Exam 2: Accounting for Accruals and Deferrals

Adkins Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on ABC's statements?

Whetstone Co. performed services for a customer on account. Indicate whether each of the following statements about this transaction is true or false. _____ a) Assets and equity both increase when the revenue is recognized. _____ b) This transaction did not affect cash flows. _____ c) The company recorded an increase in revenue and a decrease in accounts receivable. _____ d) Recognition of revenue would be delayed until cash was received. _____ e) This transaction is an example of an asset source transaction.

What effect does the recording of revenue normally have on total assets?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase }=\mathrm{I} \quad \text { Decrease }=\mathrm{D} \quad \text { No Effect }=\mathrm{N}$ Sparta Co. provided $1,600 of services for a customer who paid $1,000 cash immediately and promised to pay an additional $600 one month later. Assets Liabilities Equity Revenues Expenses Net Income Cash

The following transactions apply to Kent Company. 1) Issued common stock for $21,000 cash 2) Provided services to customers for $28,000 on account 3) Purchased land for $18,000 cash 4) Incurred $9,000 of operating expenses on account 5) Collected $15,000 cash from customers for services provided in event #2 6) Paid $7,000 on accounts payable 7) Paid $2,500 dividends to stockholders Required: a) Identify the effect on the Statement of Cash Flows, if any, for each of the above transactions. Indicate whether each transaction involves operating, investing, or financing activities and the amount of increase or decrease. b) Classify the above accounting events into one of four types of transactions (asset source, asset use, asset exchange, claims exchange).

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase }=\mathrm{I} \quad \text { Decrease }=\mathrm{D} \quad \text { No Effect }=\mathrm{N}$ Jenkins Co. performed services for customers on account. Assets Liabilities Equity Revenues Expenses Net Income Cash

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

Jerry Mathers started his business by issuing $4,000 of common stock on January 1, 2013. Jerry performed $8,500 of service on account in 2013, and he collected $6,200 of this amount by year end. He paid operating expenses of $6,900 and paid a $900 dividend to the stockholders. Required: a) What is the amount of total assets at the end of 2013? b) What is the amount of cash on hand at the end of 2013? c) What is net income for 2013? d) Prepare a balance sheet for 2013.

A company may recognize a revenue or expense without a corresponding cash collection or payment in the same accounting period.

In the closing process, the amounts in temporary accounts are moved to retained earnings, a permanent account.

Classify each of the following transactions for the purpose of the statement of cash flows as operating activities (OA), investing activities (IA), financing activities (FA), or not reported on the statement of cash flows (NA). 1) _____ Made adjusting entry to accrue salary expense at the end of the year 2) _____ Borrowed funds from the bank 3) _____ Paid rent for the month 4) _____ Paid cash to settle accounts payable 5) _____ Issued common stock for $30,000 cash 6) _____ Collected accounts receivable 7) _____ Paid cash to acquire land

The entry to recognize work completed on unearned revenue involves which of the following?

Tocca Co. collected a $5,000 cash advance from a customer on November 1, 2013 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 on Tocca's 2013 financial statements?

The following data were taken from the accounting records of Lorenzo Company. Except where indicated, the balances are as of December 31, 2013 before closing entries have been made. Service revenue \ 83,000 Retained earnings 47,500 Accounts receivable 13,250 Salaries expense 44,000 Operating expense 7,700 Accounts payable 11,400 Supplies expense 380 Prepaid rent 2,000 Common stock 45,000 Supplies 200 Dividends 1,200 Insurance expense 800 Rent expense 10,000 Unearned revenue 765 Required: a) List the accounts that should be closed at the end of 2013. b) Prepare an income statement for Lorenzo Company for 2013. c) What is the balance in retained earnings after closing entries have been made?

Recognition of revenue may be accompanied by which of the following?

The following account balances were drawn from the 2013 financial statements of Gunn Company Based on the above information, what is the balance of Common Stock for Gunn Company?

Patterson Company was founded in 2013 and engaged in the following transactions: 1. issued common stock for cash 2. purchased supplies on account 3. collected cash from a customer for services to be provided over a period of 1 year 4. paid a cash dividend to stockholders 5. purchased a 2-year fire insurance policy 6. provided services to customers on account 7. collected cash from accounts receivable 8. paid cash for various operating expenses 9. paid rent in advance for 3 months at a time Required: a) Which of the above transactions would require adjusting entries at year end? b) Why are adjusting entries required before financial statements can be prepared.

Revenue on account amounted to $4,000. Cash collections of accounts receivable amounted to $2,300. Expenses for the period were $2,100. The company paid dividends of $450. Net income for the period was

The accounting principle that guides accountants, when faced with a recognition dilemma, to choose the alternative that produces the lowest net income is referred to as

James Company paid $1,800 for one year's rent in advance beginning on October 1, 2013. James's 2013 income statement would report rent expense, and its statement of cash flows would report cash outflow for rent, respectively, of