Exam 4: Income Measurement and Accrual Accounting

On July 1, 2017, Crouch Corporation takes out a 12%, two-month, $50,000 loan at Cocoa National Bank. Principal and interest are to be repaid on August 31. Required 1. Prepare the journal entries for July 1 to record the borrowing, for July 31 to record the accrual of interest, and for August 31 to record repayment of the principal and interest. 2. Evaluate the following statement: It would be much easier not to bother with an adjusting entry on July 31 and simply record interest expense on August 31 when the loan is repaid.

While most companies make adjustments and prepare statements monthly,companies complete the accounting cycle only once per year.

The balance in the account,Rent Collected in Advance,is reported as an asset on the balance sheet of the landlord.

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

Motor Repair Shop uses the accrual basis of accounting,and had the following account balances on its financial statements at December 31,2017: On January 1,there was a $0 balance in the Salaries Payable account.How much cash did Motor Repair pay for salaries during the year? Rent Revenue \ 34,000 Accounts Receivable 8,200 Utilities Payable 1,500 Rent Expense 2,100 Unearned Repair Revenue 700 Depreciation Expense 1,000 Sal aries Expense 32,000 Sal aries Payable 800 Retained Earnings, January 1 10,000 Dividends 500 Interest Revenue 4,000

When initially recording the cost of land purchased,most companies use the cost of the land at the time it is purchased.

Under the accrual basis of accounting,a publisher of magazines should record revenue ______________________________.

Super Clean operates an automatic car wash business,The Ultimate Shine.The following amounts were taken from the company's unadjusted trial balance at December 31,2017: Wages Expense \ 82,000 Rent Collected in Advance 8,000 Determine the effect on the accounting equation of any adjusting entries necessary at December 31,2017,for each of the transactions that follow: A. The rent collected in advance represents rent for the period December 1,2017 , through January 31, 2018. B. In addition to the wages pad during the year, employees have not been paid for the last week of December which amounts to $\$ 900$ .

Failure to record depreciation expense for the period results in which of the following?

Expenses originate from

If a work sheet is used by a company's accountants,it will be prepared

The justification for the accrual basis of accounting lies in the needs of financial statement users for periodic information on the financial position and the profitability of the entity.

Failure to record the earned portion of unearned revenue would result in which of the following?

Starlight Associates,Inc.recorded salary expense of $100,000 in 2017.However,additional salaries of $5,000 had been earned,but not paid or recorded at December 31,2017.After the adjustments are recorded and posted at December 31,2017,what are the balances in the Salaries Expense and Salaries Payable accounts? Salaries Expense Salaries Payable a. \1 05,000 \5 ,000 b. \1 00,000 \0 c. \1 00,000 \5 ,000 d. \1 05,000 \0

Mitchell Company prepares monthly financial statements and will record a prepaid expense account for each of the following except

Fox Auto sold merchandise to a customer for $3,000 on credit on March 10.The customer paid Fox Auto the amount due on March 31.Under the accrual basis of accounting,which of the following statements is true?

Most companies use the cash basis of accounting.

When an expense is incurred prior to the payment of cash for that expense,an adjustment that increases an expense account and decreases an asset is prepared.

Which one of the following is an example of an accrued liability?

Based on its income for the month,Reel Company estimates that federal income taxes for the month of May will be $11,000.What is the effect of the adjustment on the financial statements?