Exam 2: Accounting for Accruals and Deferrals

On December 31, 2013, Farrell Co. owed $1,500 in salaries to employees who had worked during December but would be paid in January. If the year-end adjustment is properly recorded on December 31, 2013, what will be the effect of the accrual on the following items for Farrell? Net Income Cash Flow from Operating Activities a. No effect No effect b. Decrease No effect c. Increase Decrease d. No effect Decrease

Consider the following independent scenarios: a) At January 1, 2013, accounts receivable was $22,000. Cash collected on accounts receivable during 2011 was $15,000. At December 31, 2011, accounts receivable was $30,000. What were the revenues earned on account during 2011? b) At January 1, 2013, accounts payable was $19,000. During 2013, expenses on account were $28,000. At December 31, 2013, accounts payable was $15,000. What was the amount of cash paid on accounts payable during 2013? c) At January 1, 2013, the balance in the prepaid insurance account was $480. On March 1, 2013, the company paid $2,940 for insurance coverage for the next 12 months. What was the amount of insurance expense for 2013? d) At January 1, 2013, the balance in the supplies account was $550. At December 31, 2013, the company counted $600 of supplies on hand. The company reported supplies expense in 2013 of $2,300. What was the total of supplies purchases during 2013?

Describe the purpose of the closing process.

Which of the following is a claims exchange transaction?

Kramer Corporation began business operations and experienced the following transactions during 2013: 1) Issued common stock for $10,000 cash. 2) Provided services to customers for $40,000 on account. 3) Incurred $18,000 of operating expenses on account. 4) Collected $23,000 cash from customers. 5) Paid $15,000 on accounts payable. Required: Record the above transactions on a horizontal statements model to reflect their effect on Kramer's financial statements.

Woodward Enterprises had the following events during 2013: The business issued $20,000 of common stock to its stockholders. The business purchased land for $12,000 cash. Services were provided to customers for $16,000 cash. Services were provided to customers for $5,000 on account. The company borrowed $16,000 from the bank. Operating expenses of $12,000 were incurred and paid in cash. Salary expense of $800 was accrued. A dividend of $4,000 was paid to the owners of Woodward Enterprises. Assuming the company began operations during 2013, the amount of retained earnings as of December 31, 2013 would be:

Washington Co. began operations on January 1, 2013, by issuing $10,000 in common stock to the stockholders. On March 1, 2013, Washington accepted an advance of $18,000 to provide services for a one-year period beginning April 1. During 2013, services in the amount of $16,000 were provided to customers on account, and 80% of this amount was collected by year-end. During 2013, operating expenses incurred on account were $12,000, and 60% of this amount was paid by year-end. During the year, Washington paid $600 to purchase supplies. By year-end, $540 of the supplies had been used. Dividends to stockholders were $1,000 during the year. During 2013, Washington paid salaries of $14,000, and on December 31, 2013, the company accrued salaries of $1,400. Washington recorded all appropriate adjusting entries at year end. 1) What would Washington report for service revenue for 2013? 2) What would Washington report for salaries expense for 2013? 3) What would Washington report for supplies expense for 2013? 4) What would the amount be for net cash flows from operating activities for 2013? 5) What is the net income for 2013? 6) What would the balance in the retained earnings account be at December 31, 2013?

A payment to an employee in settlement of salaries payable decreases an asset and decreases a liability.

After closing, only balance sheet accounts have non-zero balances.

Tuttle Company shows the following transactions for the accounting period ending December 31, 2013: 1) Sold books to customers for $34,000 on account 2) Collected $28,000 from customers 3) Issued common stock for $8,000 cash 4) Prepaid four months' rent for $4,400 on October 1, 2013 5) Purchase supplies for $10,500 cash 6) Physical count shows $3,250 of supplies left over on December 31, 2013 7) Recorded adjustment for prepaid rent used Show how the above transactions and year end adjustments affect the financial statements on the accounting equation:

Which of the following describes the effects of a claims exchange transaction on a company's financial statements?

If retained earnings decreased during the year, and no dividends were paid, which of the following must be true?

Purchasing prepaid rent is classified as a(n):

Norris Company experienced the following transactions during 2013, its first year in operation. 1) Issued $6,000 of common stock to stockholders. 2) Provided $2,300 of services on account. 3) Paid $1,600 cash for operating expenses. 4) Collected $1,900 of cash from accounts receivable. 5) Paid a $100 cash dividend to stockholders. The amount of net income recognized on Norris Company's 2013 income statement is:

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. Increase = Decrease = No Effect = Aztec Co. signed contracts for $20,000 of services to be performed in the future. Assets Liabilities Equity Revenues Expenses Net Income Cash

Revenue on account amounted to $3,000. Cash collections of accounts receivable amounted to $2,700. Cash paid for expenses was $2,500. The amount of employee salaries accrued at the end of the year was $300. Cash flow from operating activities was

Why are adjusting entries necessary in an accrual accounting system? What are some common examples?

Classify each of the following transactions for the purpose of the statement of cash flow 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 recognize interest revenue on investments. 2) ____ Borrowed funds from the bank. 3) ____ Paid rent in advance for the next six months. 4) ____ Paid cash to settle accrued salary expense. 5) ____ Purchased supplies on account. 6) ____ Collected accounts receivable. 7) ____ Sold land.

Which of the following choices accurately reflects how the recording of accrued salary expense affects a business's financial statements?

Accounts that are closed include expenses, dividends, and unearned revenues.