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Exam 3: The Financial Reporting Process

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Question 91

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A company receives $2,500 cash from customers for services to be provided next month. Record the cash receipt using (a) accrual-basis accounting and (b) cash-basis accounting.

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Question 92

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Consider the following events for Sophia Incorporated: Under accrual-basis accounting, what is the appropriate day to record the revenues from the sand volleyball camp?

A) April 5.
B) April 6.
C) April 12.
D) April 21.

E) C) and D)
F) All of the above

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Question 93

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The following table contains financial information for Fisher Inc. for 2012 before closing entries: $\begin{array} { | l | r | } \hline \text { Cash } & \$ 23,000 \\\hline \text { Common Stock } & 34,000 \\\hline \text { Supplies } & 4,000 \\\hline \text { Advertising Expense } & 2,000 \\\hline \text { Accounts Payable } & 20,000 \\\hline \text { Service Revenue } & 30,000 \\\hline \text { Salaries Expense } & 3,000 \\\hline \text { Prepaid Rent } & 4,000 \\\hline \text { Dividends } & 3,000 \\\hline \text { Equipment } & 45,000 \\\hline\end{array}$ How many of the above accounts are permanent?

Temporary accounts would not include:

Closing entries transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the Common Stock account.

Which of the following is a permanent account?

According to the matching principle, if costs associated with producing revenue in the current year are not paid in cash until the following year, the costs should be expensed in the current year.

When a company makes an end-of-period adjusting entry which includes a credit to Prepaid Rent, the debit is usually made to:

Of the following six accounts, which ones have temporary balances? (1) Service Revenue (2) Dividends (3) Salaries Expense (4) Common Stock (5) Retained Earnings (6) Cash

Because adjusting entries allow the proper application of the revenue recognition principle or the matching principle, they are a necessary part of cash-basis accounting.

On November 1, 2012, a company receives $1,800 for services to be provided evenly over the next six months. The December 31, 2012, adjusting entry for the company would include a credit to Unearned Revenue for $600.

Frosty Inc. has the following balances on December 31 prior to closing entries: $\begin{array} { | l | r | } \hline \text { Revenues } & \$ 35,000 \\\hline \text { Retained Earnings, Jan. 1 } & 10,000 \\\hline \text { Cash } & 7,000 \\\hline \text { Expenses } & 23,000 \\\hline \text { Accounts Payable } & 4,000 \\\hline \text { Dividends } & 1,000 \\\hline \text { Supplies } & 18,000 \\\hline\end{array}$ Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

Because cash-basis accounting violates both the revenue recognition principle and the matching principle, it is generally not accepted in preparing financial statements.

A company provided $1,500 of services to customers during the month of May. The customers paid in June. What would the impact of these transactions be during May on each of the following three items?

In the first three years of operations, Lindsey Corporation earned net income/loss of -$150,000, $100,000, and $250,000. At the end of the third year, Lindsey Corporation has a balance of $120,000 for its Retained Earnings account. What is the total amount of dividends Lindsey Corporation paid over the three years?

A company performs $4,200 of services during the month and receives full cash payment from customers at the time of service. Record the cash receipt using (a) accrual-basis accounting and (b) cash-basis accounting.

Which one of the following accounts would NOT have a balance after closing entries?

The adjusted trial balance for China Tea Company at December 31, 2012, is presented below: Prepare an income statement for China Tea Company for the year ended December 31, 2012:

At the beginning of the period, a company reports a balance in office supplies of $500. During the period, the company purchases an additional $3,500 of office supplies for cash. By the end of the period, only $700 of office supplies remains. Record the period-end adjusting entry.

A company purchased $400 of office supplies on account during May. All the supplies were used in May, and the account was paid during June. What would the impact of these transactions be during May on each of the following three items?