Intermediate Accounting - Ch 2
If a company fails to record depreciation expense for the year, what are the effects on the financial statements?
Assets are overstated. Expenses are understated.
Economic events cause changes in the:
Financial position of a company
An event that has a dual effect on the accounting equation is referred to as a(n)
Transaction
After the adjusting entries have been posted to the general ledger, the next step in the accounting processing cycle is to prepare an ______ Trial Balance
adjusted
The purpose of a post-closing trial balance is to
verify that closing entries were prepared and posted correctly.
The statement of comprehensive income reports the changes in shareholders' equity during the period that:
were not a result of transactions with owners
An informal tool used to organize the accounting information needed to prepare adjusting and closing entries and the financial statements is a:
worksheet
Goliath Corp. has beginning accounts receivable of $2,000. During the year, Goliath sold goods to customers on account for $10,000. During the year, Goliath also sold goods to customers for cash in the amount of $2,000. At the end of the year, the balance in Goliath's accounts receivable is $3,000. What is accrual basis sales for the year?
$12,000 ($10,000 sales on account + $2,000 )cash sales = $12,000
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
$13,000 ( $10,000 + $8,000 - $5,000 )
During the year, Jenco paid $12,000 of rent in advance. The beginning balance in the prepaid rent account was $4,000, and the ending balance is $1,000. What is the rent expense for the period?
$15,000 ($4,000 + $12,000 rent paid - $1,000)
On January 1, Noonan Company purchases equipment for $100,000. The equipment is expected to have a useful life of 5 years and will have no value at the end of that period. Noonan allocates the cost equally over the period of use so the depreciation expense that must be recognized for the year is
$20,000. ($100,000 / 5 )
On June 1, Year 1 Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the December 31 income statement for Year 1?
$7,000 ($24,000/24 months = $1,000 per month x 7 months = $7,000 revenue.)
Jackson Corp. has beginning retained earnings of $400. During the year Jackson had $800 of revenues and $200 in expenses. Jackson paid a dividend of $100. What is retained earnings at year-end?
$900 ($400 + $800 revenues - $200 expenses - $100 dividend = $900)
Place the steps at the end of the accounting period in the correct order.
1. Prepare an unadjusted trial balance 2. Record Adjusting entries. 3. Prepare an adjusted trial balance. 4. Prepare financial statements. 5. Close the temporary accounts.
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
12%
Which formats are acceptable for reporting comprehensive income? (Select all that apply.)
A single, continuous statement of comprehensive income Two separate but consecutive statements
Which of the following are external events? A. Paying employee salaries. B. Borrowing from the bank. C. Collecting on a customer account. D. Using supplies purchased in the previous month.
A. Paying employee salaries. B. Borrowing from the bank. C. Collecting on a customer account.
A company paying rent in advance for the month of April records:
An Asset
When rent is paid in advance, it is properly recorded on the balance sheet as
An Asset
Transaction analysis includes _________ the source documents to determine the dual effect on the accounting equation.
Analysing
Jarvis Company signs a note payable for $10,000 and receives the funds. This transaction will increase ______________ the account and increase the note payable account.
Cash
The purpose of the statement of cash flows is to summarize the transactions that caused ________ to change during the period.
Cash
What account is debited when cash is collected from customers for a previous sale on account?
Cash
Zircon Corporation has 100 clients and maintains a separate account receivable account for each client. The account receivable account in the general ledger that contains the total accounts receivable amount owed to Zircon by all customers is referred to as a
Control Account
In a double entry accounting system, the right side of the account is represented by a(n)
Credit
The normal balance of the contra asset accumulated depreciation account is a
Credit
A company debits cash to increase its cash account. A bank __________ , the customer's checking account because the customer account represents a liability on the bank's balance sheet.
Credits
______ are those that are cash, will be converted into cash, or will be used up within 1 year or the operating cycle, whichever is longer.
Current assets
On July 1, Davis Corporation pays $10,000 for August rent. Which of the following are correct? (Select all that apply.)
Davis credits cash $10,000 Davis debits prepaid rent $10,000
The journal entry to record the issuance of 100 shares of $5 par value common stock for $500 would include which of the following?
Debit cash $500.
On September 1, Newman Company received $1,200 of revenue in advance from customers for work to be performed evenly over the next 12 months. The transaction was recorded in an income statement account. What is the adjusting journal entry required on December 31?
Debit revenue $800.
Conner Corp. accrues interest on a note payable at year-end. The adjusting journal entry to record the accrual will include which of the following?
Debit to interest expense. Credit to interest payable.
Which transaction will require the following journal entry: debit Retained earnings for $1,000 and credit Cash for $1,000?
Declare and pay a dividend.
Which of the following is an internal economic event? Borrowing from a bank Issuing stock Collecting on accounts receivable Depreciating equipment
Depreciating equipment
Which of the following is not a type of special journal?
Depreciation Journal
In a double-entry accounting system, each transaction has a
Dual
True or false: If a company makes end-of-year accruals, it must use reversing entries.
False
True or false: Shareholders' equity includes only retained earnings and the accounts associated with retained earnings.
False
Galaxy Corporation issues 500 shares of $1 par value common stock for $5,000. What is the total effect on owners' equity?
Increases $5,000
A perpetual system requires that merchandise purchases be recorded in the account.
Inventory
A chronological record of all economic events affecting a firm are recorded in a:
Journal
The accounting equation is: Assets = _____________+ Owners' Equity.
Liabilities
On August 1, 2017, Clerk Company receives $15,000 from a customer on account for work to be performed evenly over the next 18 months. Clerk records this transaction in the deferred revenue account. If Clerk fails to record the adjusting entry on December 31, 2017, what is the effect on the financial statements?
Liabilities are overstated.
If the ______ inventory system is used, adjusting entries are made to the purchases, inventory, and cost of goods sold accounts at the end of the period.
Periodic
Which transaction or event required the journal entry: debit Interest expense for $250 and credit Interest payable for $250?
Record interest at the end of the period.
A prepayment may be recorded in prepaid rent, a balance sheet account. The alternative method to record the prepayment is to debit the
Rent Expense
Temporary accounts are periodically closed, and the net effect is recorded in the permanent ______ ________ account.
Retained Earnings
JBM Accounting provides services to clients on account for $5,000. What is the indirect effect on the balance sheet?
Retained earnings increase.
Majerek Company accrues salaries at year-end. What is the financial statement effect of this adjusting entry?
Retained earnings is decreased. Net income is decreased. Expense is increased.
Which statement reports the changes in shareholders' equity during the period that were not a result of transactions by owners.
The statement of comprehensive income
At the end of the period, an unadjusted _______ balance, a listing of all accounts with their respective balances, is used to assist in the preparation of adjusting entries, financial statements, and closing entries.
Trial
Interest expense is classified on the income statement as:
a non-operating expense
The total in the sales journal is posted to which accounts at the end of the period?
accounts receivable and sales
______ basis accounting measures income based on accomplishments and resource sacrifices during the period.
accrual
The account balances shown in the _______ trial balance include adjusting entries
adjusted
Which of the following items is prepared at the end of the accounting period immediately before the financial statements are prepared?
adjusted trial balance
Entries made at the end of the accounting period before the financial statements are prepared are called
adjusting
A post-closing trial balance is prepared _________ the closing entries are posted to the ledger accounts.
after
Accruals involve transactions where the cash outflow or inflow takes place in a period ______ expense or revenue recognition.
after
Accrual accounting measures:
an entity's accomplishments and resource sacrifices during the period
The financial statement that presents the financial position of the company on a particular date is the
balance sheet
Accrued receivables involve situations when the revenue is earned in a period ______ the cash receipt.
before
Which of the following serves to relay important information about a transaction to the accountant?
bills from suppliers sales invoices cash register tapes
Samuel Corporation purchased a building for $500,000. To record this transaction
building is debited $500,000 cash is credited $500,000
Prepayments occur when:
cash flow precedes expense or revenue recognition
A deferred revenue liability appears on the balance sheet for:
cash received before revenue is earned
The adjusting journal entry required when deferred revenue is recognized includes a ________ entry to revenue.
credit
Glasser Corp. sold goods on account. The journal entry to record this transaction includes
credit revenue debit cost of goods sold debit accounts receivable credit inventory
An alternative approach to recording unearned revenue would be to ______ when cash is collected from a customer in advance of providing goods and services.
credit sales revenue
Drake Corp. received $5,000 from customers for goods sold on account in the previous month. The journal entry for this transaction will include a
credit to accounts receivable.
Green Pro accrues interest at year-end on a note receivable. The adjusting journal entry to record the accrual will include a
credit to interest revenue.
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 debit to rent expense for $3,000.
