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Exam 2: Accounting for Accruals and Deferrals

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Question 31

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Describe the purpose of the closing process.

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The purpose of the closing process is to...

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Question 32

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Sometimes the recognition of revenue is accompanied by an increase in liabilities.

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Question 33

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Which of the following would cause net income on the accrual basis to be different from (either higher or lower than) the amount of net cash flow for operating activities on the statement of cash flows?

On October 1, Year 1 Allen Company paid $24,000 cash to lease office space for one year beginning immediately. How would the adjustment on December 31, Year 1 to recognize rent expense affect the company's financial statements?

Which of the following is an asset source transaction?

Nelson Company experienced the following transactions during Year 1, its first year in operation.Issued $8,400 of common stock to stockholdersProvided $4,700 of services on accountPaid $2,200 cash for operating expensesCollected $3,100 of cash from accounts receivablePaid a $220 cash dividend to stockholdersWhat is the total amount of assets shown on the balance sheet prepared as of December 31, Year 1?

Which of the following correctly states the proper order of the accounting cycle?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAAmity Company signed contracts for $25,000 of services to be performed in the future.

The recognition of an expense may be accompanied by which of the following?

Sheldon Company began Year 1 with $1,200 in its supplies account. During the year, the company purchased $3,400 of supplies on account. The company paid $3,000 on accounts payable by year end. At the end of Year 1, Sheldon counted $1,400 of supplies on hand. Sheldon's financial statements for Year 1 would show:

Explain the meaning of the term, "matching concept."

The following events apply to Bowman's Cleaning Service for Year 1.Issued stock for $44,000 cashOn May 1, paid $27,000 for one year's rent in advancePurchased on account $4,500 of supplies to be used in the businessPerformed services of $68,400 and received cashAt December 31, adjusted the records for the expired rentAt December 31, an inventory of supplies showed that $660 of supplies were still unusedRequired:Record the events in general ledger accounts under an accounting equation. (Note: There is no need to provide appropriate account titles for the Retained Earnings amounts in the last column of the table.)

Nelson Company experienced the following transactions during Year 1, its first year in operation.Issued $12,000 of common stock to stockholdersProvided $4,600 of services on accountPaid $3,200 cash for operating expensesCollected $3,800 of cash from accounts receivablePaid a $200 cash dividend to stockholders What is the of net cash flow from operating activities shown on the Year 1 statement of cash flows?

The following account balances were drawn from the financial statements of Grayson Company: $\begin{array}{llll}\text { Cash } & \$ 8,800 & \text { Accounts payable } & \$ 2,050\\\text { Accounts receivable } & \$ 3,000 & \text { Common stock } &? \\\text { Land } & \$ 16,000 & \text { Retained earnings, } & \$ 5,400\\ && \text {January 1}\\ && \text {Revenue}& \$ 19,000 \\ && \text {Exmenses}&\$14,500\end{array}$ Based on the above information, what is the balance of Common Stock for Grayson Company?

In a company's annual report, the reader will find a company's income statement, statement of changes in stockholders' equity, balance sheet, and statement of cash flows. These financial statements can help the reader to answer specific questions. Identify which financial statement would be most useful in answering the following questions. If more than one financial statement can answer the question, please identify all applicable statements.What was the ending balance of retained earnings?What was the amount of cash dividends paid to the stockholders during the most recent year?What was the total amount of land owned by the company?What was the total amount of cash borrowed by the company during the most recent year?What were the types of claims that the company had against its assets?What was the total amount of cash received by the issuance of common stock in the current year?Was the company profitable during the most recent year?How much cash was collected from accounts receivable during the current year?What was the total revenue earned by the company during the most recent year?What was the amount of change in the cash balance during the current year?

Companies that use accrual accounting recognize revenues and expenses at the time that cash is paid or received.

The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31, Year 1: $\begin{array} { l lll} \text { Cash } & \$ 4,000& \text { Accounts receivable } & \$3,400\\\text { Dividends} &2,000& \text { common stock } & 3,900 \\\text { Land } & 3,200 &\text { Revenue } &3,200 \\\text { Accounts payable } & 1,800 &\text { Expense } & 2,200\end{array}$ What is the amount of total assets on Carolina's December 31, Year 1 balance sheet?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAIngstrom Company provided $2,600 of services for a customer who paid $1,000 cash immediately and promised to pay an additional $1,600 one month later.

Which of the following shows how receiving cash for services that will be performed in the future affects the company's financial statements?

During Year 1 China Enterprises experienced the following events:(1) Earned $10,000 of revenue on account(2) Incurred $9,000 of expenses on accountBased on this information, which of the following describes the combined effects of both events on the amounts of total assets, net income, and cash flows from operating activities shown on the Year 1 financial statements? $\begin{array}{l}\text { Total Assets }&\text {Net Income}&\text { cash Flow trom operating } \\&&\text { Activities } \\\end{array}$ A. $\begin{array}{rrrr}& \$ 1,000 &&&& \$ 1,000 &&&&&& 0 \\\end{array}$ B. $\begin{array}{rrrr} & \$ 10,000 &&&& \$ 1,000 &&&&&& 0 \\\end{array}$ C. $\begin{array}{rrrr}& \$ 10,000 &&&& \$ 1,000 &&&&& \$ 1,000 \\\end{array}$ D. $\begin{array}{rrrr}& \$ 10,000 &&&& \$ 10,000 &&&&& \$ 1,000\end{array}$