Finance Chapter 4 Which of the following accounts is not closed to Income Summary at the end of the accounting period?

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Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
143. The Dividend account is known as which of the following?
a.
Nominal account
b.
Closing account
c.
Real account
d.
both b and c
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Understanding
144. Which of the following accounts is not closed to Income Summary at the end of the accounting period?
a.
Rent Expense
b.
Service Revenue
c.
Unearned Revenue
d.
Supplies Expense
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-07 - LO: 04-07
KEYWORDS:
Bloom's: Understanding
145. Which of the following journal entries is required to close the Income Summary account of a company with a net
loss?
a.
b.
c.
d.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-07 - LO: 04-07
KEYWORDS:
Bloom's: Understanding
146. When using a work sheet:
a.
an equal number of account titles are applicable to the Income Statement columns and the Balance Sheet
columns.
b.
adjusting entries are not made since they appear on the work sheet.
c.
net income appears in both the Income Statement debit column and the Balance Sheet credit column.
d.
the Income Statement column and Balance Sheet column of the work sheet eliminate the need to prepare
formal financial statements.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
FACC.PONO.13.04-08 - LO: 04-08
KEYWORDS:
Bloom's: Understanding
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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
147.
Oregon Company
Adjusted Trial Balance
For the Year ended December 31, 2016
Cash
$ 6,030
Accounts Receivable
2,100
Prepaid Expenses
700
Equipment
13,700
Accumulated Depreciation
$ 1,100
Accounts Payable
1,900
Notes Payable
4,200
Capital Stock
12,940
Dividends
790
Fees Earned
8,750
Wages Expense
2,500
Rent Expense
1,960
Utilities Expense
775
Depreciation Expense
250
Miscellaneous Expense
85
______
Totals
$28,890
$28,890
Determine the net income (loss) for the period.
a.
Net Loss $5,570
b.
Net Income $3,180
c.
Net Loss $790
d.
Net Income $2,390
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
FACC.PONO.13.04-07 - LO: 04-07
FACC.PONO.13.04-08 - LO: 04-08
KEYWORDS:
Bloom's: Analyzing
148. After all of the account balances have been extended to the Balance Sheet columns of the work sheet, the totals of the
debit and credit columns are $37,875 and $32,735, respectively. What is the amount of net income or net loss for the
period?
a.
$5,140 net income
b.
$37,875 net loss
c.
$5,140 net loss
d.
$32,735 net income
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
FACC.PONO.13.04-07 - LO: 04-07
FACC.PONO.13.04-08 - LO: 04-08
KEYWORDS:
Bloom's: Analyzing
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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
149. 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 ten-column work sheet.
b.
the net income of the period is extended from the income statement debit column to the balance sheet credit
column.
c.
the beginning balance in the Retained Earnings account is entered initially on the work sheet on the unadjusted
trial balance.
d.
cash is always carried over from the unadjusted trial balance columns of the work sheet to the balance sheet
columns without any adjustment.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-08 - LO: 04-08
KEYWORDS:
Bloom's: Understanding
150. Which account is always carried over from the unadjusted trial balance columns of a work sheet to the balance sheet
columns of the work sheet without any adjustment?
a.
Accumulated depreciation
b.
Depreciation expense
c.
Cash
d.
All of these are adjusted.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-08 - LO: 04-08
KEYWORDS:
Bloom's: Understanding
151. The amount in the Subscriptions Sold in Advance account should be carried over from the adjusted trial balance of
the 10-column work sheet to which of the following columns?
a.
Income statement as a debit
b.
Income statement as a credit
c.
Balance sheet as a debit
d.
Balance sheet as a credit
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-08 - LO: 04-08
KEYWORDS:
Bloom's: Understanding
152. The amount in the Dividends account should be carried over from the adjusted trial balance of the 10-column work
sheet to which of the following columns?
a.
Income statement as a debit
b.
Income statement as a credit
c.
Balance sheet as a debit
d.
Balance sheet as a credit
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-08 - LO: 04-08
KEYWORDS:
Bloom's: Understanding
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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
153. A decline in purchasing power is evidenced by all of the following except:
a.
inflation.
b.
a continuing rise in the general level of prices in an economy.
c.
buying the same amount of goods or services for a higher price a year later.
d.
current value is equal to historical cost.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Understanding
154. All of the following describe a revenue except:
a.
A revenue can result in the inflow of assets.
b.
A revenue can result in the settlement of liabilities from the delivery or distribution of goods.
c.
A revenue can result in the settlement of liabilities from rendering services.
d.
