Deck 2: Accounting for Accruals and Deferrals

Question 1

On January 1,Year 2,the Supplies account of Sheldon Company had a balance of $1,200.During the year,the company purchased $3,400 of supplies on account and made partial payments totaling $3,000 on those accounts.On December 31,Year 2,Sheldon determined that there were $1,400 of supplies on hand.Which of the following would be reported on Sheldon's Year 2 financial statements?

A)$1,600 of supplies;$200 of supplies expense
B)$1,400 of supplies;$2,000 of supplies expense
C)$1,400 of supplies;$3,200 of supplies expense
D)$1,600 of supplies;$3,400 of supplies expense

Answer 1

$1,400 of supplies;$3,200 of supplies expense

Question 2

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

A)Option A
B)Option B
C)Option C
D)Option D

Answer 2

Option D

Question 3

What do accountants commonly do when the connection between an expense and the corresponding revenue is vague?

A)Accelerate revenue recognition and delay expense recognition.
B)Match the expense with the period in which it is incurred.
C)Recognize the expense at the time payment is made.
D)Delay expense recognition until it can be matched with revenue.

Answer 3

Match the expense with the period in which it is incurred.

Question 4

Which of the following adjustments would not be described as an accrual?

A)Recording interest that has been earned but will not be collected until the next accounting period.
B)Recording operating expenses that have been incurred but not paid as of the end of the accounting period.
C)Recording salary expense that has been incurred but not paid as of the end of the accounting period.
D)Recording insurance expense relating to insurance premiums that were paid in advance.

Question 5

Revenue on account amounted to $5,000.Cash collections of accounts receivable amounted to $2,300.Expenses for the period were $2,100.The company paid dividends of $450.What was net income for the period?

A)$1,200
B)$2,900
C)$2,850
D)$2,450

Question 6

How does the adjusting entry to recognize the portion of the unearned revenue that a company earned during the accounting period affect the elements of the financial statements?

A)An increase in assets and a decrease in liabilities.
B)An increase in liabilities and a decrease in equity.
C)A decrease in liabilities and an increase in equity.
D)A decrease in assets and a decrease in liabilities.

Question 7

Recognition of revenue may be accompanied by which of the following?

A)A decrease in a liability
B)An increase in a liability
C)An increase in an asset
D)An increase in an asset or a decrease in a liability

Question 8

On December 1,Year 1,Jack's Snow Removal Company received $6,000 of cash in advance from a customer and promised to provide services for that customer during the months of December,January,and February.How will the Year 1 year-end adjustment to recognize the partial expiration of the contract impact the elements of the financial statements model?

A)Total assets will increase by $2,000.
B)Equity will increase by $2,000.
C)Total liabilities will increase by $2,000.
D)Total assets will increase by $2,000 and equity will increase by $2,000.

Question 9

Which of the following events would not require a year-end adjusting entry?

A)Purchasing supplies for cash during the year.
B)Paying for one year's rent during the year.
C)Providing services on account during the year.
D)Each of these events would require a year-end adjusting entry.

Question 10

The following account balances were drawn from the Year 1 financial statements of Grayson Company:

What is the balance of the Common Stock account?

A)$15,400
B)$19,900
C)$900
D)$20,800

Question 11

On October 1,Year 1,Jason Company paid $7,200 to lease office space for one year beginning immediately.What is the amount of rent expense that will be reported on the Year 1 income statement and what is the cash outflow for rent that would be reported on the Year 1 statement of cash flows?

A)$7,200;$7,200
B)$1,800;$1,800
C)$1,800;$7,200
D)$1,200;$7,200

Question 12

Recognizing an expense may be accompanied by which of the following?

A)An increase in liabilities
B)A decrease in liabilities
C)A decrease in revenue
D)An increase in assets

Question 13

How would a payment for rent paid in advance be classified?

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

Question 14

Revenue on account amounted to $9,000.Cash collections of accounts receivable amounted to $8,100.Cash paid for operating expenses was $7,500.The amount of employee salaries accrued at the end of the year was $900.What was the net cash flow from operating activities?

