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Exam 3: Accrual Accounting Concepts

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Question 31

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Classify the following items as: a.accrued revenue (accrued asset) b.deferred revenue (unearned revenue) c.accrued expense (accrued liability) d.deferred expense (prepaid expense)

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Question 32

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On April 1,Smart,Inc.paid $7,200 for an insurance premium on a three-year insurance policy.How does this transaction affect Smart's accounts?

A) Increase insurance expense and decrease cash by $7,200 each
B) Increase prepaid insurance and decrease cash by $7,200 each
C) Increase unearned insurance and decrease cash by $7,200 each
D) Increase prepaid insurance and decrease retained earnings by $7,200 each

E) None of the above
F) All of the above

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Question 33

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River Corporation's accumulated depreciation increased by $12,000,while patents decreased by $3,500 between consecutive balance sheet dates.There were no purchases or sales of depreciable or intangible assets during the year.In addition,the income statement showed a loss on sale of land of $2,500.Accounts receivable increased $5,000,inventory decreased $3,200,prepaid expenses decreased $800,and account payable increased $2,000.Reconcile a net income of $55,000 to net cash flow from operating activities.

Refer to Hints.Identify the type of adjustment necessary (the type of item involved)and record the transaction for the event.Make sure to include the ending balances after adjustment. On June 1,Tasty Sausage Corp.borrowed $25,000 from the bank by signing a promissory note from the bank,with 8% interest.The note is due in three months.Interest for June has been incurred but not yet recorded.The interest to accrue for June is $175.The June 30 adjustment is:

Cash receipts from interest and dividends are classified as

When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account,which section of the statement of cash flows is affected?

At the end of the fiscal year,the following adjusting entries were omitted: Assuming that financial statements are prepared before the errors are discovered,indicate the effect of each error,considered individually,by inserting the dollar amount in the appropriate spaces.Insert "0" if the error does not affect the item.

Accrued expenses are ordinarily reported on the balance sheet as

If prepaid insurance expires over time,this asset account becomes a(n)

Describe the end-of-the-period adjustment process.Why is it necessary?

Unearned revenue is what type of an account?

Accrued expenses are expenses that have been incurred and paid.

An adjusting entry would adjust an expense account so that the expense is reported when incurred.

Identify the type of adjustment necessary (the type of item involved)and record the transaction for the event.Make sure to include the ending balances after adjustment. Assume that on June 1,2010,Tasty Sausage Corp.had paid $1,500 in advance for a 6-month insurance policy.The June 30 adjustment is:

Flyer Co.billed a client for flying lessons given in January.The payment was received in February.Under the accrual basis of accounting,when should Jedi record the revenue?

When cash is received in payment of an account receivable,which section of the Statement of Cash Flows is affected?

The matching concept requires expenses to be recorded in the same period that the related revenue is recorded.

The balance in the office supplies account on June 1 was $5,200,supplies purchased during June were $2,500,and the supplies on hand at June 30 were $1,500.The amount to be used for the appropriate adjusting entry is

Under the cash basis of accounting,a business records only transactions involving increases or decreases of its cash.

Under the cash basis of accounting,expenses are recorded when paid.