978-1337276337 Test Bank Chapter 4 Part 4

Chapter 4

Page 61

147. All of the following statements are true regarding the use of a work sheet at the end of an accounting period except

a. all companies use a 10-column work sheet.

b. the use of a work sheet allows the accountant to gather and organize information to adjust the account.

c. the use of a work sheet allows the accountant to prepare adjustments without actually posting them to the accounts.

d. the use of a work sheet allows the accountant to prepare financial statements and then post the entries to the

accounts.

148. If a work sheet is used, it is prepared

a. after closing the accounts.

b. after recording and posting adjustments.

c. before preparing financial statements.

d. before journalizing transactions.

149. If a work sheet is used by a company’s accountants, it will be prepared

a. everyday.

b. after every journal transaction is posted.

c. after the analysis of each source document.

d. at the end of the period to help prepare financial statements.

Chapter 4

Page 62

150. Statements prepared monthly, quarterly, or at other intervals are called

a. trial balance statements.

b. closing statements.

c. interim statements.

d. temporary statements.

Completion

151. Measurement in accounting requires choosing an attribute and a unit of measure. _________________________ is

the attribute used for many of the assets included in the financial statements.

152. ____________________ is a rise in the general level of prices in the economy and results in a decrease in purchasing

power.

For each of the following sentences 153–160, select the word or group of words that best completes the statement.

Matching Cash basis Measurement

Deferred revenue Adjustments Deferred expense

Accrual basis Recognition Accrued asset

Chapter 4

Page 63

153. The success of accounting as a form of communication depends on two concepts, ____________________ and

____________________.

154. The _________________________ of accounting necessitates a number of adjustments at the end of an accounting

period.

155. The ____________________ of accounting is a system in which revenues are recognized when payments are

received and expenses are recognized when payments are made.

Chapter 4

Page 64

156. ____________________ is the association of the costs incurred with the associated revenue of a period.

157. A(n) ____________________ creates an increase in income for the period.

158. A(n) _________________________ results when cash is paid before the related amount is reported on the income

statement.

Chapter 4

Page 65

159. A(n) _________________________ results when cash is received before the related amount is reported on the

income statement.

160. The basis of accounting that fails to take into consideration amounts earned that are not collected and expenses

incurred but are not paid is the _________________________.

161. The difference between accrual-based revenue and accrual-based expenses is called _________________________.

162. Under the ____________________ basis of accounting, revenues are recognized when earned and expenses when

incurred.

163. According to the revenue recognition principle, revenues are recognized when they are __________________ and

__________________.

Chapter 4

Page 67

167. ____________________ is the allocation of the cost of a tangible, long-term asset over its useful life.

168. The names of the four major types of adjusting entries are _________________________,

_________________________, _________________________, and _________________________.

169. The one asset account that never requires adjustment at the end of the period is ____________________.

170. ____________________ is the name given to revenue, expense, and dividend accounts because they are closed at the

end of the period.

Chapter 4

Page 68

171. ____________________ is the name given to balance sheet accounts because they are permanent in nature.

172. Statements prepared monthly, quarterly, or at other intervals less than a year in duration are called

_____________________.

173. Temporary accounts are also known as _________________ accounts.

Matching

Select the correct revenue recognition principle for each of the following.

a. Recognize revenue over the passage of time.

b. Recognize revenue when the customer takes possession of the product.

c. Recognize revenue when cash is collected.

d. Recognize revenue when service is performed.

DIFFICULTY: Moderate

REFERENCES: p. 155

LEARNING OBJECTIVES: FACC.PONO.18.04-03 – LO: 04–03

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-04-Cash vs. Accrual

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Applying

174. Interest revenue

175. Rent revenue

Chapter 4

Page 69

176. Revenue from a customer’s subscription to a magazine

177. Merchandise revenue

178. Revenue from providing carpet cleaning services

Match the most probable matching method to the costs listed below.

a. Directly match the cost to a specific revenue.

b. Indirectly match the cost with the period during which it will provide revenue.

c. Immediately recognize the cost because no future benefits are expected.

DIFFICULTY: Easy

REFERENCES: pp. 155-158

LEARNING OBJECTIVES: FACC.PONO.18.04-04 – LO: 04–04

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-07-Adjusting Entries

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Applying

179. Depreciation on a warehouse used for storing inventory goods

180. Commissions earned by sales people

181. Cost of two-year insurance policy

182. Taxes owed on income earned during the current period

Chapter 4

Page 70

Match the following choices to the listed situation.

a. A deferred expense

b. A deferred revenue

c. An accrued liability

d. An accrued asset

DIFFICULTY: Moderate

REFERENCES: pp. 158-172

LEARNING OBJECTIVES: FACC.PONO.18.04-05 – LO: 04–05

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-07-Adjusting Entries

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Applying

183. One year’s premium on truck insurance was paid in advance.

184. Cash was collected from customers for rental of tents for next year.

185. A warehouse building was acquired for cash.

186. Income taxes are owed to the federal government at year-end.

187. Rent is owed by a tenant but not yet collected.

For each transaction, select the letter of the type of adjustment that would be required.

a. Deferred expense

b. Deferred revenue

c. Accrued liability

d. Accrued asset

DIFFICULTY: Moderate

REFERENCES: pp. 158-172

LEARNING OBJECTIVES: FACC.PONO.18.04-05 – LO: 04–05

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-07-Adjusting Entries

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Applying

188. Depreciation on a delivery truck is recorded.

189. Revenue is earned during the current period, although customers had paid in a previous period.

Chapter 4

Page 71

190. Interest earned but not yet received on notes receivable is recorded.

191. The cost of supplies used during the current year is determined and recorded.

192. The cost of salaries earned by employees, but not paid at the end of the accounting period is recorded.

For each transaction, select the letter of the type of adjustment that would be required.

a. Deferred expense

b. Deferred revenue

c. Accrued liability

d. Accrued asset

DIFFICULTY: Moderate

REFERENCES: pp. 158-172

LEARNING OBJECTIVES: FACC.PONO.18.04-05 – LO: 04–05

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-07-Adjusting Entries

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Applying

193. Amounts earned but not received from customers are recorded.

194. Magazine subscriptions are delivered during the current period, although customers paid in a previous period.

195. Interest is incurred on money borrowed from the bank, but not yet paid.

196. The depreciation on office equipment used during the current year is recorded.

197. The cost of commissions to salesmen that has been earned, but not paid, at the end of the accounting period is

recorded.

From the list of accounts below, determine whether the account would be a nominal account or a real account.

a. Nominal account

b. Real account

DIFFICULTY: Easy

REFERENCES: pp. 172-174

LEARNING OBJECTIVES: FACC.PONO.18.04-06 – LO: 04–06

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-08-Closing Entries

AICPA: FN-Reporting

Chapter 4

Page 73

Subjective Short Answer

206. On January 1, 2017, Blankenship Solutions began business. The company offers scalable cloud computing to small

businesses for a monthly fee of $0.25 per gigabyte, $0.05 per hour for public IP addresses, and $0.01 per hour for Internet

services. During January, 150 companies signed up for the service, and each will have until the fifth of the following

month to pay the monthly fee. By the end of January, 120 companies had paid the monthly fee for an average company

usage of 100 gigabytes. In addition, IP addresses were accessed for an average of 680 hours per company, and Internet

services averaged 600 hours per company during January. Assume that Blankenship Solutions uses the accrual basis of

accounting.

Required

1. Prepare the Revenues section of Blankenship Solutions’ income statement for the month of January.

2. Prepare the Cash Receipts section of Blankenship Solutions’ statement of cash flows for the month of January.

3. In addition to the Cash account, what other account will appear on Blankenship Solutions’ balance sheet at the end of

January? What amount will be in this account?

1. The income statement for Blankenship Solutions would show the following:

Blankenship Solutions

Income Statement

For the Month Ended January 31, 2017

2. A partial statement of cash flows for Blankenship Solutions would show the following:

Cash received from:

3. On Blankenship Solutions’ balance sheet at the end of January, two accounts will appear:

Chapter 4

Page 74

207. A hospital corporation contracted with a private company to collect fees and maintain health facilities that adjoin its

property. Users of the health facility can pay cash of $10 for a daily visit or they can purchase a pass. The pass has a

magnetic strip that is swiped through the entrance device each time an individual enters the facility. This subtracts a daily

fee from the pass balance for each day used. The passes are issued for a fee of $365, which are good for 365 days.

Refunds are not issued on the pass. Last year, $18,650 was collected for daily visits, $438,000 of annual passes were

issued, and $206,225 of pass usage was registered on the scanning equipment. How much should the company recognize

as revenue for the year? Explain how the revenue recognition rule should be applied in this case.

Chapter 4

Page 75

208. On July 1, 2017, Crouch Corporation takes out a 12%, two-month, $50,000 loan at Cocoa National Bank. Principal

and interest are to be repaid on August 31.

Required

1. Prepare the journal entries for July 1 to record the borrowing, for July 31 to record the accrual of interest, and for

August 31 to record repayment of the principal and interest.

2. Evaluate the following statement: It would be much easier not to bother with an adjusting entry on July 31 and simply

record interest expense on August 31 when the loan is repaid.

Chapter 4

Page 77

210. Carter, Inc. paid salaries expense of $292,000 during 2017. However, additional salaries of $14,000 had been earned

by employees, but not paid or recorded at December 31, 2017 by Carter.

A.

What is the effect on the accounting equation of the adjusting entry necessary at December 31, 2017?

B.

Under which basis, cash, accrual, or both, would the adjustment in part A be prepared? Explain.

C.

Under the accrual basis of accounting, what is the total amount of salaries expense for the year ended December 31,

2017?

D.

Under the accrual basis of accounting, what is the total amount of salaries payable to be reported at December 31,

2017?

E.

Under the cash basis of accounting, what is the total amount of salaries expense for the year ending December 31,

2017?

F.

Under the cash basis of accounting, what is the total amount of salaries payable at December 31, 2017?

Chapter 4

Page 79

211. Becca Corp. purchased supplies at a cost of $5,200 during 2016. At January 1, 2017, supplies on hand were $1,600.

During the year, the company used $4,000 of supplies. Becca’s accounting year ends on December 31.

A.

What is the effect on the accounting equation of the adjusting entry that is prepared at December 31, 2017?

B. Under the accrual basis of accounting, how much is Supplies Expense for 2017?

C. How much should be reported on the December 31, 2017, balance sheet for Supplies?

D. What type of adjustment was made in part A?

Chapter 4

Page 80

212. Dino’s Pizza employs 10 workers in its plant. Each employee is paid $8 per hour and works eight hours per day,

Monday through Friday. Employees are paid every Wednesday for the previous Monday through Friday workweek. The

last payday was Wednesday, May 28.

A. Compute the dollar amount of the weekly payroll.

B.

What is the effect on the accounting equation of the adjusting entry required on Friday, May 30, the last day of

Dino’s fiscal period?

C.

What special precautions are necessary upon recording the payment of wages to employees on the next payday, June

4?