Question 1

On June 1,2012,a company borrows $100,000 on a 10% note due to a bank in one year.What amount of interest expense is reported for the year ending December 31,2012?
A) $5,000
B) $5,833
C) $1,000
D) $10,000

Accepted Answer

The interest expense is calculated using the formula: principal x annual interest rate x time. In this case, the principal is $100,000, the annual interest rate is 10%, and the time is 7/12 (since the note was issued on June 1 and the year ends on December 31, there are 7 months left in the year). 
Thus, the interest expense is calculated as: $100,000 x 10% x 7/12 = $5,833. Therefore, the correct answer is B.

Question 2

The activity of Vegas Company for the month of April is given below:
$\begin{array} { l  }
 \text { Cash purchases of inventory}&\$45,000 \
 \text {Credit purchases of inventory }&\$ 50,000\
 \text { Cash payment for credit purchases of inventory}&\$ 12,000\
 \text { Cash dividend paid}&\$7,000 \
 \text { Wages earned and paid}&\$ 12,000\
 \text {Wages earned and unpaid }&\$2,000 \
 \text {Rent paid for April, May and June }&\$ 9,000\
\end{array}$

Using the cash basis of accounting,the total expenses for Vegas Company for the month of April are ________.
A) $35,000
B) $78,000
C) $80,000
D) $95,000

Accepted Answer

The answer of The activity of Vegas Company for the...

Question 3

On January 1,Latinovich Company paid $16,000 for rent.The rent covers the period January 1 through April 30.Latinovich Company recorded Prepaid Rent of $16,000.What is the balance in the Prepaid Rent account on April 1?
A) 0
B) $4,000
C) $8,000
D) $12,000

Accepted Answer

By April 1, three months of rent (January, February, March) have been used, totaling $12,000 ($4,000 per month). Therefore, the remaining balance for April is $4,000.

Question 4

Under the accrual basis of accounting,the impact of transactions is recorded when cash is received or paid.

Accepted Answer

Under the accrual basis of accounting, transactions are recorded when they occur, regardless of when cash is received or paid. This means that revenue is recorded when it is earned, even if payment is not received until a later date, and expenses are recorded when they are incurred, even if payment is not made until a later date.

Question 5

On May 1,Gomez Company paid $36,000 for rent.The rent covers the period May 1 through August 31.Gomez Company recorded Prepaid Rent of $36,000.What is the balance in the Prepaid Rent account on June 1?
A) $0
B) $9,000
C) $18,000
D) $27,000

Accepted Answer

The total rent of $36,000 covers four months (May, June, July, August), making the monthly rent $9,000 ($36,000 / 4 months). By June 1, one month (May) has passed, so $9,000 of the prepaid rent has been used, leaving $27,000 ($36,000 - $9,000) as the balance in the Prepaid Rent account.

Question 6

Journal entries for the expiration of unexpired assets are usually made before the related cash flows.

Accepted Answer

Journal entries for the expiration of unexpired assets are typically made after the related cash flows, as they reflect the recognition of expenses or revenues over time.

Question 7

Given below are the activities of the Phoenix Company:
$\begin{array} { l  }
 \text {Owners invested cash in business }&\$20,000 \
 \text {Credit sales }&\$ 80,000\
 \text {Cash sales }&\$20,000\
 \text { Cash collections from credit customers}&\$56,000 \
 \text {Purchased inventory on account }&\$ 37,000\
\end{array}$

Using the accrual basis of accounting,the total revenues for Phoenix Company are ________.
A) $46,000
B) $90,000
C) $100,000
D) $173,000

Accepted Answer

Under the accrual basis of accounting, revenues are recognized when earned, not necessarily when cash is received. Therefore, the total revenues include both credit sales ($80,000) and cash sales ($20,000), totaling $100,000.

Question 8

On April 1,2012,Company Z lends $200,000 to Company Y on a 8% note.For the six months ending June 30,2012,what amount of interest revenue will Company Z report on this note?
A) $4,000
B) $8,000
C) $12,000
D) $16,000

Accepted Answer

To calculate the interest revenue for the six months ending June 30, 2012, we need to find the interest for half a year (6 months).

Step 1: Find the interest for the entire year: 
$200,000 x 8% = $16,000

Step 2: Find the interest for half a year (6 months): 
$16,000 ÷ 2 = $8,000

Therefore, Company Z will report $4,000 of interest revenue for the six months ending June 30, 2012.

