Exam 15: Overhead Application: Variable and Absorbtion Costing

Excess of revenues over expenses results in a profit.

Amounts due from customers for sales on open account

The entity's economic obligations to nonowners is(are) called:

The adjusting entry increases expenses and decreases assets.

Clipper Company paid $36,000 for May, June, July, and August rent in advance. The company recorded this transaction by increasing the balance in the Prepaid Rent account. The balance in the Prepaid Rent account as of August 1 is:

West Company's accountant recorded a debit to Accounts Payable and a credit to Cash. This transaction will:

Companies carry forward assets because they expect to recover the cost of these assets in the form of cash inflows (or reduced cash outflows) in future periods

The use of acquisition cost less depreciation in valuing an asset on the balance sheet is the logical result of the _ accounting convention.

The accounting convention of permits a company to immediately expense assets (such as a garbage can) with small values and long useful lives.

The ownership claim arising from funds invested

To accumulate a receivable or payable during a given period, even though no explicit transaction occurs

Liabilities are economic resources.

Accuracy supported by a high extent of consensus among independent measures of an item

Depreciation applies to assets such as accounts receivable and equipment.

would result in a decrease in net income under the cash basis, but it would not result in a decrease in net income under the accrual basis.

Assume that Shack Company's paid- in capital at the beginning of the period was $475,000. Shack Company's total revenues and total expenses were $870,000 and $550,000, respectively. A dividend of $70,000 was declared and paid to shareholders. Shack Company's ending paid- in capital is:

Big John Company began business operations on August 1, 20X5. The following transactions occurred during August 20X5: 1. The owner invested $75,000 in the company. 2. Big John Company purchased inventory costing $27,000, of which two- thirds was paid in cash. 3. Equipment costing $22,500 was purchased, of which one- third was paid in cash. 4. Rent of $5,400 was paid for August, September, and October 20X5. 5. Cash sales during the month totaled $12,000. The cost of the inventory sold was $8,100. 6. Credit sales during the month totaled $21,000. The cost of the inventory sold was $15,300. 7. The wages earned by the employees for the month were $9,000, although only $7,800 had been paid as of the end of the month. 8. August's depreciation on the equipment was $600 9. Collections for the credit customers totaled $4,200 during the month. Given the transactions, determine the net income or loss for Big John Company for the month of August 20X5.

The is (are) largely responsible for developing generally accepted accounting principles in the United States.

The excess of revenues over expenses

Valuing assets at replacement cost to facilitate the measurement of "economic income" violates the accounting convention.