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Exam 3: The Financial Reporting Process

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Question 61

Multiple Choice

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When the amount of interest receivable decreases during an accounting period:

A) Accrual-basis revenues exceed cash collections from borrowers.
B) Accrual-basis net income exceeds cash-basis net income.
C) Accrual-basis revenues are less than cash collections from borrowers.
D) Accrual-basis expenses are less than cash payments to borrowers.

E) A) and B)
F) A) and C)

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Question 62

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Long-term asset categories include investments; property, plant, and equipment; and intangible assets.

A) True
B) False

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Question 63

Multiple Choice

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Resources owned by the company that will provide a benefit for more than one year are called:

Air France collected cash on February 4 from the sale of a ticket to a customer on January 26.The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue?

Current liabilities are liabilities due within one year.

The closing entry for dividends includes a debit to the Dividends account and a credit to Retained Earnings.

Under cash-basis accounting, if a company provides services to a customer in the current year but does not collect cash until the following year, the company should report the revenue in the current year.

If the beginning balance of Retained Earnings equals $12,000, the ending balance of Retained Earnings equals $15,000, and dividends for the year equal $1,000, then net income for the year equals $4,000.

Current assets are assets that provide a benefit to a company over more than one year.

Which of the following would not typically be used as an adjusting entry?

For each of the following accounts, indicate whether the account is shown in the income statement or the balance sheet:

The closing process includes which of the following?

Eve's Apples opened for business on January 1, 2012, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2012?

When a magazine sells subscriptions to customers, it is an example of:

The revenue recognition principle states that we record revenue in the period in which we collect cash.

After closing entries are prepared, all asset and liability accounts have a balance of zero.

Prepayments occur when:

For the first three years of operations, the company reports net income of $1,000, $2,000, and $3,000, and pays dividends of $500, $1,000, and $1,000. What is the balance of retained earnings at the end of the third year?

Adjusting entries are not necessary when cash is received at the same time revenues are earned.

The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000. The current pay period ends on Friday, January 3. Neat Clothes is now preparing financial statements for the year ended December 31. What is the adjusting entry to record accrued salaries at the end of the year?