Question 9

An example of an explicit transaction is ________.
A) recording depreciation expense
B) paying cash for three months' rent in advance
C) accruing wages expense at the end of the month
D) accruing interest expense at the end of the year

Accepted Answer

Paying cash for three months' rent in advance is an explicit transaction because it involves an immediate exchange of cash for a specific asset or service. It is easy to identify the amount, timing, and terms of the transaction, making it explicit. The other options involve accrual accounting, which records expenses or revenues when they are incurred or earned, rather than when cash is exchanged. While these transactions are still important and affect a company's financial statements, they are not as explicit as paying cash for a transaction.

Question 10

Adjusting entries at the end of an accounting period record explicit transactions.

Accepted Answer

Adjusting entries at the end of an accounting period record internal events or items that are not specifically recorded during the period, such as prepaid expenses, unearned revenues, accrued expenses, and accrued revenues. They do not record explicit transactions that have already been recorded during the period.

Question 11

Source documents are associated with ________.
A) Generally Accepted Accounting Principles
B) implicit transactions
C) explicit transactions
D) compound entries

Accepted Answer

Source documents are associated with explicit transactions, which are transactions that have a specific dollar amount and involve an exchange of goods, services, or money. These documents provide evidence of the transaction and are used to record it accurately in the accounting system. Implicit transactions, on the other hand, do not have a specific dollar amount and often involve non-monetary exchanges or internal transfers. Generally Accepted Accounting Principles (GAAP) and compound entries are not directly related to source documents.

Question 12

On May 1,Gonzalez Company paid $36,000 for rent.The rent covers the period May 1 through August 31.Gonzalez Company recorded Prepaid Rent of $36,000.What is the Rent Expense for the period,May 1 through June 30?
A) $0
B) $9,000
C) $18,000
D) $27,000

Accepted Answer

The rent covers four months (May, June, July, August), so the monthly rent is $36,000 / 4 = $9,000. For the period May 1 through June 30, which is two months, the rent expense is 2 x $9,000 = $18,000.

Question 13

On July 1,Singh Company paid 6 months' insurance in advance.The policy covers the period of July 1 through December 31.The total payment was $5,400.At the time of the payment,the company set up the Prepaid Insurance account for $5,400.What is the balance in the Prepaid Insurance account on August 31?
A) 0
B) $1,800
C) $2,700
D) $3,600

Accepted Answer

By August 31, two months of the insurance policy have been used (July and August), leaving four months remaining. The monthly insurance cost is $5,400 divided by 6 months = $900 per month. For four months remaining, the balance is 4 months * $900 = $3,600.

Question 14

On July 1,2012,Slowinski Company borrows $100,000 on a 10% note due to a bank in one year.The accounts of Slowinski Company are affected by the adjusting entry at December 31,2012 in which of the following ways?
A) increase assets and decrease expenses
B) increase assets and increase liabilities
C) increase expenses and increase liabilities
D) increase expenses and increase stockholders' equity

Accepted Answer

The adjusting entry at December 31, 2012 will increase the interest expense of Slowinski Company for the 6 months the note was outstanding (July 1 to December 31). This will increase expenses, but since the note is not due until the following year, it does not increase liabilities. Therefore, the correct answer is C, which is to increase expenses and increase liabilities (the note payable will be due within the next year, so it is considered a current liability).

Question 15

Given below are the activities of the Tamara Company:
$\begin{array} { l  }
 \text {Credit sales  }&\$90,000 \
 \text { Cash sales}&\$50,000 \
 \text {Cash collections from credit customers }&\$ 36,000\
 \text {Purchased inventory on account }&\$27,000 \
\end{array}$

Using the cash basis of accounting,the total revenues for Tamara Company are ________.
A) $56,000
B) $86,000
C) $90,000
D) $173,000

Accepted Answer

Under the cash basis of accounting, revenues are recognized when cash is received. Therefore, the total revenues for Tamara Company include cash sales of $50,000 and cash collections from credit customers of $36,000, totaling $86,000.

Question 16

An example of an implicit transaction is cash received on account.

Accepted Answer

An implicit transaction involves non-cash or indirect transactions that don't involve direct physical exchange of cash but affect the financial position of a business, such as depreciation or accruals. Cash received on account is a direct, explicit transaction involving the physical exchange of cash.

