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Exam 3: The Financial Reporting Process

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Question 71

Multiple Choice

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The following information pertains to Sooner Company: Assuming that Sooner Company uses accrual-basis accounting, when would the company record the expense related to the supplies?

A) May 2.
B) May 8.
C) May 15.
D) May 20.

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

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Question 72

Multiple Choice

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When a company makes an end-of-period adjusting entry which includes a debit to Supplies Expense, the usual credit entry is made to:

A) Accounts Payable.
B) Supplies.
C) Cash.
D) Retained Earnings.

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

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Question 73

Multiple Choice

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Which of the following is(are) true regarding the characteristics of adjusting entries?

An example of an adjusting entry would not include:

Unearned revenues occur when cash is received after the revenue is earned.

The adjusting entry for a prepaid expense has the effect of reducing total assets and reducing net income.

The components of retained earnings include assets, expenses, and dividends.

The closing entry for expenses includes:

When a company provides services on account, which of the following would be recorded using cash-basis accounting?

Which of the following describes the purpose(s) of closing entries?

The following answers point out the key phrases that should appear in students' answers. They are not intended to be examples of complete student responses. It might be helpful to provide detailed instructions to students on how brief or in-depth you want their answers to be. -What is an accrued expense?

The December 31, 2012, post-closing trial balance for Strong Corporation is presented below: Prepare a classified balance sheet for Strong Corporation at December 31, 2012.

A company maintains its records using cash-basis accounting. During the year, the company received cash from customers, $34,000, and paid cash for taxes, $24,000. At the beginning of the year, customers owe the company $3,000. By the end of the year, customers owe $5,000. At the beginning of the year, the company owes taxes of $4,000. At the end of the year, the company owes taxes of $5,000. Determine cash-basis net income and accrual-basis net income for the year.

A company reports the following amounts: Assets = $6,000; Liabilities = $2,000; Stockholders' equity = $4,000; Dividends = $500; Revenues = $5,000; and Expenses = $3,000. What amount is reported for net income?

An adjusted trial balance:

Prepaid expenses involve payment of cash (or an obligation to pay cash) for the purchase of an asset before the expense is incurred.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the term in the space provided. Terms: -____ Liabilities created when expenses are recognized before cash flows.

When the balance of the Unearned Revenue account decreases during an accounting period:

For each transaction below, calculate the amount of expense to be recognized in the current period using accrual-basis accounting: (a) Paid $3,500 on account for supplies purchased last period. All supplies were used last month. (b) Paid $5,000 cash for advertising in the current period. (c) Employees worked in the current period but will not be paid until the following period, $4,500.

A company purchases one year of flood insurance in advance on May 1, paying $24,000 ($2,000/month). Record the adjusting entry on December 31.