Question 1

Which two broad account categories are used to determine net income? Define each category and list two examples of each type.

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Question 2

Distinguish between a deferral and an accrual.

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Question 3

Quality Heating Company has the following liabilities at year end:
  a.Which of these accounts probably was/were created at the end of the fiscal year as a result of an accrual? Which probably was/were adjusted at year end? Explain your answer.
b.Which adjustments probably reduced net income? Which probably increased net income? Explain your answers.

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Question 4

Office Supplies was $1,800 at the end of January and $2,280 at the end of February.During February,Office Supplies Expense equaled $560.How much cash was paid for office supplies during February?

Accepted Answer

Office Supplies Expense for February includes both the supplies used during February and any supplies that were previously purchased but not used until February. We need to figure out how much of the increase in Office Supplies from January to February is due to the actual purchase of supplies during February.

To do this, we subtract the increase in Office Supplies from January to February that is not due to the February purchase of supplies:
$2,280 end of February balance - $1,800 end of January balance = $480 increase in Office Supplies
$480 increase in Office Supplies - $560 Office Supplies Expense = -$80
The negative $80 result means that $80 of the increase in Office Supplies from January to February was due to previously purchased supplies being used up during February, and so the actual purchase of new supplies during February was:
$560 Office Supplies Expense - $80 supplies used from January purchases = $480 cash paid for new supplies during February.

Therefore, the answer is (D) $1,040.

Question 5

Custom Realty Services sold a house for a client and will be paid a commission for its services.Using the SEC's four conditions or revenue recognition,explain why Custom Realty Services either should or should not recognize the revenue now.

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Question 6

The manipulation of revenues and expenses to achieve a specific outcome is called

Accepted Answer

Earnings management refers to the process of manipulating revenues and expenses to achieve a desired outcome, such as meeting earnings targets or creating a more favorable financial statement presentation. This practice can be unethical if done intentionally to deceive investors or other stakeholders. The other options, such as matching rule, adjusting entries, and revenue recognition, all relate to accounting practices but do not specifically address the manipulation of financial results.

Question 7

What is the purpose of adjusting entries?

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Question 8

How and why is the matching rule applied to the cost of a building?

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Question 9

Unearned Revenue was $600 at the end of February and $750 at the end of March.Service Revenue was $3,600 for the month of March.How much cash was received from revenue during March?

Accepted Answer

Cash received from revenue can be calculated as follows:

Cash received from revenue = Service Revenue - Increase in Unearned Revenue

Increase in Unearned Revenue = $750 - $600 = $150

Cash received from revenue = $3,600 - $150 = $3,450

Therefore, the answer is D.

Question 10

Unearned Revenue was $1,200 at the end of May and $1,500 at the end of June.Service Revenue was $8,550 for the month of June.How much cash was received for services provided during June?

Accepted Answer

Unearned Revenue increased by $300 ($1,500 - $1,200), indicating cash received for services not yet provided. Adding this to the Service Revenue of $8,550 gives total cash received for services in June as $8,850 ($8,550 + $300).

Question 11

Prepaid Rent was $800 at the end of May and $1,300 at the end of June.Rent Expense for June was $720.How much cash was paid for rent during June?

Accepted Answer

The increase in Prepaid Rent from May to June is $1,300 - $800 = $500. This increase, plus the Rent Expense of $720 for June, equals the total cash paid for rent during June, which is $500 + $720 = $1,220.