Question 17

On April 1,2012,Company X lends $200,000 to Company Y on a 8% note.On April 1,2012,which of the following accounts of Company X will be affected by this transaction?
A) Cash and Note Payable
B) Cash and Note Receivable
C) Cash and Interest Revenue
D) Cash and Interest Expense

Accepted Answer

When Company X lends money to Company Y, Company X records the loan as a Note Receivable because it is an amount owed to them. Cash decreases because the money is given to Company Y. Hence, the accounts affected are Cash (decrease) and Note Receivable (increase).

Question 18

Under the cash basis of accounting,expenses are matched with the revenues they help generate.

Accepted Answer

The cash basis of accounting only recognizes revenues and expenses when cash is received or paid out, respectively. It does not match expenses with the revenues they help generate, as the accrual basis of accounting does.

Question 19

On March 1,a landlord received $10,000 rent for the month of April.On April 1,the landlord will ________.
A) decrease Cash and increase Rent Revenue
B) decrease Cash and increase Unearned Rent Revenue
C) decrease Paid-in Capital and increase Interest Revenue
D) decrease Unearned Rent Revenue and increase Rent Revenue

Accepted Answer

When the landlord received $10,000 rent for the month of April on March 1st, it is considered as Unearned Rent Revenue because the rent has not yet been earned as it relates to the future (April). On April 1st, the landlord will have to decrease (debit) the Unearned Rent Revenue account for $10,000 because the rent has now been earned for the month of April. At the same time, the landlord will have to increase (credit) the Rent Revenue account for $10,000 to reflect earning the rent for the month of April. Therefore, the correct answer is to decrease Unearned Rent Revenue and increase Rent Revenue (D).

Question 20

On March 1,a landlord received $10,000 rent for the month of April.On March 1,the landlord will ________.
A) increase Cash and increase Rent Revenue
B) increase Cash and increase Unearned Rent Revenue
C) increase Cash and increase Paid-in Capital
D) increase Rent Expense and decrease Cash

Accepted Answer

When the landlord receives rent in advance, it is considered unearned revenue because the landlord has not yet earned the rent for the month of April. Therefore, the landlord will increase Cash (asset account) and increase Unearned Rent Revenue (liability account) on March 1. Option A is incorrect because rent revenue should not be recognized until the month of April. Option C is incorrect because paid-in capital is not related to rent received. Option D is incorrect because rent expense should not be recognized until the month of April when the landlord has earned the rent.

Quiz 15: Basic Accounting: Concepts, techniques, and Conventions

On June 1,2012,a company borrows $100,000 on a 10% note due to a bank in one year.What amount of interest expense is reported for the year ending December 31,2012?

On January 1,Latinovich Company paid $16,000 for rent.The rent covers the period January 1 through April 30.Latinovich Company recorded Prepaid Rent of $16,000.What is the balance in the Prepaid Rent account on April 1?

Under the accrual basis of accounting,the impact of transactions is recorded when cash is received or paid.

On May 1,Gomez Company paid $36,000 for rent.The rent covers the period May 1 through August 31.Gomez Company recorded Prepaid Rent of $36,000.What is the balance in the Prepaid Rent account on June 1?

Journal entries for the expiration of unexpired assets are usually made before the related cash flows.

On April 1,2012,Company Z lends $200,000 to Company Y on a 8% note.For the six months ending June 30,2012,what amount of interest revenue will Company Z report on this note?

An example of an explicit transaction is ________.

Adjusting entries at the end of an accounting period record explicit transactions.

Source documents are associated with ________.

On May 1,Gonzalez Company paid $36,000 for rent.The rent covers the period May 1 through August 31.Gonzalez Company recorded Prepaid Rent of $36,000.What is the Rent Expense for the period,May 1 through June 30?

On July 1,2012,Slowinski Company borrows $100,000 on a 10% note due to a bank in one year.The accounts of Slowinski Company are affected by the adjusting entry at December 31,2012 in which of the following ways?

An example of an implicit transaction is cash received on account.

On April 1,2012,Company X lends $200,000 to Company Y on a 8% note.On April 1,2012,which of the following accounts of Company X will be affected by this transaction?

Under the cash basis of accounting,expenses are matched with the revenues they help generate.

On March 1,a landlord received $10,000 rent for the month of April.On April 1,the landlord will ________.

On March 1,a landlord received $10,000 rent for the month of April.On March 1,the landlord will ________.