Intermediate Accounting: Chapter 2

On December 31, 2012, Coolwear, Inc. had a balance in its prepaid insurance account of $63,400. During 2013, $101,000 was paid for insurance. At the end of 2013, after adjusting entries were recorded, the balance in the prepaid insurance account was 49,500. Insurance expense for 2013 would be:

$114,900. Insurance expense = $63,400 + 101,000 - 49,500 = $114,900

Fink Insurance collected premiums of $18,100,000 from its customers during the current year. The adjusted balance in the Unearned premiums account increased from $4.0 million to $9.2 million dollars during the year. What is Fink's revenue from earned insurance premiums for the current year?

$12,900,000 Cash collections $18,100,000 Deduct: Increase in unearned premiums (5,200,000) Premiums earned $12,900,000

Eve's Apples opened business on January 1, 2013, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What is the balance in Eve's prepaid insurance as of December 31, 2013?

$18,000 Prepaid liability insurance: $36,000 × 6/18 = $12,000 Prepaid hazard insurance: $12,000 × 12/24 = 6,000 Total prepaid insurance at 12/31/13 $18,000

In its first year of operations Acme Corp. had income before tax of $320,000. Acme made income tax payments totaling $103,000 during the year and has an income tax rate of 40%. What is the balance in income tax payable at the end of the year?

$ 25,000 credit Income tax expense = $320,000 × 40% = $128,000

Dave's Duds reported cost of goods sold of $1,200,000 this year. The inventory account increased by $210,000 during the year to an ending balance of $555,000. What was the cost of merchandise that Dave's purchased during the year?

$1,410,000 Cost of goods sold $1,200,000 Add: Increase in inventories 210,000 Purchases $1,410,000

Cal Farms reported supplies expense of $1,900,000 this year. The supplies account decreased by $180,000 during the year to an ending balance of $480,000. What was the cost of supplies the Cal Farms purchased during the year?

$1,720,000. Supplies purchases: $480,000 + 1,900,000 - 660,000 = $1,720,000

When Castle Corporation pays insurance premiums, the transaction is recorded as a debit to prepaid insurance. Additional information for the year ended December 31 is as follows: Prepaid insurance at January 1 $51,500 Insurance expense recognized during the year 219,550 Prepaid insurance at December 31 61,650 What was the total amount cash paid by Castle for insurance premiums during the year?

$229,700 Expense recognized $219,550 Add: Increase in prepaid insurance 10,150 Cash paid for insurance $229,700

Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $16,000 during the year to an ending balance of $62,000. What was supplies expense for Carolina Mills during the year?

$254,000 Supplies expenses: $46,000 + 270,000 - 62,000 = $254,000

In its first year of operations Best Corp. had income before tax of $560,000. Best made income tax payments totaling $209,000 during the year and has an income tax rate of 35%. What was Best's net income for the year?

$364,00 Income before tax $560,000 Income tax ($560,000 × 35%) (196,000) Net income $364,000

On November 1, 2013, Tim's Toys borrows $32,700,000 at 8% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What is the balance of interest payable for the loan as of December 31, 2013?

$436,000 Accrued interest payable = $32,700,000 × 8% × 2/12 = $436,000

On December 31, 2013, the end of Larry's Used Cars' first year of operations, the accounts receivable was $53,900. The company estimates that $2,700 of the year-end receivables will not be collected. Accounts receivable in the 2013 balance sheet will be valued at:

$51,200. Accounts receivable = $53,900 - 2,700 = $51,200

When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:

(S)he usually debits an expense account

The accounting equation can be stated as:

A - L - OE = 0

The adjusting entry required to record accrued expenses includes:

A credit to liability

When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?

A decrease in salaries payable decreases net income

Which of the following accounts has a debit balance?

Advertising expense

Recording revenue that is earned, but not yet collected, is an example of:

An accrued receivable transaction

Examples of external transactions include all of the following except:

Depreciating equipment

A reversing entry at the beginning of a period for salaries would include a debit to salaries expense.

False

The adjusted trial balance contains only permanent accounts.

False

When converting an income statement from a cash basis to an accrual basis, cash received for services:

May exceed or be less than service revenue

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:

Plus net income, minus dividends

Temporary accounts would not include:

Salaries payable

Adjusting journal entries are required to comply with the realization and matching principles.

True

Debits increase asset accounts and decrease liability accounts.

True

The sale of merchandise on account would be recorded in a sales journal.

True

Which of the following is not an adjusting entry?

Debit Cash Credit Unearned revenue

Somerset Leasing received $33,600 for 24 months rent in advance. How should Somerset record this transaction?

Debit Cash 33,600 Credit Unearned revenue 33,600

On September 15, 2013, Oliver's Mortuary received a $3,600, nine-month note bearing interest at an annual rate of 12% from the estate of Jay Hendrix for services rendered. Oliver's has a December 31 year-end. What adjusting entry will the company record on December 31, 2013?

Debit Interest receivable 126 Credit Interest revenue 126 Accrued interest revenue: $3,600 × 12% × 3.5/12 = $126

Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2013, and charged the $3,480 premium to Insurance expense. At its December 31, 2013, year-end, Yummy Foods would record which of the following adjusting entries?

Debit Prepaid insurance 2,755 Credit Insurance expense 2,755 Entry on 8/1: Debit Insurance expense 3,480 Crebit Cash 3,480 Unused at 12/31: $3,480 × 19/24 = $2,755

The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $38,000. The current pay period ends on Friday, July 3. Neat Clothes is now preparing quarterly financial statements for the three months ended June 30. What is the adjusting entry to record accrued salaries at the end of June?

Debit Salaries expense 26,600 Credit Salaries payable 26,600 Amount accrued: $38,000 × 7/10 = $26,600

Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a:

Debit to investments

Incurring an expense for advertising on account would be recorded by:

Debiting an expense

A sale on account would be recorded by:

Debiting assets

When a magazine company collects cash for selling a subscription, it is an example of:

An unearned revenue transaction