Exam 4: Income Measurement and Accrual Accounting

What two choices must be made in the measurement process for a company that acquires a piece of equipment and needs to record it in the accounting records? Explain.

The revenue recognition principle does not pertain to long-term contracts, franchises, commodities, and installment sales.

Costs incurred for purchases of merchandise result in an asset, Merchandise Inventory, and are eventually matched with revenue at the time the product is sold.

Deacon Company purchased equipment last year for $30,000. The equipment has an estimated useful life of five years. What amount will appear on the income statement for depreciation expense for the month of March, 2014?

Measurement of the economic effects on an entity involves each of the following except

Motor Repair Shop uses the accrual basis of accounting, and had the following account balances on its financial statements at December 31, 2014: On January 1, there was a $0 balance in the salaries payable account. How much cash did Motor Repair pay for salaries during the year?

Which of the following statements does not present financial information based on the accrual basis of accounting?

Mayfair Book Club Company received advance payments from customers during 2015 of $5,000. At December 31, 2015, $1,200 of the advance payments still had not been earned. After the adjustments are recorded and posted at December 31, 2015, what will the balances be in the Unearned Book Revenue and Book Revenue accounts?

Roman Industries' plant operates five days per week with a daily payroll of $6,000. Employees are paid every Saturday for the workweek just completed Monday through Friday. The last day of the month is Wednesday, March 31. What is the amount of Wages Expense recorded on the next payday, Saturday, April 3?

Winston Corp. had $1,800 of supplies on hand at January 1. During the year, supplies with a cost of $4,000 were purchased. At December 31, the actual supplies on hand amount to $1,300. After the adjustments are recorded and posted at December 31, determine the balances in the Supplies and Supplies Expense accounts.

What is the revenue recognition principle? Are there any exceptions to this rule? If so, what are they? If not, explain why

Three months before year-end, Billings Company signed a $100,000, 12%, 6-month note. Principal and interest will be paid at maturity. No interest should be accrued at year-end because the company has no obligation to pay the interest until the note matures.

Tracy, Inc. Tracy, Inc. adjusts its books each month but closes its books at the end of the year. The trial balance at July 31 before adjustments is as follows: -Refer to the trial balance of Tracy, Inc. Round calculations to the nearest dollar. If the equipment had an estimated useful life of five years and no salvage value, what is its book value at July 31, after the proper monthly July adjustment is recorded?

Under the---------basis of accounting, revenues are recognized when earned and expenses when incurred.

A company forgot to record four adjustments during 2015. Which one of the following omissions of adjustments will overstate assets?

An---------results when cash is paid before the related amount is reported on the income statement.

Marcus Roberts operates a small retail establishment. The following unadjusted amounts were taken from Roberts' accounting records at December 31, 2015: Determine the effect on the accounting equation of the adjusting entries at December 31, 2015, for each of the transactions that follow: A. The advertising costs are for television commercials to be aired equally throughout December, 2015, and January and February, 2016. B. The machinery had an original cost of $50,000 and was purchased during 2010. The estimated useful life is 6 years with an estimated salvage value equal to $8,000. Roberts uses the straight-line method of depreciation.

One effect of recognizing depreciation is to decrease net income.

Match the most probable matching method to the costs listed below -Warehouse used for storing inventory goods

Every adjustment involves at least one income statement and one balance sheet account.