A)$900
B)$600
C)$1,500
D)$8,700

Question 15

Prior to closing,Syracuse Company's accounting records showed the following balances:

After closing,what is the balance of the Retained Earnings account?

A)$16,800
B)$23,700
C)$21,000
D)$26,400

Question 16

Which of the following statements is true regarding accrual accounting?

A)Revenue is recorded only when cash is collected.
B)Expenses are recorded when they are incurred.
C)Revenue is recorded in the period when it is earned.
D)Revenue is recorded in the period when it is earned and expenses are recorded when they are incurred.

Question 17

Mize Company provided $45,500 of services on account,and collected $38,000 from customers during the year.The company also incurred $37,000 of expenses on account,and paid $32,400 against its payables.How do these events impact the elements of the financial statements model?

A)Total assets would increase.
B)Total liabilities would increase.
C)Total equity would increase.
D)All of these answer choices are correct.

Question 18

Which of the following choices accurately reflects how the recording of accrued salary expense affects the financial statements of a business?

A)Option A
B)Option B
C)Option C
D)Option D

Question 19

Addison Company experienced an accounting event that affected its financial statements as indicated below:

Which of the following accounting events could have caused these effects on Addison's statements?

A)Issued common stock
B)Earned revenue on account
C)Earned cash revenue
D)Collected cash from customers in partial settlement of its accounts receivable.

Question 20

Bledsoe Company acquired $17,000 cash by issuing common stock on January 1,Year 1.During Year 1,Bledsoe earned $8,500 of revenue on account.The company collected $6,000 cash from customers in partial settlement of its accounts receivable and paid $5,400 cash for operating expenses.Based on this information alone,what was the impact on total assets during Year 1?

A)Total assets increased by $20,100.
B)Total assets increased by $600.
C)Total assets increased by $26,100.
D)Total assets did not change.

Question 21

Which of the following is frequently used to describe the expenses that are matched in the same accounting period in which they are incurred?

A)Market expenses
B)Matching expenses
C)Period costs
D)Working costs

Question 22

On September 1,Year 1,Gomez Company collected $9,000 in advance 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 the company report as net cash flows from operating activities for Year 1?

A)$3,000;$3,000
B)$9,000;$9,000
C)$3,000;$9,000
D)$0;$9,000

Question 23

[The following information applies to the questions displayed below.]

Nelson Company experienced the following transactions during Year 1, its first year in operation.

Acquired $12,000 cash by issuing common stock
Provided $4,600 of services on account
Paid $3,200 cash for operating expenses
Collected $3,800 of cash from customers in partial settlement of its accounts receivable
Paid a $200 cash dividend to stockholders


-What is the balance of the retained earnings that will be reported on the balance sheet as of December 31,Year 1?

A)$1,200
B)$1,000
C)$1,400
D)$13,200

Question 24

[The following information applies to the questions displayed below.]

Nelson Company experienced the following transactions during Year 1, its first year in operation.

Acquired $12,000 cash by issuing common stock
Provided $4,600 of services on account
Paid $3,200 cash for operating expenses
Collected $3,800 of cash from customers in partial settlement of its accounts receivable
Paid a $200 cash dividend to stockholders


-What is the amount of total assets that will be reported on the balance sheet as of December 31,Year 1?

A)$12,400
B)$12,600
C)$13,400
D)$13,200

Question 25

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?

A)The amount of net loss shown on the income statement is $9,000.
B)The amount of net income shown on the income statement is $27,000.
C)The amount of net income shown on the income statement is $9,000.
D)The amount of net cash flow from operating activities shown on the statement of cash flows is $18,000.

Question 26

[The following information applies to the questions displayed below.]

Nelson Company experienced the following transactions during Year 1, its first year in operation.

Acquired $12,000 cash by issuing common stock
Provided $4,600 of services on account
Paid $3,200 cash for operating expenses
Collected $3,800 of cash from customers in partial settlement of its accounts receivable
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

Question 27

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

A)Balance sheet
B)Income statement
C)Statement of changes in stockholders' equity
D)Statement of cash flows

Question 28

What is the purpose of the accrual basis of accounting?

