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Exam 3: Accounting for Deferrals

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Question 51

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

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

E) B) and D)
F) B) and C)

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Question 52

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At the end of Year 1, the following information is available for ABC Company and XYZ Company: Required:a)For each company, calculate the debt-to-assets ratio. (Show your work.)b)For each company, calculate the return-on-equity ratio. (Show your work.)c)For each company, calculate the return-on-assets ratio.d)Identify which company has a greater level of debt risk.e)Explain the meaning of financial leverage.f)Identify which company is using financial leverage more successfully and explain why.

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a)Debt-to-assets ratio = Total debt ÷ To...

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Question 53

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Purchasing supplies for cash is an asset exchange transaction.

On November 1, Year 1, Danny Company paid $12,000 cash to rent an office for a year starting immediately. Indicate whether each of the following statements about this transaction is true or false. a)Danny's Year 1 income statement would not be affected by this transaction.b)Danny's Year 1 statement of cash flows would be affected by this transaction.c)This transaction is an asset exchange transaction.d)$12,000 of rent expense will be recorded in Year 2.e)This transaction increases Danny's liabilities.

On January 1, Year 1, Marino Moving Company paid $35,000 cash to purchase a truck. The truck was expected to have a four-year useful life and a $3,000 salvage value. If Marino uses the straight-line method, which of the following shows how the adjusting entry to recognize depreciation expense at the end of Year 3 will affect the Company's financial statements?

Consider the following independent scenarios:a)At January 1, Year 2, the balance in the prepaid insurance account was $480, which related to insurance coverage that expired on March 1, Year 2. On March 1, Year 2, the company paid $3,000 for insurance coverage for one year of insurance coverage that began on that date. What was the amount of insurance expense for Year 2?b)At January 1, Year 2, the balance in the supplies account was $550. At December 31, Year 2, the company counted $400 of supplies on hand. The company reported supplies expense in Year 2 of $3,300. What was the total of supplies purchases during Year 2?

At the end of Year 1, the following information is available for Grumpy, Happy, and Doc Companies. Which company is the most profitable from the stockholders' perspective?

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?

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

On March 1, Year 1, Presco Enterprises paid $1,200 cash for an insurance policy that would provide protection for a one-year term. The company's fiscal year ends on December 31. Based on this information, the amount of insurance expense appearing on the Year 1 income statement would be

Consider how each of the transactions listed below affect net income reported on the income statement and the net cash flows from operating activities reported on the statement of cash flows. Which transaction(s) would affect the income statement in a different period from the statement of cash flows?

Which of the following shows how the event "collected cash for services to be rendered in the future" affects a company's financial statements?

On October 1, Year 1, Gomez Company collected $24,000 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?

Which of the following statements is false?

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?

Using the form below, record each of the following Year 1 transactions for Mayer Corporation.a)November 1: Received cash from clients for services to be performed over the next six months, $12,000.b)November 1: Paid $1,200 for a 12-month insurance policy.c)December 31: Recorded expiration of two months of the insurance.d)December 31: Earned $4,000 of the amount received from clients in November.

A deferral exists when a company pays cash

Langley Incorporated accepted a $24,000 retainer for which the company agreed to provide services in the future. Recognizing this event would

What type of assets would a company depreciate?

On October 1, Year 1 Allen Company paid $24,000 cash to lease office space for one year beginning immediately. How would the adjustment on December 31, Year 1 to recognize rent expense affect the company's financial statements?