Exam 4: Income Measurement and Accrual Accounting

Sally's Choice sells season memberships for $200 each.During January 2017,60 season memberships were sold.As of March 31,2017,$3,000 of season membership fees had been collected from customers.The season runs for four months starting March 1,2017.Which one of the following is an amount reported on the financial statements for the period ending March 31,2017?

The recognition of revenue may result from the settlement of a liability rather than from the acquisition of an asset.

Which of the following situations does not require an adjusting entry at the end of May?

An accountant describes the effects of an economic event on an entity by recording the transaction and reporting the amount on the financial statements.What is this called?

Temporary accounts are also known as _________________ accounts.

The following unadjusted amount was reported on Rental Entertainment Corporation's accounting records at December 31,2017: ? Unearned Subscription Revenue $\quad$ $\quad$ $\quad$$\$ 36,000$ ? A. Determine the effect on the accounting equation of any adjusting entries necessary at December 31,2017 , for each of the following transactions: 1. During the year, Rental Entertainment sold 12 -month subscriptions for its newly devel oped Internet service. Half of the subscriptions began October 1,2017, while the other half began December 1, 2017. 2. Rental estimates its income taxes to be $30 \%$ of its estimated income of $\$ 60,000$ . ? B. Frepare the Current Liabilities section of Rental's balance sheet by listing any current liabilities and the related amounts as a result of the adjustments in part $\mathrm { A }$ .

Carrington & Co.rented office space to a tenant on January 31 and received a total of $9,000 for the first three months of rent.The amount was recorded as Rent Collected in Advance when received.Adjustments are recorded only at the end of every quarter.What effect does the adjustment at March 31 have on Carrington's net income for the quarter ending March 31?

Explain the purpose of a work sheet.

Under which method are revenues and expenses recognized in the same accounting period that cash receipts and payments occur?

Measurement of the economic effects on an entity involves each of the following except

When using a work sheet

Revenue is always earned continuously over time.

Closing entries serve two important purposes: (1)to return the balances in all temporary or nominal accounts to zero to start the next accounting period and (2)to transfer the net income (or net loss)and the dividends of the period to the Retained Earnings account.

Accumulated depreciation

Stockton Co.received advance payments from customers during 2017 of $6,000.At December 31,2016,$1,300 of the advance payments still had not been earned.After the adjustments are recorded and posted at December 31,2016,what will the balances be in the Unearned Book Revenue and Book Revenue accounts? Unearned Book Revenue Book Revenue a. \1 ,300 \6 ,000 b. \1 ,300 \4 ,700 c. \6 ,000 \1 ,300 d. None of these choices

During December,Horn Inc.purchased $800 of supplies on account for use in its business.At the end of December,20% of the supplies were still on hand,but only 75% had been paid.What amounts will appear on the company's balance sheet on December 31? Supplies on Hand Accounts Payable a. \8 00 \6 00 b. \1 60 \2 00 c. \6 40 \2 00 d. \1 60 \8 00

When is revenue from the sale of merchandise normally recognized?

What role do accounting records play in the adjustment process?

What is the significance of the timing in which cash is paid or received as it relates to the adjusting process?

Lowen Homes,Inc.pays its sales personnel 6% commission of the selling price of each home.During November 2017,sales people sold $18,400,000 of homes.During December 2017,sales people sold $20,050,000 of homes.Because its policy is to pay commissions only in the month after the sales,Lowen paid commissions during December for November 2017.During January 2018,Lowen paid its salespeople commissions for December 2017. A. If the cash basis of accounting is used, how much commission expense is reported on Lowen Homes' income statement for December of 2017 ? B. If the accrual basis of accounting is used, how much is reported as commission expense on Lowen Homes' December income statement for 2017 ?