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Exam 2: Accounting for Accruals and Deferrals

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Question 41

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Revenues and liabilities are temporary accounts.

A) True
B) False

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Question 42

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What is the effect on the accounting equation of a cash payment to creditors?

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Assets decrease; liabilities d...

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Question 43

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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.

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.

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?

In a company's annual report, the reader will find a company's income statement, statement of changes in stockholders' 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 had against its assets? 5) What was the total amount of cash received by the issuance of common stock in the current year? 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?

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.

Explain the meaning of the term, "matching concept."

Indicate for each of the following items if the item would be reported on the income statement (IS), statement of changes in equity (CE), balance sheet (BS), or statement of cash flows (CF). Some items may appear on more than one statement, if so, identify all applicable statements. 1) Prepaid insurance 2) Dividends paid to stockholders 3) Interest revenue 4) Accounts payable 5) Salaries expense 6) Retained earnings 7) Unearned subscription revenue 8) Cash flows from operating activities 9) Beginning common stock 10) Issued stock to investors for cash 11) Salaries payable 12) Accounts receivable

Norris Company experienced the following transactions during 2013, its first year in operation. 1) Issued $6,000 of common stock to stockholders. 2) Provided $2,300 of services on account. 3) Paid $1,600 cash for operating expenses. 4) Collected $1,900 of cash from accounts receivable. 5) Paid a $100 cash dividend to stockholders. The amount of retained earnings appearing on Norris Company's December 31, 2013 balance sheet is:

The following events apply to Bowen's Cleaning Service for 2013. 1) Issued stock for $14,000 cash. 2) On May 1, paid $9,000 for one year's rent in advance. 3) Purchased on account $2,500 of supplies to be used in the business. 4) Performed services of $18,400 and received cash. 5) At December 31, an inventory of supplies showed that $360 of supplies were still unused. 6) At December 31, adjusted the records for the expired rent. Required: Draw an accounting equation and record the effects of the above events under the appropriate account headings. Show the year-end total for each account.

Indicate whether each of the following statements regarding the four types of accounting events is true or false. _____ a) Asset use transactions involve an increase in one asset and a decrease in another asset. _____ b) An asset source transaction involves an increase in assets and an increase in a corresponding claims account. _____ c) An asset exchange transaction involves an increase in an asset and a decrease in a claims account. _____ d) Asset exchange transactions involve an increase in one asset and a decrease in another asset. _____ e) Some claims exchange transactions involve an increase in a liability account and a decrease in an equity account.

The matching concept leads accountants to select the recognition alternative that produces the lowest amount of net income.

Providing services to customers on account is an asset source transaction.

The following transactions apply to Brunswick Corporation. a) Issued common stock for $35,000 cash. b) Provided services to customers for $18,000 on account. c) Purchased land for $18,000 cash. d) Purchased $500 of supplies on account. e) Paid $9,000 for operating expenses. f) Paid $450 on accounts payable. g) Collected $15,000 cash from customers. h) Accrued $400 of salary expense at year end. i) Paid $2,500 dividends to stockholders. Required: a) Identify the effect on the statement of cash flows for each of the above transactions. b) Classify the above accounting events into one of four types of transactions (asset source, asset use, asset exchange, claims exchange).

Which of the following is an asset source transaction?

The following accounts and balances were drawn from the records of Hoover Company on December 31, 2013: $\begin{array} { l r l r } \text { Cash } & \$ 1,000 & \text { Accounts Receivable } & \$ 850 \\\text { Dividends } & 500 & \text { Common Stock } & 975 \\\text { Land } & 800 & \text { Revenue } & 800 \\\text { Accounts Payable } & 450 & \text { Expense } & 550\end{array}$ The amount of retained earnings as of January 1, 2014 was:

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:

Adjusting entries never affect a business's cash account.

Dandridge Company collected cash in 2012 from a customer for services to be performed beginning January 2013. Indicate whether each of the following statements about this transaction is true or false. _____ a) Dandridge's 2012 income statement would not be affected by this transaction. _____ b) Dandridge's 2012 statement of cash flows would be affected by this transaction. _____ c) This transaction is an asset exchange transaction. _____ d) The revenue for the services provided will be recorded in 2013. _____ e) This transaction is considered an accrual transaction.