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Exam 3: Adjusting the Accounts

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Question 111

Multiple Choice

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Crue Company had the following transactions during 2018: $\bullet$ Sales of $4,500 on account $\bullet$ Collected $2,500 for services to be performed in 2019 $\bullet$ Paid $1,625 cash in salaries $\bullet$ Purchased airline tickets for $250 in December for a trip to take place in 2019 What is Crue's 2018 net income using cash-basis accounting after cash?

A) $625.
B) $875.
C) $5,125.
D) $5,375.

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

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Question 112

Multiple Choice

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Financial statements are prepared directly from the

A) general journal.
B) ledger.
C) trial balance.
D) adjusted trial balance.

E) C) and D)
F) None of the above

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Question 113

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The time period assumption states that the economic life of a business entity can be divided into artificial time periods.

Under IFRS, income is defined as

The time period assumption states that

Accrued revenues are amounts recorded and received but not yet recognized.

Nirvana Corporation issued a one-year, 9%, $400,000 note on April 30, 2018. Interest expense for the year ended December 31, 2018 was

If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit

Adjusting entries are often made because some business events are not recorded as they occur.

Yankee Hotel Foxtrot initiated operations on July 1, 2018. To manage the company officers and managers have requested monthly financial statements starting July 31, 2018. The adjusted trial balance amounts at July 31 are shown below. $\begin{array}{lrlr}&\text { Debits }&&\text { Credits }\\ \text { Cash } & \$ 7,680 & \text { Accumulated Depreciation - Equipment } & \$ 840 \\\text { Accounts Receivable } & 810 & \text { Notes Payable } & 6,000 \\\text { Prepaid Rent } & 1,965 & \text { Accounts Payable } & 2,140 \\\text { Supplies } & 1,160 & \text { Salaries and Wages Payable } & 360 \\\text { Equipment } & 11,400 & \text { Interest Payable } & 40 \\\text { Dividends } & 800 & \text { Unearned Service Revenue } & 580 \\\text { Salaries and Wages Expense } & 7,145 & \text { Common Stock } & 5,000 \\\text { Rent Expense } & 2,740 & \text { Retained Earnings } & 5,640 \\\text { Depreciation Expense } & 665 & \text { Service Revenue } & \underline{14,390} \\\text { Supplies Expense } & 580 & \text { Total credits } & \$ 34,990 \\\text { Interest Expense } & \underline{45} & & \\\text { Total debits } & \$ 390 & &\end{array}$ (a) Determine the net income for the month of July. (b) Determine the total assets and total liabilities at July 31, 2018 for Yankee Hotel Foxtrot. (c) Determine the amount that appears for Retained Earnings at July 31, 2018.

Which of the statements below is not true?

Presented below are the basic assumptions and principles underlying financial statements. Identify the basic assumption or principle that is described below.

Monthly and quarterly time periods are called

Match the items below by entering the appropriate code letter in the space provided. A. Time period assumption B. Fiscal year C. Revenue recognition principle D. Prepaid expenses E. Expense recognition principle F. Accrued revenues G. Depreciation H. Accumulated depreciation I. Accrued expenses J. Book value 1. A twelve month accounting period 2. Expenses paid before they are incurred 3. Cost less accumulated depreciation 4. Divides the economic life of a business into artificial time periods 5. Efforts are related to accomplishments 6. A contra asset account 7. Recognition of revenue when the performance obligation is satisfied 8. Revenues recognized but not yet received 9. Expenses incurred but not yet paid 10. A cost allocation process Answers to Matching

Accrued revenues are

A candy factory's employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in

An accumulated depreciation account

From an accounting standpoint, the acquisition of productive facilities can be thought of as a long-term

The income statement is an important financial statement used by individuals who are interested in the operations of a business enterprise. Explain how the time period assumption and the revenue recognition and expense recognition principles provide guidance to accountants in preparing an income statement.