A)Recognize revenue when it is collected from customers.
B)Match assets with liabilities during the proper accounting period.
C)Recognize expenses when cash disbursements are made.
D)Recognizing revenue when it is earned and expenses when they are incurred,regardless of when cash changes hands.

Question 29

Duluth Co.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?

A)Increase assets and decrease liabilities
B)Increase assets and increase revenues
C)Decrease liabilities and increase revenues
D)No effect

Question 30

The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31,Year 1:


-What is the amount of total assets that will be reported on the balance sheet as of December 31,Year 1?

A)$12,600
B)$13,800
C)$7,200
D)$10,600

Question 31

Which of the following accounts would not appear on a balance sheet?

A)Service Revenue
B)Salaries Payable
C)Unearned Revenue
D)Interest Payable

Question 32

Which of the following are "matched" under the matching concept?

A)Expenses and revenues
B)Expenses and liabilities
C)Assets and equity
D)Assets and liabilities

Question 33

Which of the following correctly states the proper order of the steps in the accounting cycle?

A)Record transactions,adjust accounts,close temporary accounts,prepare statements.
B)Adjust accounts,record transactions,close temporary accounts,prepare statements.
C)Record transactions,adjust accounts,prepare statements,close temporary accounts.
D)Adjust accounts,prepare statements,record transactions,close temporary accounts.

Question 34

Which of the following would cause net income on the accrual basis to be different from (either higher or lower than)"cash provided by operating activities" on the statement of cash flows?

A)Purchased land for cash
B)Purchased supplies for cash
C)Paid advertising expense
D)Paid dividends to stockholder

Question 35

If retained earnings decreased during the year,and no dividends were paid,which of the following statements must be true?

A)Expenses for the year exceeded revenues.
B)The company did not have enough cash to pay its expenses.
C)Total equity decreased.
D)Liabilities increased during the year.

Question 36

Warren Enterprises began operations during Year 1.The company had the following events during Year 1:
The business issued $40,000 of common stock to its stockholders.
The business purchased land for $24,000 cash.
Services were provided to customers for $32,000 cash.
Services were provided to customers for $10,000 on account.
The company borrowed $32,000 from the bank.
Operating expenses of $24,000 were incurred and paid in cash.
Salary expense of $1,600 was accrued.
A dividend of $8,000 was paid to the stockholders of Warren Enterprises.
After closing,what is the balance of the Retained Earnings account as of December 31,Year 1?

A)$10,000
B)$8,400
C)$16,400
D)$42,000

Question 37

On December 31,Year 1,Gaskins Co.owed $4,500 in salaries to employees who had worked during December but will not be paid until January,Year 2.If the year-end adjustment is properly recorded on December 31,Year 1,what will be the effect of this accrual on net income and cash flows from operating activities reported for Year 1?

A)No effect on net income;no effect on cash flow from operating activities
B)Decrease in net income;no effect on cash flow from operating activities
C)Increase in net income;decrease in cash flow from operating activities
D)No effect on net income;decrease in cash flow from operating activities

Question 38

The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31,Year 1:


-What is the amount of net income that will be reported on the Year 1 income statement?

A)$2,200
B)$3,200
C)$1,000
D)$200

Question 39

After closing,what is the balance of the Retained Earnings account on December 31,Year 1?

A)$5,900
B)$7,200
C)$3,900
D)$4,900

Question 40

[The following information applies to the questions displayed below.]

Nelson Company experienced the following transactions during Year 1, its first year in operation.

Acquired $12,000 cash by issuing common stock
Provided $4,600 of services on account
Paid $3,200 cash for operating expenses
Collected $3,800 of cash from customers in partial settlement of its accounts receivable
Paid a $200 cash dividend to stockholders


-What is the amount of net cash flows from operating activities that will be reported on the Year 1 statement of cash flows?

A)$400
B)$600
C)$1,400
D)$1,200

Question 41

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

Question 42

What should an accountant do when there is no traceable connection between expenses and revenue?

A)Apply the matching concept
B)Design a system of internal control
C)Exercise judgment
D)Be as uniform as possible

Question 43

Which of the following is an asset source transaction?

