Exam 3: Accrual Accounting

Which is not an example of a biased accrual?

The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2022. A machine was purchased on January 1, 2020, at a cost of $150,000. The machine has an estimated useful life of 10 years and a residual value of $9,000. What adjustment is needed for fiscal 2020?

Which one of the following errors would cause a company's unadjusted trial balance to be out of balance?

Prepare a single-step income statement using the following data for Leila Inc. for the year ended December 31, 2021. Sales revenue \ 210,000 Rental revenue 35,000 Distribution expense 23,000 Cost of goods sold 120,000 General and administrative expense 25,000 Depreciation expense 20,000 Interest expense 5,000 Income taxexpense ( 20\% rate on all items) Gain on sale of building 15,000 Loss from fire damage 40,000

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 information does a cash flow statement provide?

What is meant by "quality of earnings"? Discuss if earnings quality should be assessed by comparing earnings to cash flows.

What are biased accruals?

The following entry was recorded by Hollow Inc.: Cash 70,000 Accumulated depreciation 30,000 Gain on disposal of property, plant and equipment (PPE) 10,000 PPE 90,000 What is the effect on Hollow's financial statements?

Computer Consulting Limited was started in early 2019 and continued to operate until early 2022, when it was wound up due to disputes between the two principal shareholders. When it started, the company used these accounting policies: 1. Use straight-line depreciation for the firm's only asset, a computer which cost $1,100,000 and has an estimated useful life of four years. 2. Estimate warranty expense as 9% of sales. 3. Estimate bad debts expense as 5% of sales. Derive the annual net cash flows for 2019 to 2021. For the year-end balance for 2022, assume accounts receivable, allowance for doubtful accounts, and the warranty accrual are $0, as the firm wound itself up during the year and all timing differences have been resolved. 2019 2020 2021 2022 Sales (all on account 3,400,000 3,600,000 4,100,000 410,000 Warranties paid Proceeds on disposal of computer 272,000 288,000 420,250 147,600 Accounts receivable collected in the year 2,958,000 2,880,000 3,895,000 1,126,000 Accounts receivable written off in the year 102,000 108,000 205,000 236,000 All other expenses (paid in cash in the year incurred) 2,380,000 2,520,000 2,767,500 287,000

A company's reported earnings are $2,000 and cash flows are $1,600. Based on economic conditions during the year, the company booked allowances of $150. As a result of contractual incentives, the company booked a further $250 in accruals. What is the total of the excessive accruals?

The following event occurred after the company's year-end but before the completion of the audit. For this subsequent event, determine whether the event: •requires an adjustment to the year-end financial statements, •requires note disclosure, or •requires neither adjustment to recognized amounts nor disclosure. New technology makes a major capital asset redundant or causes it to lose significant fair market and salvage value. (Justify your recommendation).

The Rihanna Company owns 1,000 shares in Abhay Corp, a public company listed on the stock exchange. The share price was as follows: - At date of purchase, July 2, 2021 = $100/share - At year end, June 30, 2022 = $100/share - At start of next fiscal year, July 1, 2022 = $95/share - At date financial statements authorized for issue, September 1, 2022 = $90/share Materiality for the Rihanna's financial statements is $500,000. What is the appropriate treatment of the subsequent event in the June 30, 2022 financial statements?

Which statement is correct about accrual accounting?

Which of the following is an example of a change in accounting policy?

Which financial statement provides information about the transactions in a company's financing, investing, and operating cycle?

Which of the following is an example of an error that should be corrected?

Information on the income statement is categorized into

General Limited's income statement reported the following for last year: Sales revenue \ 881,000 Cost of goods sold 573,000 Expenses 129,000 Net income 179,000 Which of the following statements is correct about the income statement?

What is a "cash" cycle?