Question 1

Malco Tile Shop purchased insurance coverage for two years on July 1, 2015, for its retail shop for $3,600. Malco recorded the prepayment as an asset. Malco prepares its adjusting entries at year end December 31.
A. What is the effect on the accounting equation of the adjusting journal entry necessary at December 31, 2015?
  B How much will be reported on the balance sheet at December 31, 2015 for prepaid insurance?
C How much will be reported on the income statement for the year ended December 31, 2015, for insurance expense?
D If the adjustment in part A is not recorded, by what amount will net income be over or understated at December 31, 2015?
E How much will be reported on the statement of cash flows for the year ended December 31, 2015? In which activity? operating, investing, financing
F Identify the effects on accounts adjusted at December 31, 2016.
G How much will be reported on the balance sheet at December 31, 2016 for prepaid insurance?
H How much will be reported on the income statement for the year ended December 31, 2016, for insurance expense?
I How much will be reported on the statement of cash flows for the year ended December 31, 2016? In which activity? operating, investing, financing

Accepted Answer

The answer of Malco Tile Shop purchased insurance coverage for...

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

A decline in purchasing power is evidenced by all of the following except:

Accepted Answer

A)  inflation. 
B)  a continuing rise in the general level of prices in an economy. 
C)  buying the same amount of goods or services for a higher price a year later. 
D)  current value is equal to historical cost.

Question 4

Tracy, Inc.
Tracy, Inc. adjusts its books each month but closes its books at the end of the year. The trial balance at July 31 before adjustments is as follows:
 
-Refer to the trial balance of Tracy, Inc. On July 1, Tracy paid four months in advance for insurance. Which of the following is included in the adjusting entry at July 31?

Accepted Answer

A)  An increase to Prepaid Insurance for $780. 
B)  A decrease to Prepaid Insurance for $2,340. 
C)  An increase to Prepaid Insurance for $2,340. 
D)  A decrease to Prepaid Insurance for $780.

Question 5

Carter, Inc. paid salaries expense of $292,000 during 2015. However, additional salaries of $14,000 had been earned by employees, but not paid or recorded at December 31, 2015 by Carter.
A What is the effect on the accounting equation of the adjusting entry necessary at December 31, 2015?
B Under which basis, cash, accrual, or both, would the adjustment in part A be prepared?
Explain.
C Under the accrual basis of accounting, what is the total amount of salaries expense for the year ended December 31, 2015?
D Under the accrual basis of accounting, what is the total amount of salaries payable to be reported at December 31, 2015?
E Under the cash basis of accounting, what is the total amount of salaries expense for the year ending December 31, 2015?
F Under the cash basis of accounting, what is the total amount of salaries payable at December 31, 2015?

Accepted Answer

The answer of Carter, Inc. paid salaries expense of $292,000...

Question 6

Select the correct revenue recognition principle for each of the following.
-Subscription to a magazine

Accepted Answer

A) Recognize revenue over the passage of time. 
B) Recognize revenue when the customer takes possession of the product. 
C) Recognize revenue when cash is collected. 
D) Recognize revenue when service is performed.

Question 7

The amount of cash that could be received by selling an asset currently is called historical cost.

Accepted Answer

A) True 
 B)False

Question 8

Stanfield Equipment sells new tractors and pays each salesperson a commission of $1,000 for each tractor sold. During the month of August, a salesperson, Jason, sold 3 new tractors. Stanfield pays Jason on the 10th day of the month following the sale. Jason operates on the cash basis; the tractor dealer operates on the accrual basis. Which of the following statements is true?

Accepted Answer

A)  Stanfield will recognize commission revenue earned in the amount of $3,000 in August. 
B)  Stanfield will recognize commission expense in the amount of $3,000 in August. 
C)  Jason will recognize commission expense in the amount of $3,000 in September. 
D)  Jason will recognize revenue in the same month that the tractor dealer recognizes expense.

Question 9

Lucky Company purchased a truck at a cost of $12,000 in 2010. As of January 1, 2015, depreciation of $10,000 had been recorded on this asset. Depreciation expense for 2015 is $2,000. After the adjustments are recorded and posted at December 31, 2015, what is the carrying value of the truck?

