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Exam 2: Review of the Accounting Process

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Question 61

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The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:

A) Plus revenues, minus liabilities.
B) Plus accruals, minus deferrals.
C) Plus net income, minus dividends.
D) Plus assets, minus liabilities.

E) A) and B)
F) B) and C)

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Question 62

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The adjusted trial balance contains only permanent accounts.

A) True
B) False

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Question 63

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Describe what is meant by prepaid expenses and give two examples.

Below is a list of accounts in no particular order. Assume that all accounts have normal balances. Required: In column A, indicate whether a debit will: 1. Increase the account balance, or 2. Decrease the account balance. In column B, classify each account according to the following scheme. For contra accounts, indicate the classification of the account to which it relates. 1. A current asset in the balance sheet. 2. A noncurrent asset in the balance sheet. 3. A current liability in the balance sheet. 4. A long-term liability in the balance sheet. 5. A permanent equity account in the balance sheet. 6. A revenue account in the income statement. 7. An expense account shown in the income statement. 8. Account does not appear in either the balance sheet or the income statement. -Prepaid rent

Silicon Chip Company's fiscal year-end is December 31. At the end of 2013, it owed employees $22,000 in wages that will be paid on January 7, 2014. Required: 1. Prepare an adjusting entry to record accrued salaries, a reversing entry on January 1, 2014, and an entry to record the payment of wages on January 7, 2014. 2. Prepare journal entries to record the accrued salaries on December 31 and the payment of salaries on January 7, assuming a reversing entry is not made.

Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a:

The adjusting entry required to record accrued expenses includes:

Accruals occur when the cash flow precedes either revenue or expense recognition.

Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year?

Which of the following accounts has a debit balance?

Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a:

Eve's Apples opened business on January 1, 2013, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What is the balance in Eve's prepaid insurance as of December 31, 2013?

Collected cash on account from customers.

A sale on account would be recorded by:

Purchased building and equipment for $10,000,000, paying 20% cash and issuing a 30-year note for the balance.

Accrued property taxes were paid.

Below is a list of accounts in no particular order. Assume that all accounts have normal balances. Required: In column A, indicate whether a debit will: 1. Increase the account balance, or 2. Decrease the account balance. In column B, classify each account according to the following scheme. For contra accounts, indicate the classification of the account to which it relates. 1. A current asset in the balance sheet. 2. A noncurrent asset in the balance sheet. 3. A current liability in the balance sheet. 4. A long-term liability in the balance sheet. 5. A permanent equity account in the balance sheet. 6. A revenue account in the income statement. 7. An expense account shown in the income statement. 8. Account does not appear in either the balance sheet or the income statement. -Inventory

Below is a list of accounts in no particular order. Assume that all accounts have normal balances. Required: In column A, indicate whether a debit will: 1. Increase the account balance, or 2. Decrease the account balance. In column B, classify each account according to the following scheme. For contra accounts, indicate the classification of the account to which it relates. 1. A current asset in the balance sheet. 2. A noncurrent asset in the balance sheet. 3. A current liability in the balance sheet. 4. A long-term liability in the balance sheet. 5. A permanent equity account in the balance sheet. 6. A revenue account in the income statement. 7. An expense account shown in the income statement. 8. Account does not appear in either the balance sheet or the income statement. -Interest revenue

On September 1, 2013, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to unearned subscriptions revenue. What is the required adjusting entry at December 31, 2013?

Balance sheet accounts are referred to as temporary accounts because their balances are always changing.