To increase a liability, one should _______ the liability account and to increase an asset, one should _____ the asset account.
credit; debit
The adjusting journal entry required when deferred revenue is recognized includes a _____ entry to a liability.
debit
Juergen is preparing the closing journal entries for the year. To close the revenue accounts, Juergen should
debit revenue credit income summary
Janet Company purchased supplies on account for $3,000. The journal entry required to record this transaction is
debit supplies on hand $3,000; credit accounts payable $3,000.
Lemon Creek Industries purchased a building for $280,000. The journal entry to record this transaction would include a
debit to building $280,000.
Brunson Company pays employees $4,000 for work performed in the current month. The journal entry to record the transaction will include a
debit to salary expense. a credit to cash
The adjusting entry to record deferred revenue originally recorded as sales revenue includes a:
debit to sales revenue credit to deferred revenue
To accrue utilities expense at year-end that has not been paid,
debit utilities expense and credit utilities payable
A(n) ______ represents the left side of the account, whereas a(n) ______ represents the right side of the account.
debit; credit
Paying employees for services rendered during the current month _____ assets and _____ shareholders' equity.
decreases; decreases
Which accounts are temporary accounts? (Select all that apply.)
depreciation expense gain on sale of equipment
The two methods used to prepare a statement of cash flows are the ______ method and the ______ method.
direct; indirect
Which of the following are noncurrent assets?
equipment land
Accrued liabilities are:
expenses incurred before cash was paid
Prepayments are transactions in which the cash flow follows the expense or revenue recognition.
false
Inflows and outflows of cash from transactions with creditors and owners are
financing activities.
The balance sheet impact of accruing salaries expense is to
increase liabilities
A T-account has space at the top for the account title and two sides for recording ______ and ______ to the account.
increases; decreases
The statement of shareholders' equity discloses the changes in the shareholder equity accounts during the period from:
investments by owners distributions to owners other comprehensive income net income
A reversing entry is used: (Select all that apply.) most often with accruals. at the end of the period. at the beginning of a reporting period. to simplify journal entries recorded during the new period.
most often with accruals. at the beginning of a reporting period. to simplify journal entries recorded during the new period.
How are items classified on the income statement?
operating and nonoperating
Revenue and expenses on the income statement are classified as:
operating items non-operating items
On the last day of the period, a journal entry is made to record the amount of interest that has been accrued but not
paid
A temporary purchases account is used when the _________ inventory system is used.
periodic
The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as
posting
Adjusting entries are recorded for
prepayments estimates accruals
The income statement summarizes the:
profit-generating activities of a company for a period of time
Which of the following is classified as an investing activity on the statement of cash flows?
purchase/sale of land
When dividends are declared, a debit is made to a dividends declared account or the______ _______ account
retained earnings
Which of the following are cash inflows from investing activities?
sale of long-term investment sale of building
Carrie uses a sales journal to record sales. At the end of the period, the total amount sold is credited to which account?
sales
Which accounts should be closed at the end of the period?
sales dividends salary expense
The left side of the accounting equation represents _____, while the right side represents _____.
the total economic resources of the company; the total claims against the company
Prepayments are:
transactions in which cash flow precedes expense recognition. transactions in which cash flow precedes revenue recognition.
_________ is an informal tool used to organize the accounting information and to prepare adjusting and closing entries at the end of the period
worksheet
On September 1, Paisley Corp. signed a 2-year interest-bearing note payable for $100,000. The interest rate was 12%, and both principal and interest are paid at maturity. The amount of interest that is accrued on December 31, is
$4,000 ($100,000 x 12% x 4/12)
Which transaction would result in the following journal entry: debit Cash for $40,000 and credit Notes payable for $40,000?
Borrow from a bank.
event is any event that directly affects the financial position of the company.
Economic
True or false: An internal event involves an exchange between the company and a separate economic entity.
False
Transaction analysis involves which of the following? (Select all that apply.) Identifying the accounts to be debited and credited. Posting the entry to the general ledger. Identifying the elements involved in the transaction. Closing the temporary accounts.
Identifying the accounts to be debited and credited. Identifying the elements involved in the transaction.
An individual invests $10,000 to open a new business. What is the effect on assets?
Increase in total assets
Identify which transaction would result in the following journal entry: debit to Cash for $60,000 and credit to Common stock for $60,000.
Issue stock to investors
Failure to record the adjusting entry for deferred revenue now earned causes liabilities on the balance sheet to be what?
