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Exam 2: Accounting for Accruals and Deferrals

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Question 21

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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. You do not need to enter amounts. $\text { Increase }=\mathrm{I} \quad \text { Decrease }=\mathrm{D} \quad \text { No Effect }=\mathrm{N}$ George Co. collected $1,000 cash from accounts receivable. $\begin{array} {| l| l| l| l| l| l| l| }\text { Assets}&\text { Liabilities }&\text {Equity}&\text { Revenues}&\text { Expenses }&\text { Net Income }&\text { Cash }\\\hline &&&&&\end{array}$

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(N) (N) (N) (N) (N) (N) (I)
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Question 22

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Cash-basis accounting often fails to match expenses with revenues.

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Question 23

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The term "accrual" describes an earnings event that is recognized after cash is paid or received.

In a company's annual report, the reader will find a company's income statement, statement of changes in stockholder's 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. 1) What was the amount of cash dividends paid to the stockholders during the most recent year? 2) What was the total amount of land owned by the company? 3) What was the total amount of cash borrowed by the company during the most recent year? 4) What were the types of claims that the company has against its assets? 5) What was the total amount of cash received by the issuance of common stock? 6) Was the company profitable during the most recent year? 7) How much cash was collected from accounts receivable during the current year? 8) What was the total revenue earned by the company during the most recent year? 9) What was the ending balance of retained earnings? 10) What was the amount of change in the cash balance during the current year?

Mackie Company provided $25,500 of services on account, and collected $18,000 from customers during the year. The company also incurred $17,000 of expenses on account, and paid $15,400 against its payables. As a result of these events.

Jack Grimes started a consulting business, Grimes Consulting, on January 1, 2013 by issuing $7,000 of common stock. In addition, the following events occurred in 2013. Provided services on account, $25,500. Paid cash for $11,500 in operating expenses. Collected $9,000 of the revenue that was previously recorded on account. Paid a cash dividend of $4,000 to the stockholders. Required: a) Show the effects of the above transactions on the accounting equation. Assets $=$ Liabilities $+$ Common Stock $+$ Retained Earnings 1) 2) 3) 4) 5) b) Prepare an income statement and statement of cash flows for 2013.

Regarding the relationships of revenues and expenses to assets and liabilities, state whether each of the following statements is true or false. _____ a) Recording an increase in a revenue account may be associated with an increase in assets. _____ b) Recording an increase in a revenue account may be associated with a decrease in liabilities. _____ c) An increase in Salaries Expense may be accompanied by a decrease in Salaries Payable. _____ d) Recording a decrease in assets may be associated with an increase in an expense account. _____ e) An increase in Supplies may be accompanied by an increase in Supplies Expense.

Kenyon Company uses accrual accounting. Indicate whether each of the following statements regarding Kenyon's accounting system is true or false. _____ a) The recognition of accounting events and the realization of cash consequences may occur in different accounting periods. _____ b) The cash consequence of a transaction always precedes its accounting recognition. _____ c) Expenses may either be matched to revenues they produce or to periods in which they are incurred. _____ d) Kenyon may record accrual transactions, but may not record deferral transactions. _____ e) Kenyon is not permitted to make cash sales.

For each of the following transactions, indicate the type by entering AS for asset source transactions, AU for asset use transactions, AE for asset exchange transactions, and CE for claims exchange transactions. 1) ___ Purchased supplies on account. 2) ___ Recorded the accrual of $1,000 in salaries to be paid later. 3) ___ Issued common stock for $20,000 in cash. 4) ___ Earned revenue to be collected next year. 5) ___ Paid $2,000 in dividends to its stockholders. 6) ___ Received cash from customers in #4 above. 7) ___ Paid the salaries accrued in #2 above. 8) ___ Received $500 from a customer for services to be provided later.

What does the balance in accounts receivable represent?

Danielle McLynn started a consulting business, McLynn Consulting, on January 1, 2013, and the business engaged in the following transactions during the year: 1. Issued $8,000 of common stock for cash 2. Provided services on account, $26,500 3. Incurred $17,500 of operating expense, but only paid $12,000 of this amount 4. Collected $19,000 of the revenue that was previously recorded on account 5. Paid a cash dividend of $4,500 to the stockholders Required: a) Show the effects of the above transactions on the accounting equation. b) Prepare an income statement and statement of cash flows for 2013.

What effect does providing services on account have on the statement of cash flows? The 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. You do not need to enter amounts. $\begin{array}{lll}\text { Increase }=\mathrm{I} & \text { Decrease }=\mathrm{D} & \text { No Effect }=\mathrm{N}\end{array}$ Curtis Company received $250 from a customer for services to be performed at a future date. $\begin{array} {| l| l| l| l| l| l| l| }\text { Assets}&\text { Liabilities }&\text {Equity}&\text { Revenues}&\text { Expenses }&\text { Net Income }&\text { Cash }\\\hline &&&&&\end{array}$

Using the form below, record each of the following 2013 transactions for Morris Corporation: a) Nov. 1. Received cash from clients for services to be performed over the next six months, $6,000. b) Nov. 1. Paid $600 for a 12-month insurance policy. c) Dec. 31. Recorded expiration of two months of the insurance. d) Dec. 31. Earned $2,000 of the amount received from clients in November.

Wyatt Company paid $57,000 in January 2013 for salaries that had been earned by employees in December 2012. Indicate whether each of the following statements about financial statement effects of the January 2013 event is true or false. _____ a) The income statement for 2013 is not affected because the salaries expense had been recognized at the end of December. _____ b) On the 2013 statement of cash flows, cash flows from operating activities decreased. _____ c) Payment of the salaries in 2013 decreased a liability. _____ d) The 2013 statement of changes in stockholders' equity would not be affected because the salaries expense had been recognized at the end of December. _____ e) Both assets and equity decreased as a result of this transaction.

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

Expenses that are matched with the period in which they are incurred are frequently called:

Define the accounting cycle and list the stages of the cycle.

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

The Ping Corporation was started on January 1, 2013, with the issuance of $20,000 of stock. During 2013, the company provided $30,000 of services on account and collected $18,000 of that amount. Ping incurred $23,000 of expenses, and paid $20,000 of that amount during 2013. On December 31, 2013, Ping paid investors a $800 cash dividend and accrued $2,000 of salary expense. Required: 1) What is the net income for year ending December 31, 2013? 2) Prepare Ping Corporation's Statement of Cash Flows for the year ended December 31, 2013. 3) What is the balance in Ping's retained earnings account after closing entries are made on December 31, 2013?