Question 1

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.

Accepted Answer

The answer of On July 1, 2017, Crouch Corporation takes...

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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 4

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?

Accepted Answer

A) $10,000 
B) $15,000 
C) $30,000 
D) $5,000

Question 5

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?
 $$\begin{array} { l r } 
\text { Rent Revenue } & \$ 34,000 \
\text { Accounts Receivable } & 8,200 \
\text { Utilities Payable } & 1,500 \
\text { Rent Expense } & 2,100 \
\text { Unearned Repair Revenue } & 700 \
\text { Depreciation Expense } & 1,000 \
\text { Sal aries Expense } & 32,000 \
\text { Sal aries Payable } & 800 \
\text { Retained Earnings, January 1 } & 10,000 \
\text { Dividends } & 500 \
\text { Interest Revenue } & 4,000
\end{array}$$

Accepted Answer

The answer of Motor Repair Shop uses the accrual basis...

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

The answer of Under the accrual basis of accounting,a publisher...

Question 8

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:$$\begin{array} { l r } 
\text { Wages Expense } & \$ 82,000 \
\text { Rent Collected in Advance } & 8,000
\end{array}$$  
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 $\$ 900$.

Accepted Answer

The answer of Super Clean operates an automatic car wash...

Question 9

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) Net income and stockholders' equity being overstated

Question 10

Expenses originate from

Accepted Answer

A) using an asset or recognizing liabilities. 
B) incurring liabilities or providing services to customers. 
C) collecting cash from customers. 
D) paying off liabilities.

Question 11

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

Accepted Answer

A) everyday. 
B) after every journal transaction is posted. 
C) after the analysis of each source document. 
D) at the end of the period to help prepare financial statements.

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) Net income being understated 
B) No effect on total liabilities 
C) Stockholders' equity being overstated 
D) Total assets being understated

Question 14

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?  
$\begin{array}{llcc}
&&  \text { Salaries Expense} &  \text { Salaries Payable } \
\end{array}$

a.
$\begin{array}{cc}
&&&\$105,000&&&&&\$5,000
\end{array}$

b.
$\begin{array}{cc}
&&&\$100,000&&&&&&\$0
\end{array}$

c.
$\begin{array}{cc}
&&&\$100,000&&&&&\$5,000
\end{array}$

d.
$\begin{array}{cc} 
&&&\$105,000&&&&&&\$0
\end{array}$

Accepted Answer

The answer of Starlight Associates,Inc.recorded salary expense of $100,000 in...

Question 15

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

Accepted Answer

A) Mitchell paid for three months of window washing services in advance. 
B) Mitchell purchases a four-year casualty insurance policy. 
C) a tenant that pays Mitchell for six months of rent in advance. 
D) Mitchell purchases office supplies to last for several months.

Question 16

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?

Accepted Answer

A) Fox Auto will recognize the revenue on March 31. 
B) The March 10 transaction increases revenue,but has no effect on assets because cash has not been received. 
C) Revenue is recognized after the cost of the merchandise sold has been paid by Fox Auto. 
D) The March 31 transaction has no effect on total assets under the accrual basis.

Question 17

Most companies use the cash basis of accounting.

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) Wages have been earned by employees,but have not been paid at the end of the period. 
B) Equipment that will benefit several periods has been purchased. 
C) An insurance policy that expires in a future period has been acquired. 
D) Supplies are purchased and used over several months.

Question 20

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?

Accepted Answer

A) Increase retained earnings 
B) Increase income taxes expense 
C) Increase net income 
D) Decrease income taxes payable

Exam 4: Income Measurement and Accrual Accounting

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?

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 ______________________________.

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?

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?