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Exam 3: The Financial Reporting Process

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Question 1

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Making insurance payments in advance is an example of:

A) An accrued revenue.
B) An accrued expense.
C) An unearned revenue.
D) A prepaid expense.

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Question 2

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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.

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Question 3

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Which of the following regarding adjusting entries is correct?

Adjusting entries are not necessary when cash is received at the same time revenues are earned.

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

On November 1,2012,a company receives $1,800 for services to be provided evenly over the next six months.The December 31,2012,adjusting entry for the company would include a credit to Unearned Revenue for $600.

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.

The following information pertains to Sooner Company: May 1 $\quad$ Customer ordered an installation service to be done by Sooner Company on May 15. May 2 $\quad$ Customer paid cash for the installation job to be done on May 15. May 8 $\quad$ The Sooner Company purchased installation supplies on account for the job. May 15 $\quad$ The installation job was started and completed. May 20 $\quad$ Amount owed for supplies purchased on May 8 is paid. Assuming that Sooner Company uses cash-basis accounting,when would the company record the expense related to the supplies?

What are the purposes of closing entries?

Which of the following is(are) true regarding the characteristics of adjusting entries?

The Retained Earnings account had a beginning credit balance of $26,000.During the period,the business had a net loss $12,000,and the company paid dividends of $8,000.The ending balance in the Retained Earnings account is:

The following information pertains to Sooner Company: May 1 $\quad$ Customer ordered an installation service to be done by Sooner Company on May 15. May 2 $\quad$ Customer paid cash for the installation job to be done on May 15. May 8 $\quad$ The Sooner Company purchased installation supplies on account for the job. May 15 $\quad$ The installation job was started and completed. May 20 $\quad$ Amount owed for supplies purchased on May 8 is paid. Assuming that Sooner Company uses accrual-basis accounting,when would the company record the expense related to the supplies?

Adjusting entries involve recording events that have occurred but that have not yet been recorded by the end of the period.

Temporary accounts would not include:

On July 1,2012,Rents-A-Lot Inc.paid $72,000 for 36 months of advance rent on its warehouse.What would be the amount of rent expense in the 2013 financial statements for Rents-A-Lot under both cash-basis and accrual-basis accounting?

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.

At December 31,2012,a company has received,but not paid,a utility bill for $250.The amount of utility expense for the current period equals $250.

The following financial information is from Bronco Company.All debt is due within one year unless stated otherwise. $\begin{array} { | l | r | } \hline \text { Retained Earnings } & \$ 52,000 \\\hline \text { Supplies } & 37,000 \\\hline \text { Equipment } & 72,000 \\\hline \text { Accounts Receivable } & 8,600 \\\hline \text { Unearned Revenue } & 6,000 \\\hline \text { Accounts Payable } & 15,000 \\\hline \text { Common Stock } & 25,000 \\\hline \text { Notes Payable (due in 18 months) } & 35,000 \\\hline \text { Interest Payable } & 7,000 \\\hline \text { Cash } & 22,400 \\\hline\end{array}$ What is the amount of current liabilities?

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.

Consider the following events for Sophia Incorporated: April 5 $\quad$ Sophia purchases volleyballs for $\$ 200$ on account. April 6 $\quad$ Sophia advertises a sand volleyball camp for $\$ 20$ a person. April 12 $\quad$ Thirty people sign up for the camp paying a total of $\$ 600$ . April 21 $\quad$ Sophia hosts the sand volleyball camp. April 23 $\quad$ Sophia pays for the volleyballs purchased on April 5. Under accrual-basis accounting,what is the appropriate day to record the expenses related to the sand volleyball camp?