TestBank financial accounting 2n spiceland ch3

Under cash-basis accounting, if costs associated with producing revenue in the current year are not paid in cash until the following year, the costs should be expensed in the following y

True False

4 Jones Corporation provides services to a customer on June 17, but the customer does not pay for the

services until August 12 According to the revenue recognition principle, Jones Corporation should record the revenue on August 12

10 Under cash-basis accounting, if costs associated with producing revenue in the current year are not paid in cash until the following year, the costs should be expensed in the following year

True False

11 Because cash-basis accounting violates both the revenue recognition principle and the matching principle,

it is generally not accepted in preparing financial statements

22 Suppose Simeon Company begins the year with $1,000 in supplies, purchases an additional $5,500 of supplies during the year, and ends the year with $700 in supplies The year-end adjusting entry includes Supplies Expense of $7,200

32 Adjusting entries are unnecessary for transactions that do not involve revenue or expense activities, such as selling common stock or paying dividends

35 A post-closing trial balance is a list of all accounts and their balances after we have updated account

balances for adjusting entries

45 The closing entry for revenue accounts includes a debit to Retained Earnings and a credit to all revenue accounts

54 The revenue recognition principle states that:

A Revenue should be recognized in the period the cash is received

B Revenue should be recognized in the period earned

C Revenue should be recognized in the balance sheet

D Revenue is a component of common stock

55 The matching principle is the principle that states:

A All costs that are used to generate revenue are recorded in the period the revenue is recognized

B All transactions are recorded at the exchange price

C The business is separate from its owners

D The business will continue to operate indefinitely unless there is evidence to the contrary

56 Which of the following accounting principles states that expenses are recognized in the same period as the revenues they help to generate?

A Accounting equation

B Revenue recognition

C Matching principle

D Conservatism

57 The primary difference between accrual-basis and cash-basis accounting is:

A The timing of when revenues and expenses are recorded

B Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting

C Accrual-basis accounting violates both the revenue recognition and matching principles

D Adjusting entries are only a necessary part of cash-basis accounting

58 When the amount of interest receivable decreases during an accounting period:

A Accrual-basis revenues exceed cash collections from borrowers

B Accrual-basis net income exceeds cash-basis net income

C Accrual-basis revenues are less than cash collections from borrowers

D Accrual-basis expenses are less than cash payments to borrowers

59 When the balance of the Unearned Revenue account decreases during an accounting period:

A Accrual-basis revenues exceed cash collections from customers

B Accrual-basis expenses exceed cash collections from customers

C Accrual-basis revenues are less than cash collections from customers

D Accrual-basis net income is less than cash-basis net income

60 Which transaction would not be recorded under cash-basis accounting?

A Providing services to customers for cash

B Purchasing one year of rent in advance

C Paying salaries to employees

D Purchasing supplies on account

61 Which of the following statements are correct?

For accrual-basis accounting:

(1) record revenues when earned

(2) record expenses when cash is paid

For cash-basis accounting:

(3) record revenue when cash is received

(4) record expenses when benefit is received

A Cash-basis = $24,000; Accrual-basis = $24,000

B Cash-basis = $72,000; Accrual-basis = $12,000

C Cash-basis = $0; Accrual-basis = $24,000

D Cash-basis = $0; Accrual-basis = $12,000

63 The following information pertains to Sooner Company:

Assuming that Sooner Company uses cash-basis accounting, when would the company record the expense related to the supplies?

A May 2

B May 8

C May 15

D May 20

64 The following information pertains to Sooner Company:

Assuming that Sooner Company uses accrual-basis accounting, when would the company record the expense related to the supplies?

A May 2

B May 8

C May 15

D May 20

65 Consider the following events for Betterment Incorporated:

Under accrual-basis accounting, what is the appropriate day to record the revenues related to lawn services?

A January 1

B January 7

C January 9

D January 12

66 Consider the following events for Betterment Incorporated:

Under accrual-basis accounting, what is the appropriate day to record the expenses related to the gasoline?

A January 1

B January 7

C January 12

D January 13

67 Consider the following events for Betterment Incorporated:

Under cash-basis accounting, what is the appropriate day to record the expenses related to the gasoline?

A January 1

B January 9

C January 12

D January 13

68 Consider the following events for Sophia Incorporated:

Under accrual-basis accounting, what is the appropriate day to record the revenues from the sand volleyball camp?

A April 5

B April 6

C April 12

D April 21

69 Consider the following events for Sophia Incorporated:

Under accrual-basis accounting, what is the appropriate day to record the expenses related to the sand volleyball camp?

A April 5

B April 12

C April 21

D April 23

70 Consider the following events for Sophia Incorporated:

Under cash-basis accounting, what is the appropriate day to record the expenses related to the sand volleyball camp?

A April 5

B April 12

C April 21

D April 23

71 Consider the following events for Sophia Incorporated:

Under cash-basis accounting, what is the appropriate day to record the revenues related to the sand volleyball camp?

A April 5

B April 12

C April 21

D April 23

72 Which of the following is a possible adjusting journal entry?

A Debit Cash, credit Accounts Payable

B Debit Service Revenue, credit Cash

C Debit Salaries Expense, credit Salaries Payable

D Debit Utilities Expense, credit Retained Earnings

73 Adjusting entries are primarily needed for:

A Cash-basis accounting

B Accrual-basis accounting

C Current value accounting

D Manual accounting systems

74 Which of the following is true about adjusting entries?

A Entries are necessary due to the conservatism principle

B Entries can be done at the beginning or end of the accounting period

C They zero the balance of all income statement accounts

D They are a necessary part of accrual-basis accounting

75 Making insurance payments in advance is an example of:

77 When a company makes an end-of-period adjusting entry which includes a credit to Prepaid Rent, the debit

is usually made to:

79 Prepayments occur when:

A Cash payment (or an obligation to pay cash) occurs before the expense recognition

B Sales are delayed pending credit approval

C Customers are unable to pay the full amount due when goods are delivered

D Cash payment occurs after the expense is incurred and liability is recorded

80 An example of an adjusting entry would not include:

A Recording the use of office supplies

B Recording the expiration of prepaid insurance

C Recording unpaid salaries

D Paying salaries to company employees

81 Which of the following would not typically be used as an adjusting entry?

A Often include the Cash account

B Usually are recorded at the beginning of the accounting period

C Always involve at least one income statement account and one balance sheet account

D Adjust the balance of revenue and expense accounts to zero

84 The adjusting entry required to record accrued expenses includes:

A A credit to Cash

B A debit to an asset

C A credit to an asset

D A credit to liability

85 Yummy Foods purchased a one-year hazard insurance policy on August 1 and recorded the $4,200

premium to prepaid insurance At its December 31 year-end, Yummy Foods would record which of the following adjusting entries?

86 The employees of Neat Clothes work Monday through Friday Every other Friday the company issues payroll checks totaling $32,000 The current pay period ends on Friday, January 3 Neat Clothes is now preparing financial statements for the year ended December 31 What is the adjusting entry to record accrued salaries at the end of the year?

A Insurance Expense, $4,800; Prepaid Insurance $0

B Insurance Expense, $3,600; Prepaid Insurance $1,200

C Insurance Expense, $3,650; Prepaid Insurance $4,800

D Insurance Expense, $1,200; Prepaid Insurance $3,600

88 On September 1, 2012, Gold Magazine sold 400 one-year subscriptions for $90 each The total amount received was credited to Unearned Revenue What would be the required adjusting entry at December 31, 2012?

A Debit to Salaries Expense for $32,000

B Credit to Salaries Expense of $8,000

C Debit to Salaries Payable for $24,000

D Credit to Salaries Payable for $8,000

90 At the beginning of December, Global Corporation had $2,000 in supplies on hand During the month, supplies purchased amounted to $3,000, but by the end of the month the supplies balance was only $800 What is the appropriate month-end adjusting entry?

A Debit Cash $4,200, credit Supplies $4,200

B Debit Supplies $4,200, credit Supplies Expense $4,200

C Debit Supplies Expense $4,200, credit Supplies $4,200

D Debit Cash $800, credit Supplies $800

91 Eve's Apples opened for business on January 1, 2012, and paid for two insurance policies effective that date The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term What was the balance in Eve's Prepaid Insurance account as of December 31, 2012?

B An adjusted trial balance

C A post-closing trial balance

D An accounting trial balance

93 An adjusted trial balance:

A Is a list of all accounts and their balances after adjusting entries

B Is a list of all accounts and their balances before adjusting entries

C Is a list of all accounts and their balances after closing entries

D Is a trial balance adjusted for cash-basis accounting

94 Resources owned by the company that will provide a benefit for more than one year are called:

A Current assets

B Current liabilities

C Long-term assets

D Revenues

95 The following financial information is from Shovels Construction Company for 2012:

What is the amount of current assets, assuming the accounts above reflect normal activity?

98 The following table contains financial information for Trumpeter Inc before closing entries:

What is Trumpeter's net income?

A $3,500

B $2,500

C $5,000

D $5,500

99 The following table contains financial information for Trumpeter Inc before closing entries:

What is the amount of Trumpeter's total assets?

A $81,500

B $82,500

C $68,500

D $83,500

100.The closing entry for expenses includes:

A A debit to Dividends and a credit to all expense accounts

B A debit to Retained Earnings and a credit to all expense accounts

C A debit to Revenues and a credit to Retained Earnings

D A debit to Revenues and a credit to all expense accounts

101.The primary purpose of closing entries is to:

A Prove the equality of the debit and credit entries in the general journal

B Ensure that all assets and liabilities are recognized in the appropriate period

C Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions

D Assure that adjusting entries balance

102.The following table contains financial information for Fisher Inc for 2012 before closing entries:

How many of the above accounts are permanent?

