Deck 3: Transactions, Adjustments, and Financial Statements

Question 1

The financial statement effects template captures the effects of transactions on all four financial statements.

Answer 1

True

Question 2

Increases are recorded on the left side of asset T-accounts and on the right side of liability T-accounts.

Answer 2

True

Question 3

When shareholders contribute capital to a company, earned capital increases because the company has earned the shareholders' investments.

Answer 3

False

Question 4

Revenues and expenses affect the income statement but not the balance sheet.

Question 5

Revenue is typically recorded as earned when cash is received because that is when the company can measure the revenue objectively.

Question 6

Expenses that are paid in advance are held on the balance sheet until the end of the accounting period when they are transferred to the income statement with accounting adjustments.

Question 7

The journal entry for recording sales revenue that has been earned is to debit accounts receivable if cash will be received later, or credit unearned revenue if cash was received in advance.

Question 8

The journal entry for recording cost of sales is to debit cost of sales expense and credit the inventory account.

Question 9

Companies make adjustments to more accurately reflect items on the income statement and the balance sheet.

Question 10

There is a certain order in which a company prepares its financial statements. First, a company prepares its balance sheet.

Question 11

Two steps must be completed in order to prepare financial statements: recording transactions during the period and adjusting records to ensure all events are properly recorded.

Question 12

A company closes all of its accounts in order to zero out the balances so that next period starts with a fresh slate.

Question 13

To close revenue accounts, a company must debit Retained Earnings because Revenue has a credit balance and debits must equal credits.

Question 14

Sales on account would produce what effect on the balance sheet?

A) Increase the Revenue account
B) Increase noncash assets (Accounts receivable)
C) Increase cash assets
D) A and B
E) A, B and C

Question 15

How would a purchase $400 of inventory on credit affect the income statement?

A) It would increase liabilities by $400.
B) It would decrease liabilities by $400.
C) It would increase noncash assets by $400.
D) Both A and C
E) None of the above

Question 16

During fiscal 2016, Shoe Productions recorded inventory purchases on credit of $337.8 million. The financial statement effect of these purchase transactions would be to:

A) Increase liabilities (Accounts payable) by $337.8 million
B) Decrease cash by $337.8 million
C) Increase expenses (Cost of goods sold) by $337.8 million
D) Decrease noncash assets (Inventory) by $337.8 million
E) Both A and D

Question 17

During fiscal 2016, Shoe Productions recorded inventory purchases on credit of $337.8 million. Inventory at the start of the year was $38.2 million and at the end of the year was $53.0 million.
Which of the following describes how these transactions would be entered on the financial statement effects template?

A) Increase liabilities (Accounts payable) by $323.0 million
B) Increase expenses (Cost of goods sold) by $337.8 million
C) Increase expenses (Cost of goods sold) by $323.0 million
D) Increase noncash assets (Inventory) by $14.8 million
E) Both A and C

Question 18

During fiscal 2016, Plastics and Synthetic Resins Company recorded cash of $87,800 from customers for accounts receivable collections.
Which of the following financial statement effects template entries captures this transaction?

Question 19

During fiscal 2016, Stanley Black & Decker Corporation reported Net income of $965.3 million and paid dividends of $330.9 million.
Which of the following describes how these transactions would affect Stanley Black and Decker's equity accounts? (in millions)

A) Increase contributed capital by $965.3 and decrease earned capital by $330.9
B) Decrease contributed capital by $330.9 and increase earned capital by $965.3
C) Increase contributed capital by $634.4
D) Increase earned capital by $634.4
E) None of the above

Question 20

Cari's Bakery, Inc., began operations in October 2017. The owner contributed cash of $18,000 and a delivery truck with fair value of $24,000 to the company.
Which of the following describes how these transactions would affect the company's equity accounts?

A) Increase contributed capital by $42,000
B) Increase earned capital by $42,000
C) Increase contributed capital by $18,000 and earned capital by $24,000
D) Increase earned capital by $18,000 and contributed capital by $24,000
E) None of the above

Question 21

At the end of fiscal 2017, Nick's Greenhouse counted inventory and determined that inventories of $87,160 were on hand. The end of fiscal year the unadjusted inventory account balance is $95,000. Inventory at the start of the year was $99,880.
Which of the following accounting adjustments should Nick's Greenhouse record?
D) No accounting adjustment is required.

