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Exam 2: Accounting for Accruals and Deferrals

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Question 1

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Gomez Company collected $21,300 on September 1, Year 1 from a customer for services to be provided over a one-year period beginning on that date. How much revenue would Gomez Company report related to this contract on its income statement for the year ended December 31, Year 1? How much would it report as cash flows from operating activities for Year 1?

A) Revenue of $7,100; Cash flow from operating activities of $7,100
B) Revenue of $0; Cash flow from operating activities of $21,300
C) Revenue of $7,100; Cash flow from operating activities of $21,300
D) Revenue of $21,300; Cash flow from operating activities of $21,300

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

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Question 2

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How would purchasing prepaid rent be classified?

A) Asset source transaction
B) Asset use transaction
C) Asset exchange transaction
D) Claims exchange transaction

E) All of the above
F) A) and B)

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Question 3

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A payment to an employee in settlement of salaries payable decreases an asset and decreases stockholders' equity.

Sheldon Company began Year 1 with $1,900 in its supplies account. During the year, the company purchased $5,600 of supplies on account. The company paid $2,800 on accounts payable by year end. At the end of Year 1, Sheldon counted $3,300 of supplies on hand. Sheldon's financial statements for Year 1 would show:

On December 31, Year 1, Gaskins Company owed $4,500 in salaries to employees who had worked during December but would be paid in January. If the year-end adjustment is properly recorded on December 31, Year 1, what will be the effect of this accrual on the following items for Gaskins? $\begin{array}{cc} \text { Net Income} & \text {Cash Flow from Operating } \\& \text { Activities }\end{array}$ a. $\begin{array}{ll}\text { Not Affected } && \text { Not Affected } \\\end{array}$ b. $\begin{array}{ll}\text { Decrease } &&&& \text { Not Affected } \\\end{array}$ c. $\begin{array}{ll}\text { Increase } &&&& \text { Decrease } \\\end{array}$ d. $\begin{array}{ll}\text { Noeffect } &&&& \text { Decrease }\end{array}$

The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31, Year 2: $\begin{array} { l lll} \text { Cash } & \$ 3,800& \text { Accounts receivable } & \$1,550\\\text { Dividends} &1,900& \text { common stock } &2,375 \\\text { Land } &2,200 &\text { Revenue } &2,200 \\\text { Accounts payable } & 1,150 &\text { Expense } & 1,250\end{array}$ What is the amount of retained earnings that will be shown on the balance sheet at December 31, Year 2?

A company may recognize a revenue or expense without a corresponding cash collection or payment in the same accounting period.

An adjusting entry that decreases unearned revenue and increases service revenue is a claims exchange transaction.

Revenue on account amounted to $6,200. Cash collections of accounts receivable amounted to $5,900. Cash paid for expenses was $4,100. The amount of employee salaries accrued at the end of the year was $1,900. What is the net cash flow from operating activities for the year?

Prior to closing the accounts, Syracuse Company's accounting records showed the following balances: $\begin{array}{lr}\text { Retained earnings } & \$ 16,800 \\\text { Service revenue } & 21,750 \\\text { Interest revenue } & 1,800 \\\text { Salaries expense } & 12,300 \\\text { Operating expense } & 3,450 \\\text { Interest expense } & 900 \\\text { Dividends } & 2,700\end{array}$ After closing the accounts, Syracuse's retained earnings balance would be

What is the term commonly used to describe expenses that are matched with the period in which they are incurred?

What happens when a company collects cash from accounts receivable?

Jack's Snow Removal Company received a cash advance of $14,400 on December 1, Year 1 to provide services during the months of December, January, and February. The year-end adjustment on December 31, Year 1, to recognize the partial expiration of the contract will

Gomez Company collected $9,000 on September 1, Year 1 from a customer for services to be provided over a one-year period beginning on that date. How much revenue would Gomez Company report related to this contract on its income statement for the year ended December 31, Year 1? How much would it report as cash flows from operating activities for Year 1?

Amber Company recognized accrued salary expense. Which of the following financial statements are affected by this accounting event?

Consider the following independent scenarios:At January 1, Year 2, accounts receivable was $24,000. Cash collected on accounts receivable during Year 2 was $55,000. At December 31, Year 2, accounts receivable was $30,000. What were the revenues earned on account during Year 2?At January 1, Year 2, accounts payable was $19,000. During Year 2, expenses on account were $68,000. At December 31, Year 2, accounts payable was $15,000. What was the amount of cash paid on accounts payable during Year 2?At January 1, Year 2, the balance in the prepaid insurance account was $480; that amount expires in Year 2. On March 1, Year 2, the company paid $3,000 for insurance coverage for the next 12 months. What was the amount of insurance expense for Year 2?At January 1, Year 2, the balance in the supplies account was $550. At December 31, Year 2, the company counted $400 of supplies on hand. The company reported supplies expense in Year 2 of $3,300. What was the total of supplies purchases during Year 2?

Describe the difference between temporary and permanent accounts, and state which ones are closed.

Indicate whether each of the following statements regarding the four types of accounting events is true or false.Asset exchange transactions involve an increase in one asset and a decrease in another asset.An asset source transaction involves an increase in assets and an increase in a corresponding claims account.An asset use transaction cannot result in an increase in stockholders' equity.Asset exchange transactions cannot affect cash flows.Some claims exchange transactions involve an increase in a liability account and a decrease in an stockholders' equity account.

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAAt the end of the accounting period, Signet Company recognized accrued salaries.

In a company's annual report, the reader will find a company's income statement, statement of changes in stockholder's 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.How much cash was collected from accounts receivable during the current year?What was the total amount of land owned by the company?What was the total revenue earned by the company during the most recent year?What were the types of claims that the company has against its assets?What was the total amount of cash received by the issuance of common stock?Was the company profitable during the most recent year?What was the amount of cash dividends paid to the stockholders during the most recent year?What was the total amount of cash borrowed by the company during the most recent year?What was the ending balance of retained earnings?What was the amount of change in the cash balance during the current year?