104.The purpose of closing entries is to transfer:

A Accounts Receivable to Retained Earnings when an account is fully paid

B Balances in temporary accounts to a permanent account

C Inventory to Cost of Goods Sold when merchandise is sold

D Assets and liabilities when operations are discontinued

105.Which of the following is a possible closing entry?

A Debit Cash, credit Service Revenue

B Debit Cash, credit Retained Earnings

C Debit Service Revenue, credit Retained Earnings

D Debit Dividends, credit Retained Earnings

106.Permanent accounts would not include:

108.Of the following six accounts, which ones have temporary balances?

A $6,000

B $30,000

C $22,000

D $14,000

111.The closing process includes which of the following?

A Closing the balance of the retained earnings account to zero

B Closing the balance of only the dividends account to zero

C Closing the balances of only revenue and expense accounts to zero

D Closing the balances of revenue, expense and dividend accounts to zero

112.Frosty Inc has the following balances on December 31 prior to closing entries:

Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

A Increase of $11,000

B Increase of $13,000

C Increase of $12,000

D Increase of $14,000

113.A list of all accounts and their balances after posting closing entries is referred to as:

A A trial balance

B An adjusted trial balance

C A post-closing trial balance

D An accounting trial balance

114.A post-closing trial balance:

A Is a list of all accounts and their balances after adjusting entries

B Is a list of all accounts and their balances before adjusting entries

C Is a list of all accounts and their balances after closing entries

D Is a trial balance adjusted for cash-basis accounting

115.For each transaction below, calculate the amount of revenue to be recognized in the current period using accrual-basis accounting:

(a) Performed $24,000 of services during the month and received full cash payment from customers at the time of service

(b) Performed $9,000 of services during the month and billed customers Customers are expected to pay next month

(c) Received $12,000 cash from customers for services to be provided next month

116.For each transaction below, calculate the amount of expense to be recognized in the current period using accrual-basis accounting

(a) Paid $3,500 on account for supplies purchased last period All supplies were used last month

(b) Paid $5,000 cash for advertising in the current period

(c) Employees worked in the current period but will not be paid until the following period, $4,500

117.A company reports the following amounts: Assets = $6,000; Liabilities = $2,000; Stockholders' equity =

$4,000; Dividends = $500; Revenues = $5,000; and Expenses = $3,000 What amount is reported for net income?

118.A company receives $2,500 cash from customers for services to be provided next month Record the cash receipt using (a) accrual-basis accounting and (b) cash-basis accounting

119.A company performs $2,800 of services during the month and bills customers The customers are expected

to pay next month Record the customer billing using (a) accrual-basis accounting and (b) cash-basis accounting

120.A company performs $4,200 of services during the month and receives full cash payment from customers

at the time of service Record the cash receipt using (a) accrual-basis accounting and (b) cash-basis

accounting

121.A company pays $1,700 cash to employees for work performed during the month Record the payment using (a) accrual-basis accounting and (b) cash-basis accounting

122.A company receives a $700 utility bill for the current month but does not plan to pay the bill until early next month Record the receipt of the utility bill using (a) accrual-basis accounting and (b) cash-basis accounting

123.A company pays $1,200 on account for supplies purchased last month All supplies were used last month Record the payment using (a) accrual-basis accounting and (b) cash-basis accounting

124.A company maintains its records using cash-basis accounting During the year, the company received cash from customers, $34,000, and paid cash for taxes, $24,000 At the beginning of the year, customers owe the company $3,000 By the end of the year, customers owe $5,000 At the beginning of the year, the company owes taxes of $4,000 At the end of the year, the company owes taxes of $5,000 Determine cash-basis net income and accrual-basis net income for the year

125.The following data are taken from the cash-basis accounting records of Myerson Company for the year ended December 31, 2012:

Calculate the amount of revenues and expenses for 2012 under cash-basis accounting

126.The following data are taken from the cash-basis accounting records of Myerson Company for the year ended December 31, 2012:

Calculate the amount of revenues and expenses for 2012 under accrual-basis accounting

127.At the beginning of the period, a company reports a balance in office supplies of $500 During the period, the company purchases an additional $3,500 of office supplies for cash By the end of the period, only $700

of office supplies remains Record the period-end adjusting entry

128.Suppose a company rents office space for one year, paying $12,000 ($1,000/month) in advance on

September 1 Record the adjusting entry on December 31

129.A company purchases one year of flood insurance in advance on May 1, paying $24,000 ($2,000/month) Record the adjusting entry on December 31

130.A company purchases new equipment for $24,000 cash on August 1, 2012 At the time of purchase, the equipment is expected to be used in operations for four years (48 months) and have no resale or scrap value

at the end The company depreciates the equipment evenly over the 48 months ($500/month) Record the adjusting entry for depreciation on December 31, 2012

131.Suppose a customer rents a vehicle for four months from Rent-A-Car on October 1, paying $4,000 ($1,000/month) Record Rent-A-Car's adjusting entry on December 31