Question 22

During its first three months of operations, Cari's Bakery, Inc. purchased supplies such as plates, napkins, bags, and cutlery for $9,000 and recorded this as supplies inventory. Supplies on hand at the end of the first quarter, amount to $5,600.
To prepare financial statement for the first quarter, the company must record which of the following accounting adjustments?

A) Increase Supplies expense by $5,600 and decrease Supplies inventory by $5,600
B) Increase Supplies expense by $3,400 and decrease Supplies inventory by $3,400
C) Increase Supplies inventory by $5,600 and decrease Supplies expense by $5,600
D) Increase Supplies inventory by $3,400 and decrease Supplies expense by $3,400
E) None of the above

Question 23

A company records an adjusting journal entry to record $10,000 depreciation expense. Which of the following describes the entry?

A) Debit Property Plant and Equipment and Credit Depreciation expense
B) Debit Depreciation expense and Credit Property Plant and Equipment
C) Debit Property Plant and Equipment and Credit Cash
D) Debit Depreciation expense and Credit Cash
E) Debit Net Income and Credit Property Plant and Equipment

Question 24

During the month of March 2017, Weimar World, a tax-preparation service, had the following transactions.
$\bullet$ Billed $496,000 in revenues on credit
$\bullet$ Received $164,000 from customers' accounts receivable
$\bullet$ Incurred expenses of $194,000 but only paid $87,700 cash for these expenses
$\bullet$ Prepaid $32,220 for computer services to be used next month
What was the company's accrual basis net income for the month?

A) $ 302,000
B) $ 264,080
C) $ 41,860
D) $408,300
E) None of the above

Question 25

Weimar World, a tax-preparation service, had a cash balance of $122,500 as of March 1, 2017. During the month of March, Weimar World had the following transactions.
$\bullet$ Billed $496,000 in revenues on credit
$\bullet$ Received $164,000 from customers' accounts receivable
$\bullet$ Incurred expenses of $194,000 but only paid $87,700 cash for these expenses
$\bullet$ Prepaid $32,200 for computer services to be used next month
What was the company's cash balance on March 31, 2017?

A) $332,000
B) $166,600
C) $ 496,000
D) $198,800
E) None of the above

Question 26

Which of the following accounts would not be involved in preparing the income statement?

A) Depreciation expense
B) Accumulated depreciation
C) Taxes payable
D) Interest income
E) B and C

Question 27

Which of the following accounts would not appear in a closing entry?

A) Net income
B) Depreciation expense
C) Cost of goods sold
D) Inventory
E) Both A and D

Question 28

During 2016, Nike Inc., reported net income of $3,760 million. The company declared dividends of $1,022 million.
The closing entry for dividends would include which of the following?

A) Credit Cash for $1,022 million
B) Credit Dividends for $1,022 million
C) Debit Net income for $1,022 million
D) Credit Retained earnings for $1,022 million
E) Debit Dividends for $1,022 million

Question 29

Which of the following accounts would not appear in a closing entry?

A) Interest expense
B) Accumulated depreciation
C) Cost of goods sold
D) Dividends
E) Both B and D

Question 30

During fiscal 2016, Caleres Inc. (formerly Brown Shoe Company), reported cost of goods sold of $1,517.4 million. Inventory at the start of the year was $546.7 million and at the end of the year was $585.8 million.
Which of the following describes the closing entry that the company will make for these accounts?

A) Debit Inventory $39.1 million
B) Credit Inventory $585.8 million
C) Credit Cost of goods sold $1,517.4 million
D) Both A and C
E) None of the above

Question 31

On January 1, Fey Properties collected $7,200 for six months' rent in advance from a tenant renting an apartment. Fey Company prepares monthly financial statements.
Which of the following describes the required adjusting entry on January 31?

A) Debit Cash for $7,200 and Credit Rent revenue for $7,200
B) Debit Unearned rent revenue for $1,200 and Credit Rent revenue for $1,200
C) Debit Rent revenue for $1,200 and Credit Unearned rent revenue for $1,200
D) Debit Cash for $6,000 and Credit Unearned rent revenue for $6,000
E) Debit Unearned rent revenue for $6,000 and Credit Cash for $6,000

Question 32

On January 1, Fey Properties paid $12,600 for a three-year insurance premium, with coverage beginning immediately. Fey Company prepares monthly financial statements.
Which of the following describes the required adjusting entry on January 31?

