase by $4,000.
Which one of the following changes describes the payment of $900 for utilities for the current month?
Assets and shareholders' equity decrease by $900
Acacia Company provided landscaping services and received $3,000 from customers immediately. Which of the following occurred?
Assets and shareholders' equity increase by $3,000.
Which one of the following changes describes the effect of receiving $3,000 in cash from the issuance of common stock?
Assets and shareholders' equity increase by $3,000.
Which rule is correct when recording financial transactions?
Assets must equal liabilities + stockholder's equity in each transaction
Which one of the following equations represents retained earnings activity for a year?
Beginning balance + net income - dividends = ending balance.
Marks Corp. purchased supplies at a cost of $2540 during 2017. At January 1, 2017, supplies on hand amounted to $780. At December 31, 2017, supplies on hand are $480. What will be the supplies expense for 2017?
Beginning supplies $780 + Purchases of supplies $2540 - ending supplies $480 = supplies used $2840 (which should be reported as supplies expense for the year).
Which one of the following creates a decrease in retained earnings?
dividends
Goodyear Co. paid $5,000 to purchase equipment. Carry out transaction analysis to record this transaction.
equipment --> balance sheet --> asset --> 5000 cash --> balance sheet --> asset --> -5000
Alberto Company paid $12,000 for its insurance premiums for a two-year insurance policy on May 1, 2017, and recorded them in a prepaid insurance account. The adjusting entry required at May 31, 2017, to recognize the one-month portion for the month of May will
increase an expense account and decrease an asset account.
Buckeye Company received $2,000 from customers for services provided during the current month. Buckeye will
increase assets and increase revenue for $2,000.
On August 1, Amy Company borrowed $40,000 from another company on a 6%, one-year note. The entry to record that borrowing was correctly made on August 1, but no subsequent entries have been made before December 31. Interest will be paid by Amy to the lender on July 30. Carry out transaction analysis to record the entry on December 31 on Amy's books.
interest expense --> income statement --> expense --> 1000 interest payable --> balance sheet --> liability --> 1000
The major accounting difference between interest expense for creditors and dividends declared and paid to shareholders is that interest expense:
is on the income statement and dividends declared and paid are not.
Which of the following changes describes a company's collection of $7,000 from customers who were billed on account for services preformed by the company during a previous accounting period?
no changes in total assets, liabilities, or shareholders' equity.
During the first year of business, office supplies were purchased for cash in the amount of $1560. At the end of the first year, the physical count indicated that $660 of supplies was unused. How much should be reported on the year's income statement for office supplies expense?
office supplies expense = Supplies expense = $0 beginning supplies + $1560 purchases- $660 ending supplies (unused) = $900 supplies used (supplies expense of the period). office supplies = 660
Which of the following is a measure of past profits that have been retained in a business?
retained earnings
retained earnings formula
retained earnings beginning of year + net income - dividends
The accounting concepts that underlie the accrual system of accounting are
revenue recognition and matching.
Porello Company began operations on December 1, 2016. During January 2017, the following transactions occurred: Billed customers $11900 for services performed during January. Received payment from customers in the amount of $5700 for services performed and billed in December. Received cash of $7000 for services performed during January for customers who paid cash immediately. (No bills were mailed.) How much revenue should Prello Company report for January? ---------- During January, what amount of operating cash inflow should Prello report for January?
revnue = 11900 + $7000 = $18900 operating cash flow = 5700 + $7000 = $12700
On December 13, 2015, Michael Company received $10,000 in cash as a payment in advance from a customer and recorded it as Unearned Service Revenue. The balance in the Unearned Service Revenue account was $2,000 at the beginning of December. Before the December 31st adjusting entry, the balance in Unearned Service Revenue was $12,000. At the end of December, $11,400 of this amount had been earned but not yet recognized. What adjusting entry is necessary at the end of December to correct the account balances?
service revenue --> income statement --> revenue --> 11400 unearned service revenue --> balance sheet --> liability --> -11400
expenses decrease
stockholders equity Revenue means +Stockholder's Equity +Expense means -Stockholder's
revnues increase
stockholders equity Revenue means +Stockholder's Equity +Expense means -Stockholder's
Closing entries result in net income being transferred to
the retained earnings account
Retained earnings may be described as
the total past profits that have been retained in the business
the main purpose of adjusting entries at the end of an accounting period is
to make the account balances reflect the company's true position according to the guidelines of accrual accounting.
An expense account
ultimately decreases shareholders' equity.
Sedona Times Publishing Inc. sells two-year magazine subscriptions. Cash receipts from subscribers are recorded to Unearned Subscriptions. On December 31, 2016, immediately before the company made adjusting entries, the Unearned Subscriptions account had a balance of $8,000. Outstanding subscriptions relating to magazines that have not been delivered as of December 31, 2016, will be mailed to customers as follows: During 2017 $3,800 During 2018 $2,200 Where should the balance for Unearned Subscriptions be reported?
unearned subscriptions should be reported on the BALANCE SHEET as a LIABILITY
A revenue account
when offset with expenses ultimately leads to net income and an increase to retained earnings.