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Exam 3: Accrual Accounting Concepts

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Question 1

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Classify the following items as: a. accrued revenue (accrued asset) b. deferre d revenue (une anned revenue) c. accrued expense (accrued liability) d. deferred expense (prepaid expense) (1)Three months rent paid in actvance (2)Rent al income for six months received in advance (3)Jobs completed but not yet billed at month-end (4)Interest payable accued on a note, but not yet paid (5)Telephone bill owed but not yet paid (6)A three-year premium paid on auto fleet insurance policy

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Question 2

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For a corporation, stockholders' equity consists of:

A) assets plus liabilities.
B) current assets plus long-term assets.
C) intangible assets.
D) capital stock and retained earnings.

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Question 3

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Depreciation Expense and Accumulated Depreciation are classified, respectively, as:

Cash receipts from interest and dividends are classified as:

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

River Corporation's accumulated depreciation increased by $12,000, while patents decreased by $3,500 between consecutive balance sheet dates. There were no purchases or sales of depreciable or intangible assets during the year. In addition, the income statement showed a loss on sale of land of $2,500. Accounts receivable increased $5,000, inventory decreased $3,200, prepaid expenses decreased $800, and account payable increased $2,000. Reconcile a net income of $55,000 to net cash flow from operating activities.

The process that begins with the analysis of transactions and ends with preparing the accounting records for the next accounting period is called the accounting cycle.

ABN Company sold goods, receiving $20,000 in cash and $25,000 on credit. How much revenue should it record under the accrual basis of accounting?

Expenses on the income statement are assets used up or services consumed in the process of generating revenues.

The unearned rent account has a balance of $50,000. If $3,000 of the $50,000 is unearned at the end of the accounting period, the amount of the adjusting entry is:

At the end of the fiscal year, the following adjusting entries were omitted: (a) No adjusting entry was made to transfer the $\$ 3,000$ of prepaid insurance from the asset account to the expense account. (b) No adjusting entry was made to record accrue d fees of $\$ 500$ for services provided to customers. Assuming that financial statements are prepared before the errors are discovered, indicate the effect of each error, considered individually, by inserting the dollar amount in the appropriate spaces. Insert "0" if the error does not affect the item. $\begin{array}{llll}&&&\text { Error (a) }&\text { Error (b) }\\&\text { Overstated}&\text { Understated}& \text { Overstated } &\text { Understated} \\(1)\text { Assets at December } 31 \text { would be } &\$ & \$ & \$ &\$ \\(2) \text { Liabilities at Dec. } 31 \text { would be }&\$ & \$ & \$ &\$ \\(3)\text { Net income for the year would }be&\$ & \$ & \$ &\$ \\(4)\text { Retained earnings at Dec. 31 would be}&\$ & \$ & \$ &\$ \end{array}$

Identify the type of adjustment necessary (the type of item involved) and record the transaction for the event. Make sure to include the ending balances after adjustment. Assume that on June 1, 2013, Tasty Sausage Corp. received $9,000 in advance to provide sausages over the next three months. The June 30 adjustment is:

The accrual basis of accounting recognizes:

In October, cash is received in advance of rendering services. Assuming that half of the services have been performed by December 31, the year-end adjustment would:

Which asset is not depreciated as it usually does not lose its ability to provide service?

On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be:

To determine cash payments for operating expenses for the cash flow statement using the direct method, depreciation expense is added to net income.

If prepaid insurance expires over time, this asset account becomes a(n) :

Identify the type of adjustment necessary (the type of item involved) and record the transaction for the event. Make sure to include the ending balances after adjustment. Assume that on June 1, 2013, Tasty Sausage Corp. had paid $1,500 in advance for a 6-month insurance policy. The June 30 adjustment is:

The _____ is prepared with various sections, subsections, and captions that aid in its interpretation and analysis.