ACCT 2001 Lecture Notes - Lecture 4: Accrual, Deferral, General Ledger

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ACCT 2001 Full Course Notes

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Adjusting entries ensure that the general ledger balances properly show: Accounting period assumption- division of a business"s life into equal time intervals. Shorter the reporting period more difficult to measure business"s income many transactions overlap these short time periods. 2 methods of accounting used to decide when a business should record revenues & expenses. Cash basis- business records revenues when it receives cash; firm records expenses when it pays out cash. Accrual basis- business should recognize revenues when it performs a service or sells a product. Financial reporting standards require that business use the accrual basis. Accrual accounting- determines business income by matching revenues and expenses. Matching principle- income information is better when we assign expenses to the same accounting period that we earn the revenues. Match revenues earned in an account period with the associated expenses incurred in that same period. Materiality concept- permits an exception to adjusting entries.

Related Questions

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

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NEED ASAP PLEASE

Question 1

Which one of the following is not an externaluser of accounting information?

		Customers
		Investors
		Regulatory agencies
		All of these are external users

3 points

Question 2

The first step in solving an ethical dilemma is to

		identify and analyze the principal elements in thesituation.
		identify the alternatives.
		recognize an ethical situation and the ethical issuesinvolved.
		weigh the impact of each alternative on variousstakeholders.

3 points

Question 3

Generally accepted accounting principles are

		income tax regulations of the Internal Revenue Service.
		standards that indicate how to report economic events.
		theories that are based on physical laws of the universe.
		principles that have been proven correct by academicresearchers.

3 points

Question 4

Which of the following events is not a businesstransaction?

		Issuance of stock in exchange for cash.
		Hired employees.
		Incurred utility expenses for the month.
		Earned revenue for services provided.

3 points

Question 5

When assets are distributed to the owners of a corporation,these distributions are termed

		depletions.
		consumptions.
		dividends.
		a credit line.

3 points

Question 6

If total liabilities increased by $8,000, then

		assets must have decreased by $8,000.
		stockholders' equity must have increased by $8,000.
		assets must have increased by $8,000, or stockholders' equitymust have decreased by $8,000.
		assets and stockholders' equity each increased by $4,000.

3 points

Question 7

If total liabilities increased by $30,000 and stockholders'equity increased by $20,000 during a period of time, then totalassets must change by what amount and direction during that sameperiod?

		$50,000 decrease
		$10,000 decrease
		$10,000 increase
		$50,000 increase

3 points

Question 8

Misra Company compiled the following financial information as ofDecember 31:

Revenues	$ 340,000
Retained Earnings, Beginning	$ 60,000
Equipment	$ 80,000
Expenses	$ 250,000
Cash	$ 90,000
Dividends	$ 20,000
Supplies	$ 10,000
Accounts payable	$ 40,000
Accounts receivable	$ 70,000
Common Stock	$ 80,000

Misra's assets on December 31 are

		$180,000.
		$250,000.
		$360,000.
		$ 490,000.

3 points

Question 9

Mofro's Computer Repair Shop started the year with total assetsof $300,000 and total liabilities of $200,000. During the year, thebusiness recorded $500,000 in computer repair revenues, $300,000 inexpenses, and Mofro paid dividends of $50,000. Stockholders' equityat the end of the year was

		$200,000.
		$100,000.
		$250,000.
		$300,000.

3 points

Question 10

A balance sheet shows

		assets, liabilities, and stockholders' equity.
		expenses, dividends, and stockholders' equity.
		revenues, expenses, and dividends.
		revenues, liabilities, and stockholders' equity.

3 points

Question 11

At September 1, Foli Co. reported retained earnings of $136,000.During the month, Foli generated revenues of $20,000, incurredexpenses of $12,000, purchased equipment for $5,000 and paiddividends of $2,000. What is the amount of retained earnings atSeptember 30?

		$136,000
		$142,000
		$8,000
		$137,000

3 points

Question 12

Grayton Industries purchased supplies for $1,000. The Companypaid $500 in cash and agreed to pay the balance in 30 days. Thejournal entry to record this transaction would include a debit toan asset account for $1,000, a credit to a liability account for$500. Which of the following would be the correct way to completethe recording of the transaction?

		Credit an asset account for $500.
		Credit the Retained Earnings account for $500.
		Credit another liability account for $500.
		Debit the Retained Earnings account for $500.

3 points

Question 13

Radio Moscow Industries purchased supplies for $1,000. They paid$400 in cash and agreed to pay the balance in 30 days. The journalentry to record this transaction would include a debit to an assetaccount for $1,000, a credit to a liability account for $600. Whichof the following would be the correct way to complete the recordingof the transaction?

		Credit an asset account for $400.
		Credit another liability account for $400.
		Credit the retained earnings account for $400.
		Debit the retained earnings account for $400.

3 points

Question 14

A credit to a liability account

		must be accompanied by a debit to an asset account.
		indicates an increase in the amount owed to creditors.
		is an error.
		indicates a decrease in the amount owed to creditors.

3 points

Question 15

In recording business transactions, evidence that an accountingtransaction has taken place is obtained from

		business documents.
		the Internal Revenue Service.
		the public relations department.
		the SEC.