Overstated
Which transaction would require the following journal entry: debit Inventory for $60,000 and credit Accounts payable for $60,000?
Purchase inventory on account.
One of the purposes of adjusting entries is to
Recognize all revenues earned during the period.
Which accounts are closed to retained earnings at the end of an accounting period?
Temporary
Which of the following are economic events? (Select all that apply.) A proposal to purchase $1,000 of inventory from supplier. The payment of employee salaries for the week. Borrowing $10,000 from the bank.
The payment of employee salaries for the week. Borrowing $10,000 from the bank.
True or False: The objective of an Enterprise Resource Planning (ERP) system is to create a customized software program that integrates the information of departments and functions of a company into a single computer system.
True
True or false: In banking, a customer account is credited when cash is deposited because the customer account represents a liability to the bank.
True
True or false: It is acceptable accounting practice to initially record prepaid rent in either a balance sheet or income statement account.
True
The purpose of a sales journal is to record
all credit sales.
The primary purpose of a source document is to assist in
analyzing a transaction.
To record the payment of a cash dividend:
cash is credited retained earnings is debited
In which special journal is a cash sale recorded?
cash receipts
In which special journal is receipt of customer payment on account recorded?
cash receipts
Revenues are $1,000. Expenses are $200. The journal entry required to close the income summary account will require a _____ to income summary and a _____ to retained earnings.
debit; credit
In a journal entry, the amount to be _____ is entered in the first column, and the amount to be _____ is entered in the second column.
debited; credited
Accountants often have to make ______ of future amounts to comply with the accrual accounting model.
estimates
Bigelow Company purchases supplies on account. What are the effects on the balance sheet equation? (Select all that apply.) increase owners' equity decrease owners' equity increase liabilities decrease assets increase assets decrease liabilities
increase liabilities increase assets
Revenues will ______ retained earnings, and expenses will ______ retained earnings.
increase; decrease
The purpose of the statement of comprehensive income is to report current period changes in equity that arose from
non-owner transactions
Sales invoices, bills from suppliers, and cash register tapes that relay information to the accountant are referred to as _______ documents
source
When special journals are used: (Select all that apply.)
the recording process is simplified individual transactions are not posted to the general ledger
A reversing entry is used after accruing 3 days of salaries at year-end. To make the subsequent entry when the 10-day salaries are paid the following year, the accountant would debit salaries expense for Multiple choice question.
10 days of salary.
Those liabilities that will be satisfied within 1 year or the operating cycle, whichever is longer, are referred to as _____ liabilities.
current
A transaction is an event that
has a dual effect on the accounting equation
True or false: The purpose of the cash receipts journal is to record all cash receipts, regardless of the source.
True
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
True or false: The stated interest rate on debt instruments is always stated as an annual rate.
True
True or false: The statement of shareholders' equity indicates the changes in the various permanent equity accounts.
True
True or false: Under the one and two statement approaches to reporting comprehensive income the content is the same.
True
Deferred revenue is a(n):
liability on the balance sheet
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 ($120,000/4)
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?
$4,000 ($24,000/24 months = $1,000 per month x 4 months)
Beginning inventory was $50,000. Inventory purchased during the year cost $75,000. Inventory on hand at year-end was $40,000. Cost of goods sold was
$85,000 ($50,000 + $75,000 - $40,000)
Adjusting journal entries are necessary for three situations: deferrals, ______ , and estimates.
Accruals
The contra account used to record depreciation is:
Accumulated depreciation.
Which of the following represents the accounting equation?
Assets = Liabilities + Owners' Equity
When are adjusting entries recorded?
At the end of a period when preparing financial statements.
Which of the following steps occurs only at the end of the year?
Close the temporary accounts to retained earnings
Shareholders' equity includes (Select all that apply.)
Common stock 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 and expense should be the same regardless of which account was used to record the original transaction.
The general ledger accounts serve as ________ accounts.
Control
On October 1, Year 1, Swift Corporation received $1,200 from customers for services to be performed evenly over the next 12 months. Swift recorded the original transaction in a balance sheet account. The adjusting journal entry on December 31, Year 1, will include which of the following entries?
Debit to deferred revenue $300.
Longine Co. accrues 1 week of salaries at the end of November. The adjusting journal entry to record this accrual will include which of the following?
Debit to salary expense. Credit to salary payable.
Salaries paid to employees ___________ owners' equity for the expense incurred.
Decrease
Royce Corporation pays for supplies purchased in the previous month. What is the effect on the accounting equation for the payment of the supplies? (Select all that apply.) Increase owners' equity Increase liabilities Decrease owners' equity Decrease assets Decrease liabilities Increase assets
Decrease assets Decrease liabilities
The type of system that integrates the information of departments and functions of a company into a single computer system is called a(n)
Enterprise Resource Planning (ERP) system.
Persimmon Company fails to record an accrual for salaries at year-end. What are the financial statement effects of this error?
Expense is understated. Liabilities are understated. Net income is overstated.
If a company fails to record an adjusting entry for accrued interest on a note payable, what are the financial statement effects?
Expenses are understated. Retained earnings is overstated.
Carradine Company prepares an adjusting journal entry to accrue salaries at year-end. What effect will this entry have on the financial statements?
Expenses will increase.
An account is maintained for each financial statement element, whereas a(n) ________ _________ contains all of the accounts of the entity.
General Ledger
The double entry system of accounting means each transaction:
Has a dual effect on the accounting equation
The financial statement that summarizes revenues and expenses for a period of time is the ______
Income Statement
Hargrave Professional Group performs legal services on account. What is the effect of this transaction on the balance sheet equation for Hargrave?
Increase Assets
Norton Corp. has revenues of $5,000 and expenses of $2,000. What is the total effect on retained earnings?
Increases $3,000.
Which of the following are current liabilities?
Salaries payable Accounts payable
Which transaction would require the following journal entry: debit Accounts receivable for $3,500; credit Sales revenue for $3,500; debit Cost of goods sold for $2,000 and credit Inventory for $2,000?
Sale on account
An account that is used for instructional purposes instead of drawing a formal general ledger account is referred to as a(n)
T-account
A general journal entry should contain which of the following?
The accounts and amounts debited and credited. The date. Supporting explanations.
Which of the following is an internal event?
Use of Supplies
After preparing closing entries, the last step in the accounting process is to prepare
a post-closing trial balance.
An external event involves an exchange between the company and?
a separate economic entity.
Which of the following is an example of an estimate?
accounting for depreciation accounting for bad debts
Which accounts most likely use a subsidiary ledger?
accounts payable accounts receivable
Flounder Corp. sold $12,000 of goods on account. The entry to record this transaction would include a debit to
accounts receivable
When a sales journal is used, at the end of the period the total amount sold on credit is debited to
accounts receivable
Which of the following are current assets? (Select all that apply.)
accounts receivable & inventory
Accruals occur when cash flow comes
after revenue recognition after expense recognition
A post-closing trial balance is prepared
after the closing process.
Which of the following make up shareholders' equity? (Select all that apply.) assets owned by shareholders amounts invested by shareholders liabilities owed by the corporation amounts earned by the corporation assets purchased by the corporation
amounts invested by shareholders amounts earned by the corporation
Interest earned, but not yet received is an example of:
an accrued receivable
Martindale Company purchases supplies in June. As of June 30, Martindale had not used any of the supplies. How should the supplies be disclosed on the June 30 financial statements?
asset
The effect on the accounting equation from using supplies which had been previously recorded as an asset is:
assets decrease and owners' equity decrease
Prepaid expenses are costs of assets acquired in an accounting period
before they will be expensed
Cash basis accounting measures income based on
cash receipts and cash disbursements.
Borrowing $50,000 from the bank and signing a note payable causes: (Select all that apply.) notes payable to decrease cash to increase notes payable to increase cash to decrease
cash to increase notes payable to increase
In a cash receipts journal, the debit column is for
cash.
The process in which temporary accounts are reduced to zero balances and transferred to retained earnings is the ______ process.
closing
Which item is classified as an operating activity on the statement of cash flows?
collection from customers payment of salaries
The type of information included in an account includes columns for increases and decreases. the sum of daily transactions. the account number. the account title.
columns for increases and decreases. the account number. the account title.
Which accounts require a credit to increase the account? (Select all that apply.) equipment common stock revenue inventory
common stock revenue
The purpose of estimating bad debts is to
comply with the accrual accounting model.
