Exam 4: Accrual Accounting Concepts

Adjusting entries are often made because some business events are not recorded as they occur.

Ye Olde Christmas shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on October 1 in the amount of $20,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?

A new accountant working for Metcalf Company records $800 Depreciation Expense on store equipment as follows: The effect of this entry is to:

Wong Ho Company had the following transactions during 2013: -Sales of ¥11,000 on account -Collected ¥4,000 for services to be performed in 2014 -Paid ¥1,250 cash in salaries -Purchased airline tickets for ¥500 in December for a trip to take place in 2014 What is Wong Ho's 2013 net income using accrual accounting?

Given the following adjusted trial balance: Net income for the year is:

A gift shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $30,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?

Accumulated Depreciation is a(n):

How many required steps are there in the accounting cycle?

An adjusting entry would be made to the revenue account only when cash is received.

The accrued interest for a three month note payable of $10,000 dated December 1, 2013 at an interest rate of 6% is $150 on December 31, 2013.

Benson and Jencks is a manufacturing company that specializes in writing instruments. The past year was a difficult one for the company, as it sought to retain its share in a market in which the largest competitors were also rapid innovators. Benson and Jencks introduced a new product late in the year, even though testing was not complete. It was a pen designed with two cartridges: one supplying ink and the other correction fluid. A person could then switch easily between writing and correcting errors. It was priced fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the product was named, was an overwhelming success. The success of the product has Fern Donald, the manager of the New Products division, worried, however. She was concerned that quality problems would begin occurring, since the longevity of the pen and stability of the correction fluid formulation had not been tested. She did not want sales personnel to get the bonuses that appeared to be indicated, since they might aggressively promote a product that would fail in use. She preferred to complete testing of the pen first, so that more confidence could be placed in the results. Top management, however, declined the tests. Ms. Donald then instructed you, the accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to show them as current expenses in total. In this way, the new product would appear to be only slightly profitable. Required: 1. Describe the alternatives that you as an accountant would have in this situation. 2. Indicate which alternative is best.

The Jacquers, a semi-professional baseball team, prepare financial statements on a monthly basis. Their season begins in April, but in March the team engaged in the following transactions: (a) Paid $120,000 to Lawrence City as advance rent for use of Lawrence City Stadium for the six-month period April 1 through September 30. (b) Collected $600,000 cash from sales of season tickets for the team's 20 home games. This amount was credited to Unearned Ticket Revenue. (c) During the month of April, the Jacquers played four home games and five road games. Instructions: Prepare the adjusting entries required at April 30 for the transactions above.

The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $1,000 on hand. The adjusting entry that should be made by the company on June 30 is:

La More Company had the following transactions during 2013. -Sales of $4,500 on account -Collected $2,000 for services to be performed in 2014 -Paid $1,325 cash in salaries -Purchased airline tickets for $250 in December for a trip to take place in 2014 What is La More's 2013 net income using cash basis accounting?

The worksheet is:

At December 31, 2014, before any year-end adjustments, Dallis Company's Prepaid Insurance account had a balance of $2,900. It was determined that $1,300 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be:

The adjusted trial balance of Warbocks Corporation at December 31, 2014 includes the following accounts: Retained Earnings $12,600; Dividends $5,000; Service Revenue $30,000; Salaries and Wages Expense $15,000; Insurance Expense $2,000; Rent Expense $4,500; Supplies Expense $500; and Depreciation Expense $1,000. Prepare an income statement for the year ended December 31, 2014.

There are usually how many closing journal entries?

Companies are continually under pressure to "Make the Numbers" - to have earnings that are in line with expectations. Explain the terms earnings management and quality of earnings.

Prepare adjusting entries for the following transactions. Omit explanations. 1. Unrecorded interest accrued on savings bonds is $410. 2. Property taxes incurred but not paid or recorded amount to $800. 3. Unearned service revenue of $4,000 was collected in advance. By year end $700 was still unearned. 4. Prepaid insurance had a $750 debit balance prior to adjustment. By year end, 60 percent was still unexpired. 5. Salaries incurred by year end but not yet paid or recorded amounted to $650.