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Exam 2: Accounting for Accruals

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Question 31

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[The following information applies to the questions displayed below.] Nelson Company experienced the following transactions during Year 1, its first year in operation. 1) Acquired $12,000 cash by issuing common stock 2) Provided $4,600 of services on account 3) Paid $3,200 cash for operating expenses 4) Collected $3,800 of cash from customers in partial settlement of its accounts receivable 5) Paid a $200 cash dividend to stockholders -What is the amount of net income that will be reported on the Year 1 income statement?

A) $1,400
B) $800
C) $1,000
D) $1,200

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

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Question 32

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Accrual accounting usually fails to match expenses with revenues.

A) True
B) False

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Question 33

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The primary difference between notes payable and accounts payable is that notes payable generally have longer terms and usually require interest charges.

Zimmerman Company sold land for $25,000 cash.The original cost of the land was $25,000.Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

Indicate whether each of the following statements regarding preparing financial statements is true or false.

During Year 3,Fancy Foods Incorporated earned $54,000 of revenue on account.The beginning balance in accounts receivable was $5,000,and the ending balance was $10,000.Also,Fancy Foods Incorporated started the year with a beginning balance in accounts payable of $5,000.Fancy Foods' ending balance in account payable was $4,000.The company incurred $12,000 of operating expenses on account.Determine the amount of cash paid to settle accounts payable.

Chester Company began Year 2 with a note payable of $20,000 and interest payable of $800.During the year,the company accrued an additional $400 of interest expense,and paid off the note with interest.On the company's Year 2 statement of cash flows,cash flows for financing activities related to the note would be:

What is the term used to describe the policies and procedures that are designed to reduce the opportunities for fraud?

Some claims exchange transactions increase liabilities and decrease stockholders' equity.

[The following information applies to the questions displayed below.] The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31, Year 1: -The amount of Carolina's retained earnings on December 31,Year 1 was:

Perez Company paid a $300 cash dividend.Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

Janzen Company recorded employee salaries earned but not yet paid.Which of the following represents the effect of this transaction on the horizontal financial statements model?

Issuing a note is an asset use transaction.

Rushmore Company provided services for $45,000 cash during Year 1.Rushmore incurred $36,000 of operating expenses on account during Year 1,and by the end of the year,$9,000 of that amount had been paid with cash.If these are the only accounting events that affected Rushmore during Year 1,which of the following statements is true?

Which of the following would be included in the "cash flow from operating activities" section of the statement of cash flows?

Companies that use accrual accounting recognize revenues and expenses at the time that cash is received or paid,respectively.

The Merry Maids provided cleaning services to Orange Company on account.Which of the following would describe the transaction's effect on Orange Company's financial statements?

The ethical standards for certified public accountants only require that such accountants comply with applicable laws and regulations.

Which of the following financial statements is impacted most significantly by the matching concept?

Sales on account decrease the balance in accounts receivable.