A revenue must involve an inflow of assets.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Understanding
155. Which of the following statements is true concerning the matching principle?
a.
All costs can be directly matched with revenue.
b.
All costs can be indirectly matched with periods in which they provide a benefit.
c.
The association of assets for a period with the liabilities necessary to generate the assets is known as the
matching principle.
d.
Cost of goods sold matched with sales revenue is a classic example of direct matching under the matching
principle.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
Completion
156. 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.
ANSWER:
Historical cost
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Remembering
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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
157. ____________________ is a rise in the general level of prices in the economy and results in a decrease in purchasing
power.
ANSWER:
Inflation
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Remembering
For each of the following sentences 145-152, 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
158. The success of accounting as a form of communication depends on two concepts, ____________________ and
____________________.
ANSWER:
recognition, measurement
measurement, recognition
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
FACC.PONO.13.04-02 - LO: 04-02
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
159. The _________________________ of accounting necessitates a number of adjustments at the end of an accounting
period.
ANSWER:
accrual basis
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
FACC.PONO.13.04-02 - LO: 04-02
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
160. The ____________________ of accounting is a system in which revenues are recognized when payments are
received and expenses are recognized when payments are made.
ANSWER:
cash basis
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
FACC.PONO.13.04-02 - LO: 04-02
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
161. ____________________ is the association of the costs incurred with the associated revenue of a period.
ANSWER:
Matching
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
FACC.PONO.13.04-02 - LO: 04-02
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
162. A(n) ____________________ creates an increase in income for the period.
ANSWER:
accrued asset
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
FACC.PONO.13.04-02 - LO: 04-02
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
163. A(n) _________________________ results when cash is paid before the related amount is reported on the income
statement.
ANSWER:
deferred expense
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
FACC.PONO.13.04-02 - LO: 04-02
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
164. A(n) _________________________ results when cash is received before the related amount is reported on the
income statement.
ANSWER:
deferred revenue
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
FACC.PONO.13.04-02 - LO: 04-02
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
165. 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 _________________________.
ANSWER:
cash basis
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
166. The difference between accrual-based revenue and accrual-based expenses is called _________________________.
ANSWER:
net income
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
167. Under the ____________________ basis of accounting, revenues are recognized when earned and expenses when
incurred.
ANSWER:
accrual
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
168. According to the revenue recognition principle, revenues are recognized when they are
_________________________.
ANSWER:
realized and earned
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Remembering
169. Under the accrual basis of accounting, at what point in time should a fast food restaurant recognize revenue?
_________________________
ANSWER:
At the point the food is sold
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Remembering
170. Under the accrual basis of accounting, at what point in time should a publisher of magazines record revenue?
______________________________
ANSWER:
As revenue is earned throughout the time period by delivery of magazines
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Remembering
171. The ____________________ principle attempts to associate with the revenue of the period, all costs necessary to
generate that revenue.
ANSWER:
matching
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Remembering
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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
172. ____________________ is the allocation of the cost of a tangible, long-term asset over its useful life.
ANSWER:
Depreciation
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Remembering
173. The names of the four major types of adjusting entries are _________________________,
_________________________, _________________________, and _________________________.
ANSWER:
accrued liability, accrued assets, deferred revenue, deferred expense
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
174. The one asset account that never requires adjustment at the end of the period is ____________________.
ANSWER:
Cash
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
175. ____________________ is the name given to revenue, expense, and dividend accounts because they are closed at the
end of the period.
ANSWER:
Nominal
Temporary
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Remembering
176. ____________________ is the name given to balance sheet accounts because they are permanent in nature.
ANSWER:
Real
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Remembering
177. Statements prepared monthly, quarterly, or at other intervals less than a year in duration are called
_____________________.
ANSWER:
interim statements.
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-07 - LO: 04-07
KEYWORDS:
Bloom's: Remembering
178. Temporary accounts are also known as _________________ accounts.
ANSWER:
nominal
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-07 - LO: 04-07
KEYWORDS:
Bloom's: Remembering
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Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Applying
179. Interest
ANSWER:
a
180. Rent
ANSWER:
a
181. Subscription to a magazine
ANSWER:
a
182. Merchandise
ANSWER:
b
183. Carpet cleaning
ANSWER:
d
Match the most probable matching method to the costs listed below.
a.
Directly match a specific revenue.
b.
Indirectly match with the period during which it will provide revenue.
c.
Immediately recognize because no future benefits are expected.
