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Exam 3: The Financial Reporting Process

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Question 21

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Pawn Shops Unlimited recorded the following four transactions during April. Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual-basis or cash-basis accounting?

A) Received $600 from customers for services to be provided in May.
B) Paid $1,800 for a six-month insurance policy covering the period July 1-December 31.
C) Paid $700 for an advertisement that appeared in the April 17 edition of the Las Vegas Sun newspaper.
D) Received $300 from customers for services performed in March.

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

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Question 22

Multiple Choice

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Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the term in the space provided. Terms: -____ A list of accounts and their balances used as the source data to prepare the financial statements.

A) Accrued expenses
B) Adjusted trial balance
C) Adjusting entries
D) Depreciation expense
E) Balance sheet
F) Prepaid expenses
G) Expenses
H) Post-closing trial balance
I) Income statement
J) Trial balance

K) F) and H)
L) A) and G)

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Question 23

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

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the term in the space provided. Terms: -____ Assets created before the expense is recognized.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the term in the space provided. Terms: -____ An account that reflects an estimate.

Which of the following is a possible closing entry?

Under cash-basis accounting, we record revenues at the time we receive cash and expenses at the time we pay cash.

Which of the following is a possible adjusting journal entry?

For each transaction below, calculate the amount of revenue to be recognized in the current period using accrual-basis accounting: (a) Performed $24,000 of services during the month and received full cash payment from customers at the time of service. (b) Performed $9,000 of services during the month and billed customers. Customers are expected to pay next month. (c) Received $12,000 cash from customers for services to be provided next month.

Jones Corporation provides services to a customer on June 17, but the customer does not pay for the services until August 12. According to the revenue recognition principle, Jones Corporation should record the revenue on August 12.

Adjusting entries involve recording events that have occurred but that have not yet been recorded by the end of the period.

The following information pertains to Sooner Company: Assuming that Sooner Company uses cash-basis accounting, when would the company record the expense related to the supplies?

Consider the following events for Betterment Incorporated: Under accrual-basis accounting, what is the appropriate day to record the revenues related to lawn services?

Under cash-basis accounting, 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 following year.

Accrued expenses involve the payment of cash before recording an expense and a liability.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the term in the space provided. Terms: -____ Records events that have occurred but not previously recorded.

The year-end adjusted trial balance included the following account balances: Cash, $5,000; Equipment, $25,000; Accounts payable, $7,000; Common stock, $15,000; Retained earnings, $6,000; Dividends, $1,000; Service revenue, $18,000; Salaries expense, $9,000; and Utilities expense, $6,000. Prepare the post-closing trial balance.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the term in the space provided. Terms: -____ Represent outflows of resources incurred to generate revenues.

The Retained Earnings account had a beginning credit balance of $26,000. During the period, the business had a net loss $12,000, and the company paid dividends of $8,000. The ending balance in the Retained Earnings account is:

A company receives a $700 utility bill for the current month but does not plan to pay the bill until early next month. Record the receipt of the utility bill using (a) accrual-basis accounting and (b) cash-basis accounting.