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Exam 2: Accounting for Accruals and Deferrals

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Question 51

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Thornrose Company started its business on January 1, 2013 by issuing $5,000 of common stock. On January 1, the company purchased a computer for $3,500. The computer is estimated to have a 3-year useful life and a $500 salvage value. On March 1, Thornrose issued a $9,000, 6% 5-year note to Community Bank. Customers paid Thornrose $18,000 for service performed in 2013. The company paid $11,000 for operating expenses, and paid a $300 dividend to the stockholders. At year-end, Thornrose recognized interest expense on the note and depreciation expense on the computer. Required: A) What is the amount of interest expense Thornrose will recognize in 2013? B) What is the book value of the computer at the end of 2013? C) What is the net income for 2013? D) Prepare a balance sheet for 2013.

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A) $9,000 X 6% X 10/12 = $450 ...

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Question 52

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

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Adjusting entries are necessary in order...

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Question 53

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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.

The amount of retained earnings as of January 1, 2014 was:

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.

Total assets on the December 31, 2013 balance sheet would amount to:

Which of the following correctly states the proper order of the accounting cycle?

The amount of net income shown on the December 31, 2013 income statement would amount to:

What is the effect on the accounting equation of a cash payment to creditors?

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).

Recognition of depreciation expense on equipment decreases the equipment account.

Which of the following is a claims exchange transaction?

The collection of an account receivable is a claims exchange transaction.

In a company's annual report, the reader will find a company's income statement, statement of changes in stockholders' equity, balance sheet, and statement of cash flows. These financial statements can help the reader to answer specific questions. Identify which financial statement would be most useful in answering the following questions. If more than one financial statement can answer the question, please identify all applicable statements. 1) What was the amount of cash dividends paid to the stockholders during the most recent year? 2) What was the total amount of land owned by the company? 3) What was the total amount of cash borrowed by the company during the most recent year? 4) What were the types of claims that the company had against its assets? 5) What was the total amount of cash received by the issuance of common stock in the current year? 6) Was the company profitable during the most recent year? 7) How much cash was collected from accounts receivable during the current year? 8) What was the total revenue earned by the company during the most recent year? 9) What was the ending balance of retained earnings? 10) What was the amount of change in the cash balance during the current year?

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:

The following events apply to John's Lawn Service for 2013. 1). Issued stock for $14,000 cash. 2). On January 1, purchased equipment for $12,000. The equipment has an estimated 5-year useful life and a $2,000 salvage value. 3). On May 1, issued a $3,000, 5% 3-year note to a local bank. 4). Performed services of $18,400 and received cash. 5). Paid $15,000 of operating expenses. 6). At December 31, adjusted the records to recognize expense associated with use of the equipment and accrued interest. Required: Record the effects of the above events under the appropriate account headings in the accounting formula below.

Discuss the importance of ethics in the accounting profession.

Thiessen Company started its business by issuing $7,000 of common stock on January 1, 2013. The company performed $18,000 of service for customers on account in 2013. It collected $12,500 of this amount in 2013, recorded expenses on account of $14,500, paid $11,000 of the payables owed, and paid a $300 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 the net income for 2013? D) Prepare a balance sheet for 2013.

Which of the following is not a component of the fraud triangle?

The matching concept leads accountants to select the recognition alternative that produces the lowest amount of net income.