A credit balance in the income summary account is closed with a _______ entry to retained earnings.
credit
Each time a cash receipt from a customer is recorded in the cash receipts journal, a ______ is posted to the accounts receivable subsidiary ledger.
credit
The adjusting journal entry required to record depreciation includes a(n) _____ entry to accumulated depreciation.
credit
The journal entry required to close expenses will require a(n) _______ entry to each expense account.
credit
The journal entry required to close expenses will require a(n) _________ entry to each expense account
credit
Crater Corp. uses a separate dividend account to record dividends declared. When a dividend is declared and paid, the journal entry will include
credit to cash debit to dividends
On October 1, Callison accepts a 5-year interest bearing note receivable for $1,000. The note bears interest of 12%. Both principal and interest are received at maturity. The journal entry required on December 31, Year 1, to accrue interest will include
credit to interest revenue $30 debit to interest receivable $30.
Klondike Inc. sold goods to customers for $5,000 cash. The cost of the goods was $3,000. The journal entries to record this transaction include (
credit to inventory $3,000. debit to cash $5,000. debit to cost of goods sold $3,000. credit to sales $5,000.
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.
To increase the accumulated depreciation account, you would ______ the account, and to increase depreciation expense, you would _____ the account.
credit, debit
Revenues are $1,000. Expenses are $1,800. The journal entry required to close the income summary account will require a _____ to income summary and a _____ to retained earnings. Multiple choice question.
credit; debit
To close the dividend account, the journal entry would require a(n) ______ entry to the dividend account and a _____ entry to retained earnings.
credit; debit
A note payable that is due within 6 months is classified as a _________ Liability
current
Closing the sales revenue account requires a _______ to sales revenue.
debit
To close the dividend account, the journal entry would require a(n) ________ entry to retained earnings.
debit
Tindall Corp. purchased inventory for $50,000 cash. The entry to record this transaction is
debit inventory $50,000; credit cash $50,000.
Beck Company borrowed $50,000 from the bank and signed a note. The journal entry Beck makes to record this transaction includes
debit to cash for $50,000 credit to notes payable $50,000
Kendall Corp. purchased equipment for $100,000 by paying $20,000 in cash and signing a note payable for $80,000. The journal entry to record this transaction would include a
debit to equipment $100,000.
The expense accounts are closed to income summary with
debit to income summary credit entry to expenses
On October 1, Calloway signs a 5-year interest-bearing note payable for $4,000. The note bears interest of 10%. The journal entry required on December 31 to accrue interest will include a
debit to interest expense $100. ($4,000 x 10% x 3/12 = $100)
Ferguson Corp. purchased inventory on account for $20,000. The entry to record this transaction would include
debit to inventory $20,000. credit to accounts payable $20,000.
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
debit to prepaid rent $400. credit rent expense $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 revenue of $400 credit to deferred 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
debit to supplies expense credit to supplies
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
debit to supplies expense $700. credit to supplies on hand $700
To accrue interest earned on a note receivable that has not yet been collected, _____ interest receivable and ______ interest revenue
debit, credit
Supplies expense is ______ and supplies is ______ for the amount of supplies used during the period that were originally recorded as an asset when purchased.
debited, credited
A trial balance proves
debits balances equal credit balances
The payment of an account for supplies purchased in the previous month will ______ the cash account.
decrease
The use of office supplies purchased on account in the previous month will have what effects on the balance sheet equation? (Select all that apply.) increase assets decrease liabilities decrease assets decrease retained earnings
decrease assets decrease retained earnings
Londa Corporation pays employees $3,000 for the month. What is the effect on the balance sheet equation? (Select all that apply.) increase liabilities decrease owners' equity decrease assets increase owners' equity decrease liabilities increase assets
decrease owners' equity decrease assets
To record an adjusting entry when deferred revenue is recognized:
deferred revenue is debited revenue is credited
To record depreciation expense (Select all that apply.) depreciation expense is debited depreciation expense is credited accumulated depreciation is debited accumulated depreciation is credited
depreciation expense is debited accumulated depreciation is credited
When a company declares a dividend, the temporary ______ account is often debited.
dividend
The accounting system that refers to the effect that each transaction has on the accounting system is called a
double-entry system
Each economic event, or transaction, affecting the accounting equation has a ___effect because resources must always equal claims
dual
Which of the following are permanent accounts? (Select all that apply.) equipment revenue cash cost of goods sold common stock
equipment cash common stock
A situation that requires an adjusting entry that is not a prepayment or an accrual entry is
estimating bad debt
Operating items include
expenses from the principal revenue-generating activities of the company. revenues from the principal revenue-generating activities of the company.
