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On August 1,Year 1,Lace Company paid $2,400 cash for an insurance policy that would provide protection for a one-year term.Which of the following shows how the required adjustment on December 31,Year 1,will affect Lace Company's ledger accounts? On August 1,Year 1,Lace Company paid $2,400 cash for an insurance policy that would provide protection for a one-year term.Which of the following shows how the required adjustment on December 31,Year 1,will affect Lace Company's ledger accounts? A) Option A B) Option B C) Option C D) Option D


A) Option A
B) Option B
C) Option C
D) Option D

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

Correct Answer

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Hans Company's December 31,Year 1,balance sheet showed $800 cash,$500 supplies,$400 accounts payable,$300 common stock,and $600 retained earnings.The company experienced the following events during year 2. (1) Purchased $1,000 of supplies on account (2) Earned $2,000 cash revenue (3) Paid $1,200 cash to reduce accounts payable created in Event 1 above (4) Physical count revealed $300 of supplies on hand at the end of Year 2 Based on this information,the company would report


A) a $200 balance in the accounts payable account on the Year 2 balance sheet.
B) a $800 net cash inflow from operating activities on the Year 2 statement of cash flows.
C) a $1,200 supplies expense on the Year 2 income statement.
D) All of the answers are correct.

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

Correct Answer

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Purchasing supplies for cash is an asset exchange transaction.

A) True
B) False

Correct Answer

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Duluth Co.collected a $6,000 cash advance from a customer on November 1,Year 1 for services to be provided over a six-month period beginning on that date.If the year-end adjustment is properly recorded,what will be the effect of the adjusting entry on Duluth's Year 1 financial statements?


A) Increase assets and decrease liabilities
B) Increase assets and increase revenues
C) Decrease liabilities and increase revenues
D) No effect

E) C) and D)
F) A) and C)

Correct Answer

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Tammy Company paid cash to purchase a long-term operational asset.The cost of the asset will be expensed (depreciated)


A) on the day it is purchased.
B) at the end of its useful life.
C) over the useful life of the asset.
D) when the asset is sold.

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

Correct Answer

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[The following information applies to the questions displayed below.] Wichita, Inc. reported the following amounts on its financial statements prepared as of the end of the current accounting period: [The following information applies to the questions displayed below.] Wichita, Inc. reported the following amounts on its financial statements prepared as of the end of the current accounting period: -What is the company's debt-to-assets ratio? A) 5% B) 10% C) 45% D) 50% -What is the company's debt-to-assets ratio?


A) 5%
B) 10%
C) 45%
D) 50%

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

Correct Answer

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On September 1,Year 1,Zelda Company collected $120,000 cash for services to be provided for one year beginning immediately.The company's fiscal closing date is December 31.Based on this information,the amount of revenue appearing on the Year 1 income statement would be


A) $30,000
B) $40,000
C) $80,000
D) $120,000

E) A) and D)
F) A) and C)

Correct Answer

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Unearned revenue is reported on the income statement by subtracting it from revenue.

A) True
B) False

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Asset use transactions always involve the payment of cash.

A) True
B) False

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On February 1,Year 1,Cora Company collected $60,000 cash for consulting services to be provided for one year beginning immediately.The company's fiscal closing date is December 31.Based on this information,the amount of unearned revenue appearing on the December 31,Year 2 balance sheet would be


A) $60,000
B) $55,000
C) $5,000
D) zero

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

Correct Answer

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Joseph Company purchased a delivery van on January 1,Year 1 for $35,000.The van is estimated to have a 5-year useful life and a $5,000 salvage value.How much expense should Joseph recognize in Year 1 related to the use of the van?


A) $6,000
B) $7,000
C) $30,000
D) $5,000

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

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Regarding the relationships of revenues and expenses to assets and liabilities,state whether each of the following statements is true or false.