A) Debit Cash for $4,200 and Credit Prepaid insurance for $4,200
B) Debit Prepaid insurance for $350 and Credit Insurance expense for $350
C) Debit Insurance expense for $350 and Credit Prepaid insurance for $350
D) Debit Cash for $8,400 and Credit Prepaid insurance for $8,400
E) Debit Insurance expense for $4,200 and Credit Prepaid insurance for $4,200

Question 33

How would a sale of $400 of inventory on credit affect the balance sheet if the cost of the inventory sold was $160?

A) It would increase noncash assets by $400 and increase equity by $400
B) It would decrease noncash assets by $160 and decrease equity by $160
C) It would increase cash by $400 and increase equity by $400
D) Both A and B, above happen simultaneously
E) None of the above

Question 34

Examine the financial statements effects template below. Then select the answer that best describes the transaction.

A) Repay accounts payable of $300 with cash
B) Collect cash for accounts receivable of $300
C) Purchase inventory of $300 on account
D) Purchase inventory of $300 for cash
E) None of the above

Question 35

Examine the financial statements effects template below. Then select the answer that best describes the transaction.

A) Repay accounts payable of $120, net
B) Record accounts receivable of $600 and cash collected of $120
C) Purchase inventory of $600 partially on account
D) Purchase $600 of equipment on account
E) None of the above

Question 36

Record the following transactions in the financial statements effects template below.

Question 37

Record the following transactions in the financial statements effects template below.
a) Founder contributes $44,000 in cash in exchange for common stock.
b) Obtain $26,000 short-term bank loan.
c) Purchase equipment costing $24,000 for cash.
d) Purchase inventory costing $14,000 on account.

Question 38

The January 28, 2017 income statement and balance sheet for Kohl's Corporation shows the following items (in millions):
Required: Prepare the journal entries to record Net sales and Cost of goods sold for Kohl's for the fiscal year ended January 28, 2017. Assume all sales are for cash.

Question 39

Record the following transactions in the financial statements effects template below.
a) Company receives $6,000 from the sale of gift certificates.
b) Customers used $5,700 gift certificates. The cost of the inventory sold is $3,900.
c) The balance of the gift certificates expire unused

Question 40

The balance sheet of Taos Promotion includes the amounts shown below. Analysis of the company's records reveals the following transactions during 2017, the company's first year of operations:
Cash received from customers, recorded as service revenue $311,475
Purchase of supplies for cash, expensed $ 43,500
Cash paid for salaries, expensed $ 28,100
Analysis of the company's balance sheet accounts reveals that at year-end, supplies on hand total $7,950, employees have earned $12,000 but have not yet been paid, and on the last day of the fiscal year, customers paid deposits of $22,050 for future promotions (this is included in total cash received from customers, above).
Required: Prepare journal entries to adjust the account balances for revenue, supplies expense and salary expense for the year-end. Prepare closing entries.

Question 41

Select accounts of Pete's Pizza are shown below as of the end fiscal 2017, before any accounts have been adjusted for the current fiscal year.
Your analysis reveals additional information as follows:
$\bullet$ The cost of inventory items on hand is $69,600.
$\bullet$ Employee wages earned prior to year-end were $23,400. These will not be paid until the 2018 fiscal year.
$\bullet$ The unexpired portion of the company's insurance policy at year end was $13,800.
$\bullet$ The company's tax accountant reports that the company will owe $162,000 for income taxes for fiscal 2017.
Prepare journal entries for any required accounting adjustments.

Question 42

Select accounts of Burger Express are shown below as of December 31, 2017, before any accounts have been adjusted for the current fiscal year.
Your analysis reveals additional information as follows:
$\bullet$ On June 1, 2017, the company prepaid rent of $8,640 per month for a 12-month lease on its building.
$\bullet$ The company bought the van on January 1, 2015 for the cost of $132,000. The van is expected to last eight years. The company's policy is to record depreciation evenly over the asset's useful life. No depreciation has been recorded during fiscal year 2017.
$\bullet$ When purchased on January 1, 2014, the stoves had expected lives of 10 years. The company's policy is to record depreciation evenly over the asset's useful life. No depreciation has been recorded on the stoves during fiscal 2017.
$\bullet$ The company sells numbered gift certificates in $60 denominations. At year-end there were 30 unredeemed gift certificates.
Prepare journal entries for any required accounting adjustments.

Question 43

During the year ended December 31, 2016, Cabela's, Inc., a retailer of outdoor equipment and apparel, purchased merchandise inventory at a cost of $2,413,850 (in thousands). The following T-account reflects information contained in the company's 2015 and 2016 balance sheets (in thousands).
Calculate Cabela's cost of sales for 2016 and complete the T-account.

