Exam 4: Income Measurement and Accrual Accounting

Innovate Company borrowed on a one-year,10%,$150,000 note on May 1,2017 with interest and principal to be paid at maturity.How much interest should Innovate Company report on its income statement for the year ending December 31,2017?

Sun Corp.sells merchandise to customers.Sun should normally recognize

Because of its objective nature,historical cost is the attribute used to measure many of the assets recognized on the balance sheet.

Place Corp.purchased supplies at a cost of $12,000 during the year.At January 1,supplies on hand were $2,000.At December 31,supplies on hand are $1,000.Determine the amount of supplies expense for the year.

On May 1, 2017, Meehan Inc. lends $125,000 to Solar Power Inc. The loan will be repaid in 90 days with interest at 12%. Required 1. Prepare the journal entry on Meehan’s books on May 1, 2017. 2. Assume that Meehan prepares quarterly statements on May 30, 2017. Prepare the adjusting entry on Meehan’s books on May 30, 2017, regarding the loan. 3. Prepare the entry on Meehan’s books on July 29, 2017, when Solar Power repays the principal and interest.

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.

Answer each of the following questions (a-c)with a separate short paragraph per question. ​ (a)What is the difference between a real account and a nominal account? Give an example of each type of account.Why is this distinction important for the closing process? (b)What two purposes are served in making closing entries? (c)Why is the Dividends account closed directly to Retained Earnings rather than to the Income Summary account?

Which of the following concepts is important to accrual accounting?

A cost can be an asset or expense depending on whether the future economic benefits have expired or not.

Why is the cash-basis of accounting too limited for proper financial reporting?

What effect does recognizing an accrued liability for utilities at the end of the accounting period have on the accounting equation?

Cuisine Company received a 6-month,6% note for $10,000 from its president on October 1,2016.The note is due on March 31,2017.If Cuisine's accounting period ends on December 31,how much interest revenue should Cuisine recognize during 2016 and 2017? a. \4 50 \1 50 b. \6 00 \0 c. \3 00 \3 00 d. \1 50 \1 50

Under the accrual method,expenses are recognized when revenue is earned.

Matching can occur directly (like cost of goods sold),indirectly (like plant assets),or immediately when no future benefits from the cost are expected.

Which one of the following is an example of a deferred revenue?

What is the effect on the accounting equation when a company recognizes rent as earned that had previously been received in advance from customers?

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

What does the phrase "Revenue is recognized at the point of sale" mean?

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

Balance sheet accounts are called real accounts.