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Exam 2: Accounting for Accruals and Deferrals

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Question 41

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Using the form below, record each of the following transactions for Mayer Corporation during the year ending December 31, Year 1. (Note: There is no need to provide appropriate account titles for the Retained Earnings amounts in the last column of the table.)November 1: Received cash from clients for services to be performed over the next six months, $12,000November 1: Paid $1,200 for a 12-month insurance policyDecember 31: Recorded expiration of two months of the insuranceDecember 31: Earned $4,000 of the amount received from clients in November

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Question 42

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Which of the following accounts is not closed at the end of an accounting cycle?

A) Revenues
B) Retained earnings
C) Dividends
D) Expenses

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

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Question 43

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The following account balances were drawn from the financial statements of Grayson Company: $\begin{array}{llll}\text { Cash } & \$ 6,000 & \text { Accounts payable } & \$ 2,050\\\text { Accounts receivable } & \$ 3,100 & \text { Common stock } &? \\\text { Land } & \$ 9,600 & \text { Retained earnings, } & \$ 4,300\\ && \text {January 1}\\ && \text {Revenue}& \$ 11,100 \\ && \text {Exmenses}&\$8,050\end{array}$ Based on the above information, what is the balance of Common Stock for Grayson Company?

Pierce Company was founded in Year 1 and engaged in the following transactions:Issued common stock for cashPaid rent in advance for 3 months at a timePurchased supplies on accountCollected cash from a customer for services to be provided over a period of 1 yearPaid a cash dividend to stockholdersPurchased a 2-year fire insurance policyProvided services to customers on accountCollected cash from accounts receivablePaid cash for various operating expensesRequired:Which of the above transactions would require adjusting entries at year end?Why are adjusting entries required before financial statements can be prepared?

Regarding the effects of end-of-period adjustments, state whether each of the following statements is true or false.Recording the usage of supplies involves an increase in liabilities and a decrease in stockholders' equity.The accrual of salaries is considered a claims exchange transaction.Recording services performed on a prepaid contract involves a decrease in liabilities and an increase in assets.End-of-period adjustments often affect cash flows.Failure to record accrued salaries at the end of the year will cause reported net income to be higher than it should have been.

Indicate for each of the following items if the item would be reported on the income statement (IS), statement of changes in stockholders' equity (SE), balance sheet (BS), or statement of cash flows (CF). Some items may appear on more than one statement; if so, identify all applicable statements.Salaries payablePrepaid insuranceDividends paid to stockholdersInterest revenueAccounts payableSalaries expenseRetained earningsUnearned subscription revenueCash flows from operating activitiesBeginning common stockIssued stock to investors for cashAccounts receivable

Jack's Snow Removal Company received a cash advance of $6,000 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

Determine whether each of the following events are asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE) transactions.Borrowed $6,000 from creditorsIssued common stock to investors for $8,000 cashPaid one year's rent in advanceProvided services to customers and received $35,000 cashPaid creditors $10,000Received $3,000 of revenue in advanceProvided services to customers on account, $12,000Collected $2,000 from accounts receivableRecognized accrued salary expense of $2,000Adjusted the records for supplies used of $800

Asset use transactions always involve the payment of cash.

What effect does providing services on account have on the statement of cash flows? What effect does providing services on account have on the balance sheet?

What is the primary goal of the accrual basis of accounting?

The Maryland Corporation was started on January 1, Year 1, with the issuance of $50,000 of stock. During Year 1, the company provided $75,000 of services on account and collected $68,000 of that amount. Maryland incurred $63,000 of expenses, and paid $50,000 of that amount during Year 1. On December 31, Year 1, Maryland paid investors a $2,000 cash dividend and accrued $4,000 of salary expense.Required:What is the net income for year ended December 31, Year 1?Prepare the company's statement of cash flows for the year ended December 31, Year 1.What is the balance in Maryland's retained earnings account after closing?

Which of the following show how purchasing supplies for cash will affect a company's financial statements?

Nelson Company experienced the following transactions during Year 1, its first year in operation.Issued $9,600 of common stock to stockholdersProvided $5,900 of services on accountPaid $2,500 cash for operating expensesCollected $3,700 of cash from accounts receivablePaid a $280 cash dividend to stockholdersWhat is the amount of retained earnings that will be shown on the company's balance sheet prepared as of December 31, Year 1?

Nelson Company experienced the following transactions during Year 1, its first year in operation.Issued $12,000 of common stock to stockholders.Provided $4,600 of services on account.Paid $3,200 cash for operating expenses.Collected $3,800 of cash from accounts receivable.Paid a $200 cash dividend to stockholders. What is the amount of retained earnings that will be shown on the company's balance sheet prepared as of December 31, Year 1?

Stanley Company earns $8,000 of revenue on account in Year 1. Cash collections of receivables amount to $4,500 in Year 1 with the remainder being collected in Year 2. Which of the following shows how the recognition of revenue in Year 1 will affect the company's accounting equation? A. $\quad4,500 \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad4,500$ B. $\quad\quad\quad\quad\quad\quad4,500\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad4,000$ C. $\quad\quad\quad\quad\quad\quad8,000\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad8,000$ D. $\quad8,000\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad8,000$

What does the balance in accounts receivable represent?

Paying cash to settle a salaries payable obligation will affect which section of the statement of cash flows?

Which of the following illustrates how the recognition of revenue earned on account affects the financial statements?

Accounts that are closed include expenses, dividends, and unearned revenues.