Question 44

During the year ended December 31, 2016, Cabela's, Inc., a retailer of outdoor equipment and apparel, purchased merchandise inventory at a cost of $2,413,850 (in thousands). Assume that all inventory purchases were on account (on credit) and that accounts payable is only used for inventory purchases. The following T-account reflects information contained in the company's 2015 and 2016 balance sheets (in thousands).
Calculate the amount Cabela's paid in cash to its suppliers during 2016 and complete the T-account.

Question 45

Organic Floral is an organic flower shop. After its first quarter of operations, the company's accountant prepared the following list of account balances, in alphabetical order. The accountant also tells you that net income for the quarter was $52,500.
Use the information below along with the net income information to prepare a balance sheet for Organic Floral.

Question 46

Green Garden Company made $192,000 in net income during September 2017, its first month of business. It sold its services on credit and billed its customers $360,000 for September sales. The company collected $24,000 of these receivables in September. Company employees earned September wages (the company's only expense), but those are not paid until the first of October.
Complete the following financial statements for the end of September 2017.

Question 47

Craft Corner began operations in March with cash and common stock of $36,000. The company made $582,000 in net income its first month. It performed print jobs for customers and billed these customers $900,000. The company collected half of its receivables by the end of the month. The company had cost of goods sold of $162,000 paid for in cash and $6,000 inventory left over at the end of the month. Craft Corner employees earned wages but those are not paid until the first of April. This was the company's only liability.
Complete the following statements for the end of March.

Question 48

The December 28, 2016 income statement of Snap-On Incorporated includes the amounts shown below. The company paid dividends of $147.5 (in millions).
Prepare the closing entries for the company for 2016.

Question 49

Maibrit's Bike's began operations in April 2017 and had the following transactions.
a) Owner invested $120,000 cash and a truck worth $36,000 in exchange for stock.
b) Paid $84,000 cash for 6 months' rent.
c) Purchased $300,000 of bicycle inventory on credit.
d) Sold bicycles for cash of $507,000. The cost of the bikes sold was $180,000.
e) Sold and invoiced bicycles to a client for $95,400. The cost of the bikes sold was $48,000.
f) Paid $90,000 cash for an advertising campaign in connection with Tour de France. The campaign will run over the next two of months.
g) Paid $24,000 in cash for supplies to have on hand for bike repairs.
h) Collected $60,000 from accounts receivable.
i) Paid for bikes purchased on credit in Transaction c above.
j) Paid cash dividends of $3,000.
k) Received $6,000 cash from a customer as a deposit for a custom bicycle to be built.
At the end of April, the following information is available:
i. At the end of April, $19,200 supplies remained on hand.
ii. Rent paid in Transaction b is for a lease that began on April 1.
iii. At the end of April, one-third of the advertising campaign in Transaction f was completed.
iv. The truck is expected to be used for five years (60 months).
v. The custom bicycle in Transaction k was built and delivered to the customer on April 30.
Required: Record any accounting adjustments required for items i. through v., in the financial statement effects template, that follows.

Question 50

Maibrit's Bike's began operations in April 2017 and had the following transactions.
a) Owner invested $120,000 cash and a truck worth $36,000 in exchange for stock.
b) Paid $84,000 cash for 6 months' rent.
c) Purchased $300,000 of bicycle inventory on credit.
d) Sold bicycles for cash of $507,000. The cost of the bikes sold was $180,000.
e) Sold and invoiced bicycles to a client for $95,400. The cost of the bikes sold was $48,000.
f) Paid $90,000 cash for an advertising campaign in connection with Tour de France. The campaign will run over the next two of months.
g) Paid $24,000 in cash for supplies to have on hand for bike repairs.
h) Collected $60,000 from accounts receivable.
i) Paid for bikes purchased on credit in Transaction c above.
j) Paid cash dividends of $3,000.
k) Received $6,000 cash from a customer as a deposit for a custom bicycle to be built.
At the end of April, the following information is available:
i. At the end of April, $19,200 supplies remained on hand.
ii. Rent paid inTransaction b is for a lease that began on April 1.
iii. At the end of April, one-third of the advertising campaign in Transaction f was completed.
iv. The truck is expected to be used for five years (60 months).
v. The custom bicycle in Transaction k was built and delivered to the customer on April 30.
Required: Prepare journal entries for any accounting adjustments required for items i. through v.

