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Exam 3: Accounting for Deferrals

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Question 71

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On September 1, Year 1, Zelda Company collected $120,000 cash for services to be provided for one year beginning immediately. The company's fiscal year ends on December 31. Based on this information, the amount of revenue appearing on the Year 1 income statement would be

A) $30,000
B) $40,000
C) $80,000
D) $120,000

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

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Question 72

Multiple Choice

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Betsy Company's December 31, Year 1, balance sheet showed $1,900 cash, $500 accounts payable, $400 common stock and $1,000 retained earnings. The company experienced the following events during Year 2.(1) On April 1, Year 2 the company paid $2,400 cash to rent office space for the coming year starting immediately(2) Earned $3,600 cash revenue(3) Paid a $200 cash dividendBased on this information, the company would report

A) a $1,200 net cash inflow from operating activities on the Year 2 statement of cash flows.
B) a $2,600 balance in retained earnings on the Year 2 balance sheet.
C) a $600 balance in a prepaid rent account on the Year 2 balance sheet.
D) All of the answers are correct.

E) None of the above
F) All of the above

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Question 73

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On June 1, Year 1, Maverick Company paid $1,200 cash for an insurance policy that would protect the company for one year. The company's fiscal year ends on December 31. Based on this information, the amount of insurance expense and the cash flow from operating activities shown on the Year 1 financial statements would be

Duluth Company collected a $6,000 cash advance from a customer on November 1, Year 1 for services to be provided over a six-month period beginning on that date. If the year-end adjustment is properly recorded, what will be the effect of the adjusting entry on Duluth's Year 1 financial statements?

Accumulated depreciation is reported on the income statement.

Explain the significance of the return-on-equity ratio. Who (what category or type of financial statement users)would normally be most interested in this ratio, and why?

On October 1, Year 1, Wilson Company paid cash for an insurance policy that would provide protection for a one-year term. Which of the following shows how the required adjusting entry on December 31, Year 1 will affect Wilson's financial statements?

Bates Company paid $1,600 cash for the right to use office space during the coming year. Which of the following shows how this event would affect Bates' balance sheet?

Wichita, Incorporated reported the following amounts on its financial statements prepared as of the end of the current accounting period: What is the company's return-on-equity ratio?

Foster Company's December 31, Year 1, balance sheet showed $2,700 cash, $1,000 common stock, and $1,700 retained earnings. The company experienced the following event during Year 2. On October 1, collected $12,000 in advance for an agreement to provide office space for one year beginning immediately. Based on this information alone,

The following events apply to Bowman's Cleaning Service for Year 1.1)Issued stock for $44,000 cash2)On May 1, paid $27,000 for one year's rent in advance3)Purchased on account $4,500 of supplies to be used in the business4)Performed services of $68,400 and received cash5)At December 31, adjusted the records for the expired rent6)At December 31, an inventory of supplies showed that $660 of supplies were still unusedRequired:Show how each of these transactions affects the company's accounts. Calculate the year-end total for each account.

What effect does being paid cash for services to be provided in the future normally have on the accounting equation?

Oregon Company began operations on January 1, Year 1, by issuing $10,000 in common stock to the stockholders. On March 1, Year 1, Oregon received $36,000 cash in advance from a client for services and promised to perform those services for a one-year period beginning April 1, Year 1. During Year 1, services in the amount of $32,000 were provided to customers on account, and 80% of this amount was collected by year-end. During Year 1, operating expenses incurred on account were $24,000, and 60% of this amount was paid by year-end. During the year, Oregon paid $1,200 to purchase supplies. By year-end, $1,080 of the supplies had been used. Dividends to stockholders were $2,000 during the year. During Year 1, Oregon paid salaries of $28,000, and on December 31, Year 1, the company accrued salaries of $2,800. Oregon recorded all appropriate adjusting entries at year end.Required:1)What would Oregon report for service revenue for Year 1?2)What would Oregon report for salaries expense for Year 1?3)What would Oregon report for supplies expense for Year 1?4)What would the amount be for net cash flows from operating activities for Year 1?5)What is the net income for Year 1?6)What would the balance in the retained earnings account be at December 31, Year 1?

Indicate how each event affects the financial statements model. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. 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.Increase = I Decrease = D Not Affected = NACason Company recorded $2,000 of depreciation expense on a delivery van.

Calculating the debt-to-assets ratio measures how efficiently a company is using its assets in the normal scope of business.

Tammy Company paid cash to purchase a long-term operational asset. The cost of the asset will be expensed (depreciated)