A _______ is a collection of accounts that tracks the increases and decreases in a company's financial position elements.
general ledger
The accounts receivable control account is found in the ______ ledger, whereas individual customer accounts are located in the ______ ledger. Multiple choice question.
general; subsidiary
Neumann Corporation prefers to present a separate income statement. Neumann can satisfy the requirements for reporting comprehensive income by presenting comprehensive income
immediately following the income statement
Ace Cleaning Services performs cleaning services for $2,000 cash. What are the effects on the balance sheet equation for Ace Cleaning Services? (Select all that apply.) increase owners' equity increase cash decrease owners' equity decrease accounts receivable decrease cash increase accounts receivable
increase owners' equity increase cash
An account should have an account title, account number, a place for the date of the transaction, and two columns for
increases and decreases.
Accruing a receivable ______ accounts receivable on the balance sheet and ______ revenues on the income statement.
increases; increases
Purchasing supplies on account _________ the supplies account and ________ accounts payable.
increases; increases
The two methods for preparing the statement of cash flows are the:
indirect method direct method
Which account is used to record the accrual of interest on a note receivable?
interest receivable
_______ reporting periods are periods when financial statements are produced other than at the end of the fiscal year.
interim
A perpetual system requires that merchandise purchases be recorded in the ______ account.
inventory
Muller Company does not report other comprehensive income items. Muller Company
is not required to report comprehensive income
Which of the following items is a financing activity on the statement of cash flows?
issue stock
Deferred revenue should be classified as a(n) _______ on the balance sheet.
liability
A ______ liability is a liability that will be satisfied in more than 1 year or operating cycle, whichever is longer, in the future.
noncurrent
The general formula used to calculate interest accrued on a note payable is principal times rate times
number of months outstanding in the current year/12.
The categories on a statement of cash flows are
operating, investing, and financing activities.
A statement of comprehensive income is not needed, if the company does not have
other comprehensive income items
If a company fails to record depreciation expense for the year, net income is
overstated
Which of the following items are classified as financing activities on the statement of cash flows? (Select all that apply.)
pay dividend issue stock
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.
permanent; temporary
Special journals simplify the recording process by (Select all that apply.) requiring that each transaction is posted as it occurs. posting a total to the general ledger accounts on a periodic basis. utilizing individuals with specialized training in handling certain transactions. eliminating the need for posting.
posting a total to the general ledger accounts on a periodic basis. utilizing individuals with specialized training in handling certain transactions.
Under the two statement approach, a statement of comprehensive income is
presented immediately after the income statement
The balance sheet:
presents a company's financial position at a particular date
An interim reporting period includes:
quarterly monthly
When an adjusting entry is made to record depreciation expense, the effect on the balance sheet is to
reduce total assets
To adjust for rent used up during the year that was recorded to the prepaid rent account when paid for:
rent expense is debited, prepaid rent is credited
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?
retained earnings
Which account is found on the statement of shareholders' equity?
retained earnings common stock
Which of the following make up shareholders' equity of a corporation? (Select all that apply.) retained earnings property and equipment current assets paid-in capital long-term liabilities
retained earnings paid-in capital
To record the payment of a cash dividend: (Select all that apply.)
retained earnings is debited cash is credited
The following accounts are closed to income summary with a credit entry (Select all that apply.)
salaries expense depreciation expense cost of goods sold
A reversing entry is used after accruing 3 days of salaries at year-end. To make the reversing entry, the accountant would debit which account?
salaries payable
Which of the following are temporary accounts? salary expense revenue accounts payable retained earnings
salary expense revenue
The types of special journals used in an accounting system include the
sales journal. purchases journal.
The changes during the period to common stock and retained earnings is reported on the:
statement of shareholders' equity
A group of subsidiary accounts associated with a particular general ledger control account is called a:
subsidiary ledger
At the end of the period, the total cash receipts from customers are posted to the accounts receivable control account. Each individual customer receipt must also be posted to the
subsidiary ledger.
The justification for a company initially recording prepaid rent in either an income statement or balance sheet account is that
the accounts are adjusted at year-end to reflect the correct balances.
Adjusting entries help a company accurately measure:
the company's financial performance. revenues and expenses for the period.
In step 3 of the accounting processing cycle:
the transaction is recorded in a journal
In the two statement approach:
there is a separate income statement the separate statement of comprehensive income begins with net income the income statement is immediately followed by a separate statement of comprehensive income
