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Exam 3: Accrual Accounting Income

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Question 41

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The book value of a plant asset is the:

A) accumulated depreciation less the cost of the asset.
B) cost of the asset.
C) balance in the accumulated depreciation account.
D) cost of the asset less the accumulated depreciation.

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Question 42

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If deferred revenue has been earned by the end of the current period but no adjustment is recorded, net income for the current period will be understated.

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Question 43

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Define the following terms:

Under cash-basis accounting, stockholders' equity is increased when company makes a sale, not when the company collects the cash at a later date.

Which account is credited in the adjusting entry to allocate the cost of equipment?

Which of the following combinations of ratios is preferable?

The Schauer Company had the following adjustments at December 31, 2017, the end of the accounting period: A. The Schauer Company uses straight-line depreciation for its equipment. The cost of the equipment is $105,000 and the useful life is 5 years. The equipment was purchased on January 1, 2017 and has no residual value. B. Accrued interest of $10,000 on a note receivable will be received in January. C. On November 1, 2017, the Schauer Company paid $3,000 for six months of rent in advance. The rental period is November 1, 2017 through April 30, 2018. D. On August 1, 2017, the company collected $24,000 in advance for a consulting contract, which is to be earned evenly over the next 24 months. E. Employees are owed salaries for 3 days of a 5 day workweek; weekly payroll is $30,000. F. The unadjusted balance of the supplies account is $2,750. Based on a physical count, the cost of supplies on hand is $1,000. G. The company has incurred interest expense of $1,000 that will be paid in January. Required: 1. Journalize the adjusting entries. Explanations are not required. 2. Assuming the adjustments were not made, calculate the net overstatement or understatement this would have on net income. Would the company appear to be more or less profitable if the adjustments were not made?

Why are adjusting entries prepared?

________ will not be found on the statement of retained earnings.

Liquidity measures how quickly an item can be converted into cash.

The adjustment for an accrued expense:

Since accrual accounting follows the revenue principle and the expense recognition principle, all ethical challenges are avoided.

Lori's Bath Supplies has the following Adjusted Trial Balance as of March 31, 2017. Determine the debt ratio. Round your answer to four decimal places.

The following accounts and balances are taken from Evan Company's adjusted trial balance: In the closing process, which accounts are credited?

Closing entries:

Selected information for Greene, Inc., as of December 31, 2017, follows: Compute (show all computations and round final answers to two decimal places): a. Net working capital b. Current ratio c. Debt ratio

When analyzing a company's current ratio:

The only way for a business to know for certain how well it performed is to shut down, sell the assets, pay the liabilities, and return any leftover cash to the owners.

The revenue principle deals with the following:

Assume the balance in the Retained Earnings account at January 1, 2017 is zero, and no dividends are declared in 2017. If a debit balance of $6000 exists in Retained Earnings after closing out revenues and expenses at the end of 2017, this indicates: