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Exam 2: Accounting for Accruals and Deferrals

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Question 21

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Olaf Company began 2013 with $600 in its supplies account. During the year, the company purchased $1,700 of supplies on account. The company paid $1,500 on accounts payable by year end. On December 31, 2013, Olaf counted $700 of supplies on hand. Olaf's financial statements for 2013 would show:

A) $800 of supplies; $100 of supplies expense
B) $700 of supplies; $1,600 of supplies expense
C) $700 of supplies; $1,000 of supplies expense
D) $800 of supplies; $1,700 of supplies expense

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Question 22

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Ruiz Company provided services for $15,000 cash during the 2013 accounting period. Ruiz incurred $12,000 expenses on account during 2013, and by the end of the year, $3,000 of that amount had been paid with cash. Assuming that these are the only accounting events that affected Ruiz during 2013.

A) The amount of net income shown on the income statement is $3,000.
B) The amount of net income shown on the income statement is $9,000.
C) The amount of net loss shown on the income statement is $3,000.
D) The amount of net cash flow from operating activities shown on the statement of cash flows is $6,000.

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Question 23

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Earning revenue on account would be classified as a/an?

Classify each of the following transactions for the purpose of the statement of cash flow as operating activities (OA), investing activities (IA), financing activities (FA), or not reported on the statement of cash flows (NA). 1) ____ Made adjusting entry to recognize interest revenue on investments. 2) ____ Borrowed funds from the bank. 3) ____ Paid rent in advance for the next six months. 4) ____ Paid cash to settle accrued salary expense. 5) ____ Purchased supplies on account. 6) ____ Collected accounts receivable. 7) ____ Sold land.

Sandridge Company recorded salaries earned by employees but not yet paid. Which of the following represents the effect of this transaction on the financial statements?

Patterson Company was founded in 2013 and engaged in the following transactions: 1. issued common stock for cash 2) purchased supplies on account 3) collected cash from a customer for services to be provided over a period of 1 year 4) paid a cash dividend to stockholders 5) purchased a 2-year fire insurance policy 6) provided services to customers on account 7) collected cash from accounts receivable 8) paid cash for various operating expenses 9) paid rent in advance for 3 months at a time Required: A) Which of the above transactions would require adjusting entries at year end? B) Why are adjusting entries required before financial statements can be prepared.

On December 31, 2013, Farrell Co. owed $1,500 in salaries to employees who had worked during December but would be paid in January. If the year-end adjustment is properly recorded on December 31, 2013, what will be the effect of the accrual on the following items for Farrell?

Purchasing prepaid rent is classified as a(n) :

Which of the following is an asset source transaction?

Bledsoe Company received $15,000 cash from the issue of stock on January 1, 2013. During 2013 Bledsoe earned $8,500 of revenue on account. The company collected $6,000 cash from accounts receivable and paid $5,400 cash for operating expenses. Based on this information alone, during 2013.

Revenues and liabilities are temporary accounts.

Indicate whether each of the following statements about the closing process and the accounting cycle is true or false. _____ a) The closing process transfers certain account balances to retained earnings at the end of the accounting cycle. _____ b) Only accounts that appear on the income statement are closed at the end of each accounting cycle. _____ c) Another name for permanent accounts is "nominal accounts." _____ d) The permanent accounts contain information that is cumulative in nature. _____ e) The retained earnings balance at the end of any given year is equal to that year's net income.

Which of the following would be included in the "cash flow from operating activities" section of the statement of cash flows?

The entry to recognize work completed on unearned revenue involves which of the following?

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

The following account balances were drawn from the 2013 financial statements of Gunn Company Based on the above information, what is the balance of Common Stock for Gunn Company?

Which of the following transactions does not involve an accrual?

The governance of a corporation includes the roles and responsibilities of the board of directors, managers, shareholders, and auditor.

The following accounts and balances were drawn from the records of Ji Company: Based on this information alone the amount of Ji's retained earnings is

For each of the following transactions, indicate the type by entering "AS" for asset source transaction, "AU" for asset use transaction, "AE" for asset exchange transaction, and "CE" for claims exchange transaction. 1) ____ The company paid $10,000 for a plot of land. 2) ____ Recorded the accrual of $1,000 in salaries to be paid later. 3) ____ The company issued common stock for $20,000 in cash. 4) ____ The business incurred operating expense on account. 5) ____ The business paid off its accounts payable. 6) ____ The business earned revenue to be collected next year. 7) ____ The company paid $2,000 in dividends to its stockholders. 8) ____ The business received cash from customers in #6 above. 9) ____ Paid the salaries accrued in #2 above. 10) ___ Borrowed money from a local bank.