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Applying
184. Warehouse used for storing inventory goods
ANSWER:
b
185. Commissions earned by sales people
ANSWER:
a
186. Cost of two-year insurance policy
ANSWER:
b
187. Taxes owed on income earned during the current period
ANSWER:
c
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Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Applying
188. One year's premium on truck insurance was paid in advance
ANSWER:
a
189. Cash was collected from customers for rental of tents for next year
ANSWER:
b
190. A warehouse building was acquired for cash
ANSWER:
a
191. Income taxes are owed to the federal government at year end
ANSWER:
c
192. Rent is owed by a tenant but not yet collected
ANSWER:
d
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
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Applying
193. Depreciation on a delivery truck is recorded
ANSWER:
a
194. Revenue is earned during the current period, although customers had paid in a previous period
ANSWER:
b
195. Interest earned on notes receivable, but not yet received is recorded
ANSWER:
d
196. The cost of supplies used during the current year is determined and recorded
ANSWER:
a
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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
197. The cost of salaries earned by employees, but not paid at the end of the accounting period is recorded
ANSWER:
c
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
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Applying
198. Amounts earned, not received from customers are recorded
ANSWER:
d
199. Magazine subscriptions are delivered during the current period, although customers had paid in a previous period
ANSWER:
b
200. Interest is incurred on money borrowed from the bank, but not yet paid
ANSWER:
c
201. The depreciation on office equipment used during the current year is recorded
ANSWER:
a
202. The cost of commissions to salesmen that has been earned, but not paid at the end of the accounting period is
recorded
ANSWER:
c
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Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
LEARNING OBJECTIVES:
FACC.PONO.13.04-07 - LO: 04-07
KEYWORDS:
Bloom's: Applying
203. Cash
ANSWER:
b
204. Sales Revenue
ANSWER:
a
205. Office Equipment
ANSWER:
b
206. Depreciation Expense
ANSWER:
a
207. Prepaid Rent
ANSWER:
b
208. Unearned Revenue
ANSWER:
b
209. Utilities Expense
ANSWER:
a
210. Interest Payable
ANSWER:
b
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Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Subjective Short Answer
211. On January 1, 2016, 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?
ANSWER:
1. The income statement for Blankenship Solutions would show the following:
Blankenship Solutions
Income Statement
For the Month Ended January 31, 2016
Revenues
Scalable monthly fees (150 × 100 GB × $0.25)
$3,750
IP Address hourly fees (680 × $0.05 × 150)
5,100
Internet services hourly fees (600 × $0.01 × 150)
900
Total revenue
$9,750
2. A partial statement of cash flows for Blankenship Solutions would show the following:
Cash received from:
Scalable monthly fees (120 × 100 GB × $0.25) $3,000
3. On Blankenship Solutions’ balance sheet at the end of January, two accounts will appear:
Cash $3,000 (120 × 100 GB × $.025)
Accounts Receivable 6,750 (Remainder monthly $750 + $6,000 hourly fees)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Analyzing
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212. A hospital corporation contracted with a private company to collect fees and maintain health facilities that adjoin
their 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 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.
ANSWER:
Cash collected for daily visits
$ 18,650
Passes usage redeemed
206, 225
Revenue recognized
$ 224,875
Only the amount of passes that have been used should be recognized as revenue. The
difference between the $438,000 of passes issued and the $206,225 of passes used is
unearned revenue at this point. That means that $231,775 will appear on the balance sheet as
a current liability until earned, unless there is some type of time limit on the 365 day passes.
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Analyzing
213. On July 1, 2016, 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.
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Chapter 4: Income Measurement and Accrual Accounting
ANSWER:
1.
July 1
Cash
50,000
Notes Payable
50,000
To record two-month, 12% bank loan
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© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2. It would save the time and cost in making a journal entry to skip an adjusting entry on
July 31 and simply record interest when the loan is repaid on August 31. However, to do so
would violate the matching principle. One of the necessary costs in July was interest, and it
should be matched with the revenues of that period. If interest were not accrued at the end of
July, the expense for that month would be understated and the expense for August would be
overstated.
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
214. Carpenter Transport Company purchased a truck at a cost of $60,000 on January 1, 2012. The truck has an estimated
useful life of 9 years and a $15,000 residual value.
A.
How much depreciation expense should be reported for the year 2016?
B.
What is the total amount of accumulated depreciation at December 31, 2016?
C.
Show how the truck and the related accumulated depreciation would appear on
Carpenter’s December 31, 2016, balance sheet immediately after the adjustments are
recorded and posted.
D.
Is the amount on the balance sheet what the truck could probably be sold for on
December 31, 2016? What principle governs?
E.
