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Exam 3: The Financial Reporting Process

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Question 71

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

A) Current assets.
B) Current liabilities.
C) Long-term assets.
D) Revenues.

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

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Question 72

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A customer purchased a drill press on November 14 on account from Sears.The drill press was delivered two weeks later.The customer paid for the drill press on December 5.When should Sears record the revenue for this transaction according to the revenue recognition principle?

A) November.
B) December.
C) Evenly in each of the two months.
D) One-third in November and two-thirds in December.

E) A) and D)
F) B) and D)

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Question 73

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Long-term assets are assets that provide a benefit to a company for more than one year.

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?

When a company prepares closing entries,which one of the following is NOT a correct closing entry?

Adjusting entries are primarily needed for:

Consider the following events for Sophia Incorporated: April 5 $\quad$ Sophia purchases volleyballs for $\$ 200$ on account. April 6 $\quad$ Sophia advertises a sand volleyball camp for $\$ 20$ a person. April 12 $\quad$ Thirty people sign up for the camp paying a total of $\$ 600$ . April 21 $\quad$ Sophia hosts the sand volleyball camp. April 23 $\quad$ Sophia pays for the volleyballs purchased on April 5. Under cash-basis accounting,what is the appropriate day to record the revenues related to the sand volleyball camp?

The matching principle states that we recognize expenses in the same period as the revenues they help to generate.

Unearned revenues occur when cash is received after the revenue is earned.

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? $\quad$ Cash $\quad$$\quad$$\quad$$\quad$ Cash-basis $\quad$ Accrual-basis $\quad$ Balance $\quad$$\quad$$\quad$ Net Income $\quad$ Net Income a. $\text { No effect\quad\quad No effect\quad\quad Increase }$ b. $\text { No effect\quad\quad No effect\quad\quad No Effect }$ c. $\text { Increase\quad\quad Increase\quad\quad Increase }$ d. $\text { Increase \quad \quad Increase\quad\quad No effect }$

Which of the following statements are correct? For accrual-basis accounting: (1) record revenues when earned (2) record expenses when cash is paid For cash-basis accounting: (3) record revenue when cash is received (4) record expenses when benefit is received

The following data are taken from the cash-basis accounting records of Myerson Company for the year ended December 31,2012: Selected Data as of December 31, 2012 $\begin{array}{lr}\text { Customers billed in } 2012 \text { for services provided } & \$ 400,000 \\\text { Cash collections in } 2012 \text { for accounts billed in 2011 } & 20,000 \\\text { Cash collections in 2012 for accounts billed in 2012 } & 300,000 \\\text { Cash paid for supplies purchased in 2012 } & 12,000 \\\text { Supplies remaining at the end of 2012 } & 2,000 \\\text { Cash paid for salaries in 2012 } & 10,000 \\\text { Cash paid for annual rent on March 1, 2012 } & 18,000\end{array}$ Calculate the amount of revenues and expenses for 2012 under accrual-basis accounting.

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?

The following events pertain to Bills Company: Using accrual-basis accounting,on which date should Bills Company record revenue for the accounting and tax services?

Which transaction would not be recorded under cash-basis accounting?

The following table contains financial information for Trumpter's Inc.before closing entries: $\begin{array} { | l | r | } \hline \text { Cash } & \$ 12,000 \\\hline \text { Supplies } & 4,500 \\\hline \text { Prepaid Rent } & 2,000 \\\hline \text { Salaries Expense } & 4,500 \\\hline \text { Equipment } & 65,000 \\\hline \text { Service Revenue } & 30,000 \\\hline \text { Miscellaneous Expense } & 20,000 \\\hline \text { Dividends } & 3,000 \\\hline \text { Accounts Payable } & 5,000 \\\hline \text { Common Stock } & 68,000 \\\hline \text { Retained Earnings } & 8,000 \\\hline\end{array}$ What is the amount of Trumpter's total liabilities?

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?

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

Permanent accounts would not include:

According to the revenue recognition principle,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.