Exam 4: Accrual Accounting Concepts

The following is a list of accounts and their balances (all normal balances) as of July 31, 2018 for Ling Chan Inc. All adjusting entries have been prepared and posted. Note that the list is in random order. InstructionsPrepare the closing journal entries required.

Unearned revenue is classified as a(n)

The statement of changes in equity is prepared from the Common Shares, Retained Earnings and Dividends Declared accounts on the adjusted trial balance.

When a company performs a service for which payment was received in advance, a journal entry is recorded that will

Which of the following reflects the balances of prepayment accounts prior to adjustment?

Financial statements are generally prepared before the closing entries are posted.

Expense recognition is tied to changes in assets and liabilities.

Adjusting entries can be classified as

Prepare the required year end adjusting entries for each independent case listed below. Assume no adjustments were made during the year.Case 1Ainsworth Corporation began the year with a $6,200 balance in the Supplies account. During the year, $2,750 worth of additional supplies were purchased. A physical count of supplies on hand at the end of the year revealed that $3,875 worth of supplies had been used during the year.Case 2Brownstone Co. Ltd. has a calendar fiscal year. On Oct 1, the company purchased equipment for $45,000. The estimated useful life of the equipment is 9 years.Case 3Michaela Management Ltd. is in the business of renting out several apartment buildings and prepares monthly financial statements. It has been determined that two tenants in $950 per month apartments and one tenant in the $1,400 per month apartment had not paid their December rent as of December 31.

The following ledger accounts are used by the Clover Race Track:Accounts ReceivablePrepaid PrintingPrepaid RentUnearned RevenuePrinting ExpenseRent ExpenseAdmissions RevenueConcessions RevenueInstructionsFor each of the following transactions, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on September 30, the end of the fiscal year. a. On September 1, paid rent on the track facility for three months, $240,000. b. On September 1, sold season tickets totalling $900,000 for admission to the racetrack. The racing season is year-round with 25 racing days each month. