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ACCT 2000 Lecture Notes - Lecture 7: Accrual, Income Statement, Trial Balance

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School
LSU
Department
Accounting
Course
ACCT 2000
Professor
E.Briggs

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Document Summary

Chapter 4 notes: explain the accrual basis of accounting and the reason for adjusting entries, prepare adjusting entries for deferrals, prepare adjusting entries for accruals, prepare an adjusted trial balance and closing entries. The ___periodicity__ assumption requires accountants to divide the economic life of a business into artificial time periods. (month, quarter or year) Companies recognize revenue in the accounting period in which it is earned(not necessarily when its received). Expenses are matched with revenues in the period when efforts are expended to generate revenues. This is called the __expense_ recognition principle. (when they are owed/incurred) Transactions recorded in the periods in which the events _occur_. Revenues are recognized when __earned_, even if cash was not received. Expenses are recognized when ___incurred__, even if cash was not paid. Revenues are recognized only when cash is __received__. Expenses are recognized only when cash is __paid_. __prohibited__ under generally accepted accounting principles. (gaap/rules)

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Related Questions

1. Undercash-basis accounting, when is revenue recorded? When is itrecorded under accrual-basis accounting?

2. Under accrualaccounting, when is revenue considered earned?

3. If amembership represents an advance payment for services provided,when is it recognized as revenue under the accrual basis, and whatis it called?

4. Why isinsurance expense spread over multiple periods even though thepolicy coverage is paid in advance?

5. At the end ofthe month for Silver’s Gym, what entries need to be made under thecash basis of accounting for wages that have not yet been paid?What entries need to be made under the accrual method?

6. Why is itimportant to match expenses and revenues to reflect the performanceof a business over a particular time period?

7. When mightthe use of cash basis accounting overstate the actual profitsearned by Silver’s gym? When might it understate the actual profitsearned?

8. Which basisof accounting is in accordance with GAAP for large companies?

1. Which of the following identifies the proper order of theaccounting cycle?

A. Analyze, Journalize, Unadjusted Trial Balance

B. Analyze, Post, Unadjusted Trial Balance

C. Journalize, Post, Adjusted Trial Balance

D. Unadjusted Trial Balance, Adjusted Trial Balance, Close

E. Adjusted Trial Balance, Adjustments, Financial Statements

2. Interim financial statements refer to financial reports:

A. That cover less than one year, usually spanning one, three orsix-month periods

B. That are prepared before any adjustments have beenrecorded

C. That show the assets above the liabilities and theliabilities above the equity

D. Where revenues are reported on the income statement when cashis received and expenses are reported when cash is paid

E. Where the adjustment process is used to assign revenues tothe periods in which they are earned and to match expenses withrevenues

3. The accounting principle that requires revenue to be reportedwhen earned is the:

A. Matching principle

B. Revenue recognition principle

C. Time period principle

D. Accrual reporting principle

E. Going-concern principle

4. Adjusting entries:

A. Affect only income statement accounts

B. Affect only balance sheet accounts

C. Affect both income statement and balance sheet accounts

D. Affect only cash flow statement accounts

E. Affect only equity accounts

5. The system of preparing financial statements based onrecognizing revenues when the cash is received and reportingexpenses when the cash is paid is called:

A. Accrual basis accounting

B. Operating cycle accounting

C. Cash basis accounting

D. Revenue recognition accounting

E. Current basis accounting

6. If throughout an accounting period the fees for legalservices paid in advance by clients are recorded in an accountcalled Unearned Legal Fees, the end-of-period adjusting entry torecord the portion of those fees that has been earned is:

A. Debit Cash and credit Legal Fees Earned

B. Debit Cash and credit Unearned Legal Fees

C. Debit Unearned Legal Fees and credit Legal Fees Earned

D. Debit Legal Fees Earned and credit Unearned Legal Fees

E. Debit Unearned Legal Fees and credit Accounts Receivable

7. A company had no office supplies available at the beginningof the year. During the year, the company purchased $250 worth ofoffice supplies. On December 31, $75 worth of office suppliesremained. How much should the company report as office suppliesexpense for the year? A. $75 B. $125 C. $175 D. $250 E. $325 8. OnJanuary 1 a company purchased a five-year insurance policy for$1,800 with coverage starting immediately. If the purchase wasrecorded in the Prepaid Insurance account and the company recordsadjustments only at year-end, the adjusting entry at the end of thefirst year is:

A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800

B. Debit Prepaid Insurance, $1,440; credit Insurance Expense,$1,440

C. Debit Prepaid Insurance, $360; credit Insurance Expense,$360

D. Debit Insurance Expense, $360; credit Prepaid Insurance,$360

E. Debit Insurance Expense, $360; credit Prepaid Insurance,$1,440

9. Unearned revenue is reported on the financial statementsas:

A. A revenue on the balance sheet

B. A liability on the balance sheet

C. An unearned revenue on the income statement

D. An asset on the balance sheet

E. An operating activity on the statement of cash flows

10. Which of the following assets is not depreciated?

A. Store fixtures

B. Computers

C. Land

D. Buildings

E. Vehicles

11. On April 30, 2011, a three-year insurance policy waspurchased for $18,000 with coverage to begin immediately. What isthe amount of insurance expense that would appear on the company'sincome statement for the year ended December 31, 2011? A. $500 B.$4,000 C. $6,000 D. $14,000 E. $18,000 12. Expenses incurred butunpaid that are recorded during the adjusting process with a debitto an expense and a credit to a liability are:

A. Intangible expenses

B. Prepaid expenses

C. Unearned expenses

D. Net expenses

E. Accrued expenses

13 The difference between the cost of an asset and theaccumulated depreciation for that asset is called

A. Depreciation Expense

B. Unearned Depreciation

C. Prepaid Depreciation

D. Depreciation Value

E. Book Value

14. A company purchased a new truck at a cost of $42,000 on July1, 2011. The truck is estimated to have a useful life of 6 yearsand a salvage value of $3,000. How much depreciation expense willbe recorded for the truck for the year ended December 31, 2011?

