Question 1

Under the cash basis of accounting,

Accepted Answer

Under the cash basis of accounting, revenues and expenses are recognized only when cash is received or paid, ignoring the matching principle which aims to match revenues with their related expenses in the period in which the revenue was earned.

Question 2

The following balances have been excerpted from Edwards' balance sheets:  Edwards Company paid or collected during 2013 the following items:
 The insurance expense on the income statement for 2013 was

Accepted Answer

We can use the formula: Beginning Prepaid Insurance + Insurance Expense - Ending Prepaid Insurance = Insurance Paid or Collected during the year

Substituting the given values, we get:

$20,000 + Insurance Expense - $15,000 = $43,000

Solving for Insurance Expense, we get:

Insurance Expense = $43,000 - $20,000 + $15,000 = $38,000

However, this is the amount of Insurance Expense that was recognized on the income statement during 2013. The question asks for the amount that was paid or collected during 2013. We can see from the formula that Insurance Paid or Collected is equal to Beginning Prepaid Insurance minus Ending Prepaid Insurance:

$20,000 - $15,000 = $5,000

This means that the company actually paid or collected $5,000 for insurance during 2013.

Adding this amount to the recognized expense, we get:

Insurance Expense + Insurance Paid or Collected = $38,000 + $5,000 = $43,000

Question 3

The following balances have been excerpted from Edwards' balance sheets:  Edwards Company paid or collected during 2013 the following items:
 The salary expense on the income statement for 2013 was

Accepted Answer

To find the salary expense for 2013, we need to look at the change in the salaries payable account from the beginning to the end of the year. The balance in the account increased from $20,000 to $27,000, which means that Edwards Company incurred $7,000 of salary expense that was not paid by the end of the year. To find the total salary expense, we need to add this amount to the salaries paid during the year, which is $482,500 ($425,000 + $57,500). Therefore, the total salary expense for 2013 was $489,500 (option C).

Question 4

The basic financial statements are listed below:  In which of the following sequences does the accountant ordinarily prepare the statements?

Accepted Answer

The answer of The basic financial statements are listed below:...

Question 5

Total net income over the life of an enterprise is

Accepted Answer

The total net income over the life of an enterprise should be the same under the cash basis and the accrual basis, as long as all transactions are recorded and accounted for properly. The difference between the two methods is mainly in the timing of recognizing revenue and expenses. Under cash basis, revenue is recognized when cash is received and expenses are recognized when cash is paid out. Under accrual basis, revenue is recognized when it is earned and expenses are recognized when they are incurred. However, over the entire life of the enterprise, all revenue and expenses should be recognized regardless of the method used.

Question 6

On September 1,2012,Star Corp.issued a note payable to Federal Bank in the amount of $450,000.The note had an interest rate of 12 percent and called for three equal annual principal payments of $150,000.The first payment for interest and principal was made on September 1,2013.At December 31,2013,Star should record accrued interest payable of

Accepted Answer

The note was issued on September 1, 2012, and the first payment was made on September 1, 2013, which means that interest accrues for four months (September - December).

To calculate the accrued interest, we need to determine how much interest accrues each month.

12% annual interest translates to 1% monthly interest (12%/12 months).

The total amount of the note payable is $450,000, so the monthly interest is:

$450,000 x 1% = $4,500

For four months, the accrued interest is:

$4,500 x 4 months = $18,000

However, the first payment includes both interest and principal, so we need to subtract the principal payment from the accrued interest:

$18,000 - $150,000 = -$132,000

This negative amount means that Star Corp. actually overpaid on their first payment and do not owe any accrued interest at December 31, 2013.

Therefore, the answer is B.

Question 7

Scott Co.reported an allowance for doubtful accounts of $28,000 (credit)at December 31,2013,before performing an aging of accounts receivable.As a result of the aging,Scott determined that an estimated $27,000 of the December 31,2013,accounts receivable would prove uncollectible.The adjusting entry required at December 31,2013,would be

Accepted Answer

The correct adjusting entry is to increase the Allowance for Doubtful Accounts to the newly estimated amount, which requires an additional $1,000 (27,000 - 28,000 = -1,000, but since it's an increase, we ignore the negative sign).

Question 8

Comet Corporation's liability account balances at June 30,2013,included a 10 percent note payable.The note is dated October 1,2011,and carried an original principal amount of $600,000.The note is payable in three equal annual payments of $200,000 plus interest.The first interest and principal payment was made on October 1,2012.In Comet's June 30,2013,balance sheet,what amount should be reported as Interest Payable for this note?