Question 51

Record the following transactions for Mouser Pet Foods, Inc., in the financial statements effects template below (in thousands).
a) Sell stock in company for $78,000
b) Obtain long-term bank loan of $30,000.
c) Purchase manufacturing equipment for $20,400 cash.
d) Rent manufacturing and warehousing space and pay $34,800 in advance for the year.
e) Purchase $30,000 of inventory, paying $6,000 in cash and the remaining amount on credit.
f) Sell half of the inventory purchased in Transaction e for $33,900 on account.
g) Pay $24,000 to creditors.
h) Make loan payment of $4,800 of which interest is $480 and the rest is principal.

Question 52

Prepare journal entries to record the following transactions for Mouser Pet Foods, Inc. (in thousands).
a. Sell stock in company for $78,000
b. Obtain long-term bank loan of $30,000.
c. Purchase manufacturing equipment for $20,400 cash.
d. Rent manufacturing and warehousing space and pay $34,800 in advance for the year.
e. Purchase $30,000 of inventory, paying $6,000 in cash and the remaining amount on credit.
f. Sell half of the inventory purchased in transaction e., for $33,900 on account.
g. Pay $24,000 to creditors.
h. Make loan payment of $4,800 of which interest is $480 and the rest is principal.

Question 53

You have been hired by Peters CAD, a small engineering and drafting firm, to help prepare a set of financial statements for the bank for the fiscal year ending October 31. You have reviewed all the transactions for the year and find the following information that has not been recorded in the company's books.
1) During October, Peters CAD provided $11,400 of CAD services to clients who will be billed in early November. The firm uses the account Fees Receivable to reflect amounts due but not yet billed.
2) The firm paid $14,400 cash on October 15 for a series of radio commercials to run during October and November. One-third of the commercials have aired by October 31st. The $14,400 payment was recorded in the Prepaid advertising account.
3) Starting October 1, all maintenance work on Peters CAD's computer and printing equipment is handled by PC Guru under an agreement whereby Peters CAD pays a fixed monthly charge of $4,800. Peters CAD paid six months' service charges of $28,800 cash in advance on October 1, and increased its Prepaid expenses account by $28,800.
4) Starting October 16, Peters CAD rented 800 square feet of storage space from a neighboring business. The monthly rent of $4.80 per square foot is due in advance on the first of each month. Nothing was paid in October, as the neighbor agreed that Peters CAD could pay the rent for October with the November 1 rent payment.
5) Peters CAD invested $60,000 cash in securities on October 1 (this part of the transaction was already properly recorded) and earned interest of $1,200 on these securities by October 31. No interest will be received until January.
6) Monthly depreciation on the equipment is $870. No depreciation has been recorded yet for the year.
7) Weekly salaries for a five-day week total $37,500, payable on Fridays. October 31 of the current year is a Tuesday.
8) A bill for work done during August and September has not yet been sent because the client is out of the country. The bill totals $12,450.
9) Peters CAD has $240,000 of notes payable outstanding at October 31(already recorded on the books). Interest of $2,400 has accrued on these notes by October 31, and will be paid when the notes mature in 2020.
10) Peters CAD received a $12,000 deposit in June from a client for a job to be completed by the end of the fiscal year (this part of the transaction was already properly recorded). Peters CAD completed the job on October 31.
Required: Prepare accounting adjustments required at October 31 using the financial statement effects template that follows

Question 54

In December 2017, Beth Gilligan opened dry-cleaning store. The financial statement effects template below shows transactions for the month (a through i) and accounting adjustments (i through iv).
Required:
Determine the ending balances for the accounts as of December 31, 2017 and prepare an income statement for Beth Gilligan's first month of operations and a balance sheet for December 31, 2017

Question 55

Cabela's Incorporated has the following account balances as of December 31, 2016, the end of its fiscal year.
Prepare the company's income statement and balance sheet for December 31, 2016. The company paid no dividends during the year.

Question 56

Graham Holdings Company (formerly The Washington Post Company) has the following account balances as of December 31, 2016, the end of its fiscal year.
Prepare the company's income statement and balance sheet for 2016.

Question 57

Graham Holdings Company (formerly The Washington Post Company) has the following account balances as of December 31, 2016, the end of its fiscal year.
Prepare the closing entries for the fiscal year.

Question 58

The 2016 income statement of The Coca-Cola Company is as follows.
Prepare the closing entries for 2016 for the income statement temporary accounts.

Question 59

Describe and explain the accounting cycle.

Question 60

Explain what accounting adjustments are and why firms use them.

Question 61

Describe the closing process and explain why firms engage in this process.