Exam 3: Accrual Accounting

Prepare a multiple-step income statement using the following data for Bella Inc for the year ended December 31,2018.

Correction of an error is based on

Lean Ltd.had a balance of $52,300 in the office supplies account at the start of the year.During the year,purchases of $141,700 were made and debited to the office supplies account.At the end of the year,a physical count of the office supplies indicated $41,800 on hand.What was the office supplies expense for the year?

The following entry was recorded by Hollow Inc.: What is the effect on Hollow's financial statements?

Sing Songs Ltd.started operations on January 1,2016.During its first year of operations,the company had a choice of accounting policies: Assume that the company selected Accounting Option 1.Using the following information about activities for 2016-2018,derive the net income for each year:

IFRS identifies a number of criteria to determine whether an asset can be classified as current.Satisfying any one of these criteria is sufficient.For the following list of criteria,identify whether each one is relevant for the classification of an asset as current instead of non-current.

The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2019.A machine was purchased on January 1,2017,at a cost of $150,000.The machine has an estimated useful life of 10 years and a residual value of $9,000.Assume that net income before tax (NIBT)was $80,000 for fiscal 2017.What is the appropriate accounting for fiscal 2017?

IFRS identifies a number of criteria to determine whether an asset can be classified as current.Satisfying any one of these criteria is sufficient.For the following list of criteria,identify whether each one is relevant for the classification of an asset as current instead of non-current.

Why is determining the "cut-off" point critical in the accrual basis of accounting?

What is an "accrual"?

Explain if the following situations would be accounted for prospectively or retrospectively.Give a brief explanation to support your response. A.A furniture maker decreases bad debts expense from 3% to 2% of credit sales. B.A manufacturer determines that credit losses are becoming material due to deteriorating economic conditions.As a result,it decides to set up an allowance for doubtful accounts at 5% of amounts over 90 days. C.A parking service estimates bad debts to be 10% of the value of parking violations issued.In the current year,it changes to estimating the allowance for bad debts to be equal to 20% of accounts 30 to 90 days and 50% of accounts over 90 days. D.A shipbuilder changes its revenue recognition policy from the point of receipt by the customer to when the ship leaves the factory shipyard.This change results from a change in shipping policy from f.o.b.destination to f.o.b.shipping point.(Recall from introductory accounting that f.o.b.means "free on board," and it refers to the point at which ownership transfers from seller to buyer. ) E.An electronics retailer has never accrued for warranties or product guarantees.A new consumer protection law comes into effect,giving buyers of electronic products a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer. F.A clothing company that has been operating for 20 years decides to obtain an external audit for the first time in order to meet the bank's demands.The audit firm recommends that management report inventories at the lower of cost and net realizable value,whereas the company has previously only tracked and reported inventory figures at cost.

If the gross profit percentage used in the gross profit inventory method were understated,which of the following is correct?

Which of the following is an example of an "investing" cash cycle?

Information on the balance sheet is categorized into

Winder Corporation had total shareholders' equity of $665,000 at the beginning of the year and $773,000 at the end of the year.Shareholders invested an additional $75,000 during the year.Also during the year,cash dividends of $20,000 were declared and paid.Calculate the net income or loss for the year.

What are biased accruals?

Sally Corp.received payment on a long-term receivable for $980,000.What effect does this transaction have on these accounts?

What is the difference between accrual accounting and cash accounting?

A company's reported earnings are $1,000 and cash flows are $600.Based on economic conditions during the year,the company booked allowances of $250.As a result of contractual incentives,the company booked a further $150 in accruals.How much are the unbiased accruals?

What is meant by the "going concern assumption" in financial accounting? Explain the implications to financial accounting if the going concern assumption is not valid.