Accepted Answer

Interest payable is calculated on the remaining principal amount after the first payment. After the first payment of $200,000, the remaining principal is $400,000. The interest for one year on $400,000 at 10% is $40,000. Since the interest is payable annually and the balance sheet date is June 30, 2013, nine months of interest has accrued since the last payment on October 1, 2012. Therefore, the interest payable is $400,000 * 10% * 9/12 = $30,000.

Question 9

Teller Inc.reported an allowance for doubtful accounts of $30,000 (credit)at December 31,2013,before performing an aging of accounts receivable.As a result of the aging,Teller Inc.determined that an estimated $52,000 of the December 31,2013,accounts receivable would prove uncollectible.The adjusting entry required at December 31,2013,would be

Accepted Answer

The correct adjusting entry to record the additional required allowance for doubtful accounts is to debit Doubtful Accounts Expense and credit Allowance for Doubtful Accounts for the difference between the new estimated uncollectible amount ($52,000) and the existing allowance ($30,000), which is $22,000. This increases the allowance to the newly estimated amount while recognizing the expense associated with the increase in expected uncollectible accounts.

Question 10

Kite Company paid $24,900 in insurance premiums during 2013.Kite showed $3,600 in prepaid insurance on its December 31,2013,balance sheet and $4,500 on December 31,2012.The insurance expense on the income statement for 2013 was

Accepted Answer

The insurance expense for 2013 can be calculated by adding the premiums paid during the year to the beginning prepaid insurance balance, then subtracting the ending prepaid insurance balance. This gives us $24,900 (premiums paid) + $4,500 (beginning prepaid insurance) - $3,600 (ending prepaid insurance) = $25,800.

Question 11

Ingle Company paid $12,960 for a four-year insurance policy on September 1 and recorded the $12,960 as a debit to Prepaid Insurance and a credit to Cash.What adjusting entry should Ingle make on December 31,the end of the accounting period?

Accepted Answer

The adjusting entry required on December 31 is to recognize the portion of the insurance policy that has been used up/expired. The insurance policy was for four years, and as of December 31, only four months have passed (September, October, November, and December).

To calculate the amount that has been used up, we need to divide the total cost of the policy by the number of months it covers and then multiply by the number of months that have passed.

$12,960 / 48 months = $270 per month
$270 per month x 4 months = $1,080

Therefore, the adjusting entry on December 31 would be to debit Insurance Expense for $1,080 and credit Prepaid Insurance for $1,080. This reduces the Prepaid Insurance balance to reflect the portion of the policy that has been used up, and records the expense in the period it was incurred.

Question 12

L.Lane received $12,000 from a tenant on December 1 for four months' rent of an office.This rent was for December,January,February,and March.If Lane debited Cash and credited Unearned Rental Income for $12,000 on December 1,what necessary adjustment would be made on December 31?

Accepted Answer

On December 31, one month of rent has been earned, so $3,000 (one-fourth of $12,000) should be recognized as rental income. The adjustment involves debiting Unearned Rental Income and crediting Rental Income for $3,000.

Question 13

Sky Company collected $12,350 in interest during 2013.Sky showed $1,850 in interest receivable on its December 31,2013,balance sheet and $5,300 on December 31,2012.The interest revenue on the income statement for 2013 was

Accepted Answer

To find out the interest revenue for 2013, we need to calculate the total interest earned during the year and subtract the interest receivable at the beginning and end of the year.

Total interest earned during 2013 = $12,350
Interest receivable on December 31, 2013 = $1,850
Interest receivable on December 31, 2012 = $5,300

So, the interest revenue for 2013 can be calculated as follows:

Interest revenue = Total interest earned - Interest receivable on December 31, 2013 + Interest receivable on December 31, 2012
Interest revenue = $12,350 - $1,850 + $5,300
Interest revenue = $8,900

Therefore, the correct choice is B) $8,900.

Question 14

Which of the following regarding accrual versus cash-basis accounting is true?

Accepted Answer

Accrual basis accounting provides a more accurate and comprehensive picture of a company's financial performance as it reflects revenues and expenses in the period in which they are earned or incurred, regardless of when cash is received or paid. This method provides a better indication of the timing and amounts of future cash flows. The FASB requires all publicly traded companies to use accrual basis accounting. Choice A is incorrect because the FASB does not believe cash basis accounting is appropriate for publicly traded companies. Choice C is incorrect because the accrual basis of accounting reflects both revenues and expenses. Choice D is incorrect because the cash basis of accounting does not require double-entry records.