Premises
Recording a decrease in assets may be associated with an increase in an expense account.
A decrease in Supplies will be accompanied by an increase in Supplies Expense.
Recording an increase in a revenue account may be associated with a decrease in assets.
Recording an increase in a revenue account may be associated with a decrease in liabilities.
Responses
False
True

Correct Answer

Recording a decrease in assets may be associated with an increase in an expense account.
A decrease in Supplies will be accompanied by an increase in Supplies Expense.
Recording an increase in a revenue account may be associated with a decrease in assets.
Recording an increase in a revenue account may be associated with a decrease in liabilities.

Foster Company's December 31,Year 1,balance sheet showed $2,700 cash,$1,000 common stock,and $1,700 retained earnings.The company experienced the following event during Year 2.On October 1,collected $12,000 in advance for an agreement to provide office space for one year beginning immediately. Based on this information alone,


A) the Year 3 income statement would show $9,000 of rent revenue.
B) the Year 3 balance sheet would show $9,000 of rent revenue.
C) the Year 2 income statement would show $3,000 of unearned rent revenue.
D) the Year 2 balance sheet would show $3,000 of unearned rent revenue.

E) A) and D)
F) A) and C)

Correct Answer

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On October 1,Year 1,Jason Company paid $7,200 to lease office space for one year beginning immediately.What is the amount of rent expense that will be reported on the Year 1 income statement and what is the cash outflow for rent that would be reported on the Year 1 statement of cash flows?


A) $7,200; $7,200
B) $1,800; $1,800
C) $1,800; $7,200
D) $1,200; $7,200

E) None of the above
F) B) and D)

Correct Answer

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[The following information applies to the questions displayed below.] Wichita, Inc. reported the following amounts on its financial statements prepared as of the end of the current accounting period: [The following information applies to the questions displayed below.] Wichita, Inc. reported the following amounts on its financial statements prepared as of the end of the current accounting period: -What is the company's return-on-equity ratio? A) 5% B) 10% C) 20% D) 50% -What is the company's return-on-equity ratio?


A) 5%
B) 10%
C) 20%
D) 50%

E) None of the above
F) A) and D)

Correct Answer

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Regarding the relationships of depreciation expense,book value,and accumulated depreciation,state whether each of the following statements is true or false.

Premises
The amount of depreciation expense recognized each year is added to the beginning balance of accumulated depreciation account to determine the ending balance of accumulated depreciation account.

To determine the book value of a long-term asset,the balance in the accumulated depreciation account must be subtracted from current market value of the asset.
The amount of accumulated depreciation gets smaller every year that passes.
The salvage value is the expected selling value of an asset at the end of its useful life.
Responses
False
True

Correct Answer

The amount of depreciation expense recognized each year is added to the beginning balance of accumulated depreciation account to determine the ending balance of accumulated depreciation account.

To determine the book value of a long-term asset,the balance in the accumulated depreciation account must be subtracted from current market value of the asset.
The amount of accumulated depreciation gets smaller every year that passes.
The salvage value is the expected selling value of an asset at the end of its useful life.

On December 31,Year 3,Supplies,Inc.adjusted its records to recognize $10,000 of accrued salaries.Based on this information alone,the


A) balance sheet at the beginning of Year 4 would show $10,000 of accrued salaries expense.
B) balance sheet at the beginning of Year 4 would show $10,000 of accrued salaries payable.
C) income statement for Year 3 would show $10,000 of accrued salaries payable.
D) income statement for Year 4 would show $10,000 of accrued salaries expense.

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

Correct Answer

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


A) defer the recognition of revenue.
B) increase the balance in the company's cash account.
C) cause the company's liabilities to increase.
D) All of the answers are correct.

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

Correct Answer

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An adjusting entry that decreases unearned revenue and increases service revenue is a claims exchange transaction.

A) True
B) False

Correct Answer

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Recognizing an expense may be accompanied by which of the following?


A) A decrease in liabilities
B) An increase in assets
C) A decrease in revenue
D) A decrease in assets

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

Correct Answer

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