A)Issued common stock
B)Paid a cash dividend to stockholders
C)Collected cash from customers in settlement of accounts receivable
D)Accrued salary expense

Question 44

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

Question 45

Which of the following types of accounts is closed at the end of an accounting cycle?

A)Dividends
B)Common stock
C)Assets
D)Liabilities

Question 46

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

A)Internal controls
B)Asset source transactions
C)Accounting standards
D)Financial systems

Question 47

Which of the following is not a principle of the AICPA Code of Professional Conduct?

A)Due Care
B)Objectivity and Independence
C)Integrity
D)Internal Controls

Question 48

What action did the U.S.Congress take because of the audit failures at Enron,WorldCom and other companies?

A)Required publicly-traded companies to be audited by a government agency
B)Passed the Sarbanes-Oxley Act
C)Required companies to begin preparing an additional financial statement
D)Passed an amendment to the Securities and Exchange Act

Question 49

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

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

Question 50

Which of the following is not an element of the fraud triangle?

A)Reliance
B)Rationalization
C)Opportunity
D)Pressure

Question 51

If a company provides services to clients but has not yet collected any cash,how should that transaction be classified?

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

Question 52

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

Question 53

Which of the following is an asset exchange transaction?

A)Issued common stock.
B)Accrued salary expense at the end of the accounting period.
C)Collected cash on accounts receivable.
D)Recognized revenue earned on a contract where the cash had been collected at an earlier date.

Question 54

Which of the following statements best describes the balance in a revenue account at the beginning of an accounting period?

A)Zero
B)Last period's ending balance
C)Higher than the previous period's beginning balance
D)Equal to the amount of retained earnings for the previous period

Question 55

Which of the following is an asset use transaction?

A)Purchased machine for cash.
B)Recorded insurance expense at the end of the period.
C)Invested cash in an interest earning account.
D)Accrued salary expense at the end of the period.

Question 56

The term "accrual" describes an earnings event that is recognized before cash is received or paid.

Question 57

The term "recognition" means to report an economic event in the financial statements.

Question 58

Which of the following describes the effects of a claims exchange transaction on a company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 59

Which of the following is not one of the common elements that are typically present when fraud occurs?

A)The capacity to rationalize
B)The existence of pressure leading to an incentive
C)The assistance of others
D)The presence of an opportunity

Question 60

Which of the following is a claims exchange transaction?

A)Recognized revenue earned on a contract where the cash had been collected at an earlier date.
B)Issued common stock.
C)Invested cash in an interest earning account.
D)Purchased machine for cash.

Question 61

Revenues and expenses are temporary accounts.

Question 62

The bankruptcies of Enron and WorldCom both indicated the occurrence of major audit failures.

Question 63

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

Question 64

Certified public accountants are obligated to act in a way that serves the public interest.

Question 65

After the closing process,all income statement accounts have balances that carry forward into the next accounting period.

Question 66

Asset use transactions always involve the payment of cash.

Question 67

The governance of a corporation includes the roles and responsibilities of the board of directors,managers,shareholders,and auditor.

Question 68

Two of the steps in the accounting cycle are adjusting the accounts and closing the accounts.

Question 69

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

Question 70

Accrual accounting usually fails to match expenses with revenues.

Question 71

An increase in an expense may be accompanied by a decrease in a liability.

Question 72

The collection of an account receivable is a claims exchange transaction.

Question 73

The matching concept leads accountants to select the recognition alternative that produces the lowest amount of net income.

Question 74

The balances of the temporary accounts are transferred to Net Income,a permanent account,during the closing process.

Question 75

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

Question 76

Providing services to customers on account is an asset exchange transaction.

Question 77

Sometimes the recognition of revenue is accompanied by an increase in liabilities.

Question 78

Adjusting entries never affect a business's cash account.

Question 79

The internal controls of a business are designed to reduce the probability of occurrence of fraud.

Question 80

The Sarbanes-Oxley Act includes several significant reforms that affect the auditing profession,but it did not reduce an audit firm's ability to provide non-audit services to its audit clients.