Question 15

The following balances have been excerpted from Edwards' balance sheets:  Edwards Company paid or collected during 2013 the following items:
 The interest revenue on the income statement for 2013 was

Accepted Answer

The answer of The following balances have been excerpted from...

Question 16

The work sheet of PSI Company shows Income Tax Expense of $9,000 and Income Tax Payable of $9,000 in the Adjustments columns.What will be the ultimate disposition of these items on the work sheet?

Accepted Answer

Income Tax Expense is an expense and therefore it will appear on the Income Statement columns as a debit. Income Tax Payable is a liability and hence it will appear on the Balance Sheet columns as a credit. Therefore, Income Tax Expense will appear as a debit of $9,000 in the Income Statement columns and Income Tax Payable will appear as a credit of $9,000 in the Balance Sheet columns.

Question 17

The use of computers in processing accounting data

Accepted Answer

While computers have greatly increased the efficiency and accuracy of accounting processes, they may also result in the reduction or elimination of paper trails used to verify transactions. This creates a risk of fraud or errors going undetected, and makes it important for companies to establish strong internal controls to ensure the integrity of their financial records. The use of computers does not eliminate the need for accountants, nor does it eliminate the double entry system or financial reporting standards such as those set by the FASB.

Question 18

What is the correct order of the following events in the accounting process? I.Financial statements are prepared.
II)Adjusting entries are recorded.
III)Nominal accounts are closed.

Accepted Answer

Adjusting entries must be recorded before financial statements can be prepared. After financial statements are prepared, nominal accounts are closed. Therefore, the correct order is II, I, III.

Question 19

Thompson Company sublet a portion of its office space for ten years at an annual rental of $36,000,beginning on May 1.The tenant is required to pay one year's rent in advance,which Thompson recorded as a credit to Rental Income.Thompson reports on a calendar-year basis.The adjustment on December 31 of the first year should be

Accepted Answer

The tenant paid one year's rent in advance, so Thompson has earned $12,000 of rental income for the first eight months of the lease. The remaining $24,000 of rent is unearned and should be recorded as a liability.

Question 20

Chips-n-Bits Company sells service contracts for personal computers.The service contracts are for a one-year,two-year,or three-year period.All sales are for cash and all receipts are credited to Unearned Service Contract Revenues.This account had a balance of $144,000 at December 31,2012,before year-end adjustment.Service contract costs are charged as incurred to the Service Contract Expense account,which had a balance of $36,000 at December 31,2012.Service contracts still outstanding at December 31,2012,expire as follows:  What amount should be reported as unearned service contract revenues in Chips-n-Bits December 31,2012,balance sheet?

Accepted Answer

The unearned service contract revenue is the amount that has been received for service contracts that have not yet been performed. The balance of the Unearned Service Contract Revenues account before adjustment is given as $144,000, which represents the cash received for all service contracts sold. However, some of these contracts have been performed, and therefore the revenue should now be recognized.

To determine the amount of revenue that should be recognized, we need to subtract the cost of the contracts that have been performed from the cash received. The Service Contract Expense account represents the cost of the contracts that have been performed, and its balance is given as $36,000. This means that $144,000 - $36,000 = $108,000 of revenue has not yet been recognized.

We also need to take into account the contracts that are still outstanding at the end of the year. These contracts have not yet been performed, and therefore the revenue cannot yet be recognized. The total value of outstanding contracts is given in the table as $13,000 (for one-year contracts), $24,000 (for two-year contracts), and $13,000 (for three-year contracts), for a total of $50,000.

Therefore, the unearned service contract revenues that should be reported in Chips-n-Bits December 31, 2012 balance sheet is $108,000 + $50,000 = $95,000. Thus, the correct answer is C.

Quiz 2: A Review of the Accounting Cycle

Under the cash basis of accounting,

The following balances have been excerpted from Edwards' balance sheets: Edwards Company paid or collected during 2013 the following items: The insurance expense on the income statement for 2013 was

The following balances have been excerpted from Edwards' balance sheets: Edwards Company paid or collected during 2013 the following items: The salary expense on the income statement for 2013 was

The basic financial statements are listed below: In which of the following sequences does the accountant ordinarily prepare the statements?