Accepted Answer

A)  $ 2,000 
B)  $ 5,500 
C)  $12,000 
D)  $ -0-

Question 10

Tracy, Inc.
Tracy, Inc. adjusts its books each month but closes its books at the end of the year. The trial balance at July 31 before adjustments is as follows:
 
-Refer to the trial balance for Tracy, Inc. Employees are owed $750 for services since the last payday in July, to be paid the first week in August. The amount to be reported in the July income statement for salaries expense is:

Accepted Answer

A)  $750 
B)  $8,550 
C)  $7,050 
D)  $7,800

Question 11

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

Accepted Answer

A)  Under the cash basis of accounting 
B)  Under the accrual basis of accounting 
C)  Under the adjusting method of accounting 
D)  Under both the cash and accrual bases of accounting

Question 12

Income statement accounts are also known as which of the following?

Accepted Answer

A)  Nominal accounts 
B)  Real accounts 
C)  Closing accounts 
D)  Both a and c

Question 13

When cash is paid before an expense is incurred, an accrual is necessary.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to a customer. 
B)  Revenue is recorded in the accounting records when the goods are received from a supplier, and reported on the income statement when sold to the customer. 
C)  Revenue is recorded in the accounting records and reported on the income statement when the cash is received from the customer. 
D)  Revenue is recorded in the accounting records when the goods are sold to a customer, and reported on the income statement when the cash payment is received from the customer.

Question 15

Every company prepares only four adjustments--one for each of the four types of adjustments.

Accepted Answer

A) True 
 B)False

Question 16

Union Company purchased a delivery van at a cost of $30,000 cash on January 1, 2014. The van has an estimated useful life of 6 years and a $6,000 estimated residual value.
A. What is the effect on the accounting equation of the purchase of the van?
  B. How much depreciation expense should be reported for 2015?
C. What is the total amount of accumulated depreciation at December 31, 2015?

Accepted Answer

The answer of Union Company purchased a delivery van at...

Question 17

Statements prepared monthly, quarterly, or at other intervals less than a year in duration are called
_____________________.

Accepted Answer

The answer of Statements prepared monthly, quarterly, or at other...

Question 18

The one asset account that never requires adjustment at the end of the period is---------.

Accepted Answer

The answer of The one asset account that never requires...

Question 19

On December 1, 2015, Twilight Corporation paid $8,000 rent in advance. The rent per month is $1,000. If Twilight's accounting period ends on December 31, 2015, what will be reported on the financial statements?

Accepted Answer

A)  Prepaid Rent of $7,000 on its balance sheet at December 31, 2015 
B)  Prepaid Rent of $8,000 on its balance sheet at December 31, 2015 
C)  Rent Expense of $8,000 on its 2015 income statement 
D)  Rent Revenue of $7,000 on its 2015 income statement

Question 20

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

Accepted Answer

A)  Net income being overstated 
B)  No effect on total assets 
C)  Stockholders' equity being overstated 
D)  Both a and c above

Exam 4: Income Measurement and Accrual Accounting

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

A decline in purchasing power is evidenced by all of the following except:

Select the correct revenue recognition principle for each of the following. -Subscription to a magazine

The amount of cash that could be received by selling an asset currently is called historical cost.

Lucky Company purchased a truck at a cost of $12,000 in 2010. As of January 1, 2015, depreciation of $10,000 had been recorded on this asset. Depreciation expense for 2015 is $2,000. After the adjustments are recorded and posted at December 31, 2015, what is the carrying value of the truck?

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

Income statement accounts are also known as which of the following?

When cash is paid before an expense is incurred, an accrual is necessary.

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

Every company prepares only four adjustments--one for each of the four types of adjustments.

Statements prepared monthly, quarterly, or at other intervals less than a year in duration are called _____________________.

The one asset account that never requires adjustment at the end of the period is---------.

On December 1, 2015, Twilight Corporation paid $8,000 rent in advance. The rent per month is $1,000. If Twilight's accounting period ends on December 31, 2015, what will be reported on the financial statements?

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