Exam 2: Accounting for Accruals and Deferrals

Accrual-basis accounting often fails to match expenses with revenues.

An increase in an expense may be accompanied by a decrease in a liability.

If retained earnings decreased during the year, and no dividends were paid, which of the following must be true?

The collection of an account receivable is a claims exchange transaction.

Rushmore Company provided services for $45,000 cash during Year 1. Rushmore incurred $36,000 expenses on account during Year 1, and by the end of the year, $9,000 of that amount had been paid with cash. Assuming that these are the only accounting events that affected Rushmore during Year 1,

An adjusting entry that decreases unearned revenue and increases service revenue is a claims exchange transaction.

Companies that use accrual accounting recognize revenues and expenses at the time that cash is paid or received.

Expenses that are matched with the period in which they are incurred are frequently called:

Which of the following is an asset exchange transaction?

Regarding the relationships of revenues and expenses to assets and liabilities, state whether each of the following statements is true or false. _____ a) Recording an increase in a revenue account may be associated with a decrease in assets. _____ b) Recording an increase in a revenue account may be associated with a decrease in liabilities. _____ c) An increase in Salaries Expense may be accompanied by a decrease in Salaries Payable. _____ d) Recording a decrease in assets may be associated with an increase in an expense account. _____ e) A decrease in Supplies will be accompanied by an increase in Supplies Expense.

The matching concept most significantly influences which financial statement?

Gomez Company collected $9,000 on September 1, Year 1 from a customer for services to be provided over a one-year period beginning on that date. How much revenue would Gomez Company report related to this contract on its income statement for the year ended December 31, Year 1? How much would it report as cash flows from operating activities for Year 1?

Duluth Co. collected a $6,000 cash advance from a customer on November 1, Year 1 for work to be performed over a six-month period beginning on that date. If the year-end adjustment is properly recorded, what will be the effect of the adjusting entry on Duluth's Year 1 financial statements?

Indicate whether each of the following statements about the closing process and the accounting cycle is true or false. _____ a) The closing process transfers certain account balances to retained earnings at the end of the accounting cycle. _____ b) Only accounts that appear on the income statement are closed at the end of each accounting cycle. _____ c) The permanent accounts contain information that is cumulative in nature. _____ d) The retained earnings balance at the end of any given year is equal to that year's net income.

Wyatt Company paid $57,000 in January of Year 2 for salaries that had been earned by employees in December of Year 1. Indicate whether each of the following statements about financial statement effects of the January of Year 2event is true or false. _____ a) The income statement for Year 2 is not affected because the salaries expense had been recognized at the end of December in Year 1. _____ b) Cash flows from operating activities decreased on the Year 2 statement of cash flows. _____ c) Payment of the salaries in Year 2 increased a liability. _____ d) The Year 2 statement of changes in stockholders' equity would not be affected because the salaries expense had been recognized at the end of December in Year 1. _____ e) Both assets and equity decreased in Year 2 as a result of this transaction.

Which of the following is a claims exchange transaction?

Nelson Company experienced the following transactions during Year 1, its first year in operation. 1. Issued $12,000 of common stock to stockholders. 2) Provided $4,600 of services on account. 3) Paid $3,200 cash for operating expenses. 4) Collected $3,800 of cash from accounts receivable. 5) Paid a $200 cash dividend to stockholders. The amount of net income recognized on Nelson Company's Year 1 income statement is:

Bledsoe Company received $17,000 cash from the issue of stock on January 1, Year 1. During Year 1, Bledsoe earned $8,500 of revenue on account. The company collected $6,000 cash from accounts receivable and paid $5,400 cash for operating expenses. Based on this information alone, during Year 1,

Jack's Snow Removal Company received a cash advance of $6,000 on December 1, Year 1 to provide services during the months of December, January, and February. The year-end adjustment on December 31, Year 1, to recognize the partial expiration of the contract will

Which of the following choices accurately reflects how the recording of accrued salary expense affects the financial statements of a business?