3 points

Question 16

On June 1, Leno Inc. buys a copier machine for her business andfinances this purchase with cash and a note. When journalizing thistransaction, the company's accountant will

		make a simple entry.
		use two journal entries.
		make a compound entry.
		list the credit entries first, which is proper form for thistype of transaction.

3 points

Question 17

A three column form of account is so named because it hascolumns for

		debit, credit, and balance.
		debit, credit, and date.
		debit, credit, and account name.
		debit, credit, and reference.

3 points

Question 18

The first step in designing a computerized accounting system isthe creation of the

		general ledger.
		general journal.
		trial balance.
		chart of accounts.

3 points

Question 19

Chik Chik Company showed the following balances at the end ofits first year:

Cash	$ 6,000
Prepaid insurance	$ 9,400
Accounts receivable	$ 7,000
Accounts payable	$ 5,600
Notes payable	$ 8,400
Common stock	$ 2,800
Dividends	$ 1,400
Revenues	$ 44,000
Expenses	$ 35,000

What did Chik Chik Company show as total credits on its trialbalance?

		$51,400
		$60,800
		$62,200
		$70,200

3 points

Question 20

Which of the following time periods would notbe referred to as an interim period?

		Monthly
		Quarterly
		Semi-annually
		Annually

1.The useful life of a plant asset is:

The length of time it is used productively in a company'soperations

Never related to its physical life

Its productive life, but not to exceed one year

Determined by the FASB

Determined by law

2. Depreciation:

Measures the decline in market value of an asset

Measures physical deterioration of an asset

Is the process of allocating to expense the cost of a plantasset

Is an outflow of cash from the use of a plant asset

Is applied to land

3. Plant assets are

Tangible assets used in the operation of a business that have auseful life of more than one accounting period

Current assets

Held for sale

Intangible assets used in the operations of a business that havea useful life of more than one accounting period

Tangible assets used in the operation of business that have auseful life of less than one accounting period

4. A company has net sales of $870,000 and average accountsreceivable of $174,000. What is its accounts receivable turnoverfor the period?

0.20

5.00

20.0

73.0

1,825

5. FICA taxes include:

Social Security taxes

Charitable giving

Employee income taxes

Unemployment taxes

6. Times interest earned is calculated by:

Multiplying interest expense times income

Dividing interest expense by income before interest expense

Dividing income before interest expense and any income tax byinterest expense

Dividing interest and income tax expense by income beforeinterest and income tax expense

7. Amortization:

Is the systematic allocation of the cost of an intangible assetto expense over its estimated useful life

Is the process of allocating to expense the cost of a plantasset to the accounting periods benefiting from its use

Is the process of allocating the cost of natural resources toperiods when they are consumed

Is an accelerated form of expensing an asset's cost

Is the same as depletion

8. A method of estimating bad debts expense that involves adetailed examination of outstanding accounts and their length oftime past due is the:

Direct write-off method

Aging of accounts receivable method

Percentage of sales method

Aging of investments method

Percent of accounts receivable method

9. A company purchased a tract of land for its natural resourcesat a cost of $1,500,000. It expects to mine 2,000,000 tons of orefrom this land. The salvage value of the land is expected to be$250,000. The depletion expense per ton of ore is:

$0.75

$0.625

$0.875

$6.00

$8.00

10. The matching principle requires:

That expenses be ignored if their effect on the financialstatements are less important than revenues to the financialstatement user

The use of the direct write-off method for bad debts

The use of the allowance method of accounting for bad debts

That bad debts be disclosed in the financial statements

That bad debts not be written off

11. Liabilities:

Must be certain

Must sometimes be estimated

Must be for a specific amount

Must always have a definite date for payment

Must involve an outflow of cash

12. In the accounting records of a defendant, lawsuits:

Are estimated liabilities

Should always be recorded

Should always be disclosed

Should be recorded if payment for damages is probable and theamount can be reasonably estimated

13. A contingent liability:

Is always of a specific amount

Is a potential obligation that depends on a future event arisingout of a past transaction or event

Is an obligation not requiring future payment

Is an obligation arising from the purchase of goods or serviceson credit

Is an obligation arising from a future event

14. Total asset turnover is calculated by dividing:

Gross profit by average total assets

Average total assets by gross profit

Net sales by average total assets

Average total assets by net sales

Net assets by total assets

15. If the times interest ratio:

Increases, then risk increases

Increases, then risk decreases

Is greater than 1.5, then the company is in default

Is less than 1.5, the company is carrying too little debt

16. Promissory notes that require the issuer to make a series ofpayments consisting of both interest and principal are:

Debentures

Discounted notes

Installment notes

Indentures

Investment notes

17. A company borrowed $300,000 cash from the bank by signing a5-year, 8% installment note. The present value factor for anannuity at 8% for 5 years is 3.9927. Each annuity payment equals$75,137. The present value of the note is:

$75,137

$94,013

$300,000

$375,685

18. A bond traded at 102

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ACCT 2001 Lecture Notes - Lecture 4: Accrual, Deferral, General Ledger

ACCT 2001 Full Course Notes

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