Exam 3: Accrual Accounting

A marine company pays its sales personnel 6% commission of the selling price of each yacht. During November 2013, yacht sales totaled $20,400,000. During December 2013, sales totaled $25,100,000. Because its policy is to pay commissions only in the month after the sales, the company paid commissions during December for November 2013. During January 2014, the company paid its sales people commissions on December 2013 sales.

Which of the following situations violates the matching principle during 2013 for a real estate company that pays its agents on commission?

Adjusting journal entries are made at the end of the period when

A manufacturing company purchased equipment on January 1, 2004 for $450,000. As of January 1, 2013, depreciation of $202,500 had been recorded on this asset. Depreciation expense for 2013 is $22,500. After the adjustments are recorded and posted at December 31, 2013, what are the balances for the Equipment and Accumulated Depreciation? Equipment Accumulated Depreciation

On October 1, 2013, a company borrowed $200,000 on a two-year, 12% note, with interest and principal to be paid at maturity. How much interest expense will be reported on the income statement for the year ending December 31, 2013?

Which of the following concepts is important to accrual accounting?

Balance sheet accounts are also known as which of the following?

When revenue is earned after the earlier receipt of cash, an adjustment that increases a revenue account and decreases a liability account is recorded.

Explain the differences between the cash and accrual basis of accounting and how the adjusting process fits in.

The names of the four major types of adjusting entries are ____________________, ____________________, ____________________, and ____________________.

What does the phrase, "Revenue is recognized when earned" mean?

Select the incorrect statement about worksheets.

Three months before its year-end, a company signed a $250,000, 12%, 8-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.

A franchiser is permitted to recognize the revenue from the sale of a franchise whenever they wish under accrual-basis accounting.

A company that forgets to recognize depreciation for the year understates its income and assets.

Match each statement to the item listed below a.Accrual basis accounting f.Depreciation b.Adjusted trial balance g.Matching principle c.Adjusting entries h.Revenue recognition principle d.Cash basis accounting i.Time period assumption e.Contra accounts j.Worksheet -Refers to the process of assigning the cost of an asset such as a building to expense over the asset's useful life

A tax service prepared tax returns for twenty clients at $200 each. By the end of June, the service had collected from eight clients. Under the accrual basis, what amounts will be reported on the income statement and the statement of cash flows for June? Income Statement Statement of Cash Flows

Once adjustments have been made, an ____________________ is prepared to ensure the accounting equation is still in balance and to facilitate preparation of the financial statements.

Chastain Park Entertainment paid salaries expense of $350,000 during 2013. However, additional salaries of $20,000 had been earned by employees, but not paid or recorded at December 31, 2013.

Which statement presents financial information not based on accrual accounting?