A. $3,250

B. $3,500

C. $4,000

D. $6,500

E. $7,000

15. A company's Office Supplies account shows a beginningbalance of $600 and an ending balance of $400. If office suppliesexpense for the year is $3,100, what amount of office supplies waspurchased during the period?

A. $2,700

B. $2,900

C. $3,300

D. $3,500

E. $3,700

Question 16

Corresponds to CLO 3(d) Hemmingway Corporation paid salaries of$5,000 and advertising expense of $2,000. Which of the followingjournal entries correctly records these expenses?

Debit: Cash $7,000
Credit: Salaries/Wages Expense$5,000
Credit: Advertising Expense $2,000

Debit: Salaries/Wages Expense$5,000
Debit: Advertising Expense $2,000
Credit: Cash$7,000

Debit: Salaries/Wages Expense$5,000
Debit: Advertising Expense $2,000
Credit: Salaries/Wages Payable$5,000
Credit: Accounts Payable$2,000

Debit: Salaries/Wages Expense$5,000
Debit: Advertising Expense $2,000
Credit: Cash$8,000

3 points

Question 17

Corresponds to CLO 4(a) Which of the following statements iscorrect regarding accrued revenues and unearned revenues, beforeadjusting entries have been made?

Accrued revenues have not been earned and unearned revenues havebeen earned.

Accrued revenues have been paid and unearned revenues havenot.

Accrued revenues have not been recorded and unearned revenueshave been recorded.

Accrued revenues have been recorded and unearned revenues havebeen recorded.

3 points

Question 18

Corresponds to CLO 4(b) Hudson Law Corporation received $5,500cash for legal services to be rendered in the future. The fullamount was credited to the liability account Unearned ServiceRevenue. At the end of the period, Hudson determines that $3,000 ofthe legal services have been rendered. The appropriate adjustingjournal entry to be made at the end of the period is:

debit Unearned Service Revenue, $3,000; credit Cash, $3,000.

debit Unearned Service Revenue, $3,000; credit Service Revenue,$3,000.

debit Unearned Service Revenue, $2,500; credit Service Revenue,$2,500.

debit Service Revenue, $2,500; credit Unearned Service Revenue,$2,500.

3 points

Question 19

Corresponds to CLO 4(c) Ace Corporation purchased officesupplies costing $13,000 and debited Office Supplies for the fullamount. At the end of the accounting period, a physical count ofoffice supplies revealed $2,700 still on hand. The appropriateadjusting journal entry to be made at the end of the period is:

debit Office Supplies Expense, $10,300; credit Office Supplies,$10,300.

debit Office Supplies, $10,300; credit Office Supplies Expense,$10,300.

debit Office Supplies Expense, $2,700; credit Office Supplies,$2,700.

debit Office Supplies, $2,700; credit Office Supplies Expense,$2,700.

3 points

Question 20

Corresponds to CLO 4(d) On September 1, Northgate paid $18,000to Evans Management Company for 12 months of rent beginning onSeptember 1. The appropriate journal entry was made to record thistransaction. If financial statements are prepared for the 9 monthsended September 30, the adjusting entry to be made by Northgateis:

debit Rent Expense, $13,500; credit Prepaid Rent, $13,500.

debit Prepaid Rent, $1,500; credit Rent Revenue, $1,500.

debit Prepaid Rent, $1,500; credit Rent Expense, $1,500.

debit Rent Expense, $1,500; credit Prepaid Rent, $1,500.

3 points

Question 21

Corresponds to CLO 5(a) Lennox Corporation purchased a newdelivery truck for 35,000. The sales taxes are $2,700. The logo ispainted on the side of the truck for $800. The truck's annuallicense is $200. Annual insurance on the truck is $1,300. Whatshould Lennox record as the cost of the new truck?

$40,000

$38,500

$37,700

$35,000

3 points

Question 22

Corresponds to CLO 5(b) On April 1, 2013, Ballard Corporationpurchased equipment for $65,000. It is estimated that the equipmentwill have a $5,000 salvage value at the end of its 5 year usefullife. If Ballard uses the straight-line method of depreciation,what is the accumulated depreciation at December 31, 2013?

$13,000

$12,000

$9,750

$9,000

3 points

Question 23

Corresponds to CLO 5(c) Tyree Company purchased equipment with acost of $90,000 and an estimated salvage value of $18,000. Theequipment is expected to produce 150,000 units over its estimateduseful life of 10 years. If Tyree uses the units-of-activitymethod, what is the depreciation cost per unit to be used incalculating depreciation?

$1.67

$0.48

$2.08

$0.60

3 points

Question 24

Corresponds to CLO 5(d) Kerns Company purchased equipment with acost of $200,000 and an estimated salvage value of $10,000. Theequipment has an estimated useful life of 10 years. If Kerns usesthe double-declining balance method, what is the annualdepreciation rate to be used in calculating depreciation?

5%

10%

20%

40%

3 points

Question 25

Corresponds to CLO 6(a) Marshall Machinery made a sale for$150,000 on March 31. The customer is sent a statement on April 6and payment is received on April 15. Marshall prepares March'smonthly internal financial statements on April 20. Marshall followsGAAP and applies the revenue recognition principle. When is the$150,000 considered to be earned?

March 31

April 6

April 15

April 20