How much depreciation expense should be reported for the year 2017?
ANSWER:
A.
($60,000 $15,000)/9 years = $5,000
B.
5 years × $5,000 = $25,000
C.
Long-term Assets:
Truck
$60,000
Less Accumulated depreciation
(25,000)
$35,000
D.
Probably not. This is due to the cost principle. The balance sheet does not present
the assets at their current market price. Assets such as operational assets are
recorded at historical cost and then adjusted for accumulated depreciation.
E.
$5,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
page-pf11
215. Carter, Inc. paid salaries expense of $292,000 during 2016. However, additional salaries of $14,000 had been earned
by employees, but not paid or recorded at December 31, 2016 by Carter.
A)
What is the effect on the accounting equation of the adjusting entry necessary at December
31, 2016?
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, 2016?
D)
Under the accrual basis of accounting, what is the total amount of salaries payable to be
reported at December 31, 2016?
E)
Under the cash basis of accounting, what is the total amount of salaries expense for the year
ending December 31, 2016?
F)
Under the cash basis of accounting, what is the total amount of salaries payable at December
31, 2016?
ANSWER:
A)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
Expenses
=
Net
Income
Salaries
Payable
14,000
(14,000)
Salaries
Expense
14,000
(14,000)
B)
Only the accrual basis requires adjustments. Adjustments are necessary
under the accrual basis because income represents amounts earned
during the period, not just collected in cash. Accrual basis also includes
expenses that have been incurred regardless of whether payment has
been made. Net income under the accrual basis represents the net effect
of amounts earned less amounts incurred.
page-pf12
216. Becca Corp. purchased supplies at a cost of $5,200 during 2015. At January 1, 2016, 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, 2016?
B)
Under the accrual basis of accounting, how much is Supplies Expense for 2016?
C)
How much should be reported on the December 31, 2016, balance sheet for Supplies?
D)
What type of adjustment was made in part A?
ANSWER:
A)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
Expenses
=
Net Income
Supplies
(4,000)
(4,000)
Supplies
Expense
4,000
(4,000)
B)
$4,000
C)
$1,600 + $5,200 $4,000 = $2,800
D)
Deferred expense
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
page-pf13
217. Dino’s Pizza employs 10 workers in its plant. Each employee is paid $8 per hour and works 8 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 Pizza fiscal period?
C)
What special precautions are necessary upon recording the payment of wages to employees
on the next payday, June 4?
ANSWER:
A) 8 hours × $8.00 per hour × 5 days × 10 workers = $3,200
B)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
Expenses
=
Net Income
Wages
Payable
3,200
(3,200)
Wages
Expense
3,200
(3,200)
(8 hours × $8.00 per hour × 5 days × 10 workers)
C)
If an adjusting entry is made on May 30, a liability, Wages Payable, is
created, which is reported on the balance sheet account that does not get
closed, so the $3,200 will remain in this account on June 1. When the entry is
made to record the payment of the wages on June 4, the liability must be
reduced.
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
page-pf14
218. Barker Corp. began operations on November 30, 2016, and immediately paid $48,000 for 6 months rent in advance
for rental of a parking lot for the period beginning December 1, 2016. Barker’s accounting period ends on December 31,
2016. Indicate how much will be reported for each of the following accounts on Barker’s financial statements for the
period ending December 31, 2016. If the amount reported is zero, indicate so by writing $0, and explain why zero is the
appropriate amount.
A) Rent Expense
B) Rent Payable
C) Rent revenue
D) Prepaid Rent
ANSWER:
A)
$8,000 ($48,000 Prepaid Rent/6 Months)
B)
$ -0- Rent was paid in advance which means that no amount is owed at the end of the
year
C)
$ -0- Rent is an expense, or a cost to the company. It does not create revenue since no
amounts are earned for rent.
D)
$40,000 ($48,000 $8,000 = $40,000)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
219. Ramos Corporation employs 14 workers in its retail service center. Each employee is paid $10 per hour and works 6
hours per day, Monday through Friday. Employees are paid every Friday for the workweek just ending. The last payday
was Friday, December 26, on which day the employees were paid through that date.
A)
Compute the dollar amount of the weekly payroll.
B)
Determine the effect on the accounting equation of the adjusting entry needed on
Wednesday, December 31, the last day of Ramos Corporation’s fiscal period.
ANSWER:
A)
6 hours × $10 per hour × 14 workers × 5 days = $4,200
B)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
Expenses
=
Net Income
Wages
Payable
2,520
(2,520)
Wage
Expense
2,520
(2,520)

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