Question 12

Susan Kane won the mayoral election in the City of Ashley partly on the basis of her charge that Allen Ross,the former mayor,was responsible for the budget deficit.After taking office,she hired a major international accounting firm to straighten things out.This excerpt appeared in an article from a leading business publication,West End Business Review:
[A riddle] Q: When is a budget deficit not a deficit?
A: When it is a surplus,of course.
Ashley Mayor Susan Kane was once again caught with egg on her face last week as she and her financial advisers tried to defend that riddle.On one hand,Comptroller Jim Guan,a Kane appointee,testified in hearings that the city had actually ended 20x5 with a $6 million surplus,not the much-reported deficit.He said further that the modest surplus grew to $54 million as a result of tax-enrichment supplements to the 20x5 balance sheet.
On the other hand,the mayor stuck by the same guns she used last year on her predecessor.The city had ended 20x5,under the Allen Ross administration,not merely without a surplus,but with a deficit.The apparent discrepancy can be explained.
Like most U.S.cities,Ashley operates under a modified accrual accounting basis.This is a combination of the cash basis and the accrual basis.The modified accrual basis differs from the accrual basis in that revenue is recorded when it is collected.The collection of Ashley's parking tax,which is assessed on all city parking lots and garages,is an example.
The tax is assessed and collected on a quarterly basis,but the city doesn't collect the amount due for the last quarter of 20x6 until the first quarter of 20x7.Under ideal accrual methods,the parking revenues should be recorded in the 20x6 financial statements.Under a cash approach,the revenues would be recorded in the 20x7 budget.What the city did before was to record the money whenever it was advantageous politically.That,combined with the infamous revolving funds,allowed the city to hide the fact it was running large deficits under former Mayor Ross.That also means that no one really knew where the city stood.
The auditors are now reallocating the parking revenues to the 20x7 budget but are accruing other revenues by shifting the period of collection from a year in the past.Overall,more revenues were moved into earlier fiscal years than into later years,inflating those budgets.Thus,the 20x7 deficit is a surplus.
The article concluded:
The upshot is that both Mayor Kane and Mr.Guan (the comptroller)were correct.There was a deficit in the 20x5 corporate or checkbook fund,but because of corrections taking place now,a surplus exists.
a.Do you agree with the way the auditors handled parking revenues? Support your answer by explaining which method of accounting you think a city should use.
b.Comment on the statement,"Systematically applied accounting principles will allow all to know exactly where the city stands."

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Question 13

During the performance of the steps in the accounting cycle,the trial balance and the adjusted trial balance are prepared at two key points.Using specific names where applicable,discuss the time of preparation and the purpose served by both of these trial balances.

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Question 14

The following steps in the accounting cycle are presented out of order below.Arrange the steps in proper order by placing a number from 1 through 6 in the blanks provided.Also identify each step as either a recurring activity (RA)-one that would be repeated during the fiscal period-or an end-of-period activity (EOP)-one performed at the end of the accounting period.
______ a.Prepare an adjusted trial balance.
______ b.Record entries in the journal.
______ c.Adjust the accounts.
______ d.Prepare a trial balance.
______ e.Analyze business transactions from source documents.
______ f.Post entries to the ledger.

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Question 15

Which of the following actions can distort company records and result in fraudulent financial reporting?

Accepted Answer

Recording revenue that has not yet been earned can distort financial records by inflating income, leading to fraudulent financial reporting.

Question 16

Accounts Receivable was $1,500 at the end of November and $1,050 at the end of December.Revenue totaled $8,400 for December.How much cash was received from revenues during December?

Accepted Answer

The decrease in Accounts Receivable means that $1,500 - $1,050 = $450 was collected from customers during December. Since revenue totaled $8,400, the amount of cash received from revenues during December was $8,400 - $450 = $7,950. Therefore, the answer is choice B.

Question 17

Custom Enterprises had supplies on hand costing $3,840 at the beginning of the year and $4,800 at the end of the year.During the year,supplies totaling $7,600 were consumed.How much was the total cost of supplies purchased during the year?

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Question 18

The following amounts are taken from the balance sheets of Baltic Company:
 During 20x5,expenses related to accrued liabilities were $15,250,and expenses related to prepaid expenses were $10,500.
a.Compute cash payments related to accrued liabilities.
b.Compute cash payments related to prepaid expenses.

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Question 19

The income statement for Catlett Company included the following revenues and expenses for 20x5:
  Listed below are the related balance sheet account balances at year end for this year and last year:
  a.Compute cash received for fees during the year.
b.Compute cash paid for wages during the year.
c.Compute cash paid for insurance during the year.
d.Compute cash paid for interest during the year.

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Question 20

Answer the following questions.(Show your work. )
a.A machine was purchased on July 1,20x9.It had a cost of $36,000 and an estimated useful life of nine years with zero value at that time.What is the machine's carrying value after four years?
b.On April 1,20x0,a company paid in advance $54,000 for three years' insurance.How much Prepaid Insurance remains on the balance sheet on December 31,20x0?
c.A company began the year with $800 in supplies,purchased $2,000 in supplies,and ended the period with $600 in supplies.How much is Supplies Expense for the period?
d.A company was paid $1,800 in advance for services to be performed.At year end,one-third had not yet been earned.How much in Service Revenue should be recorded?

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The answer of Answer the following questions.(Show your work. )
a.A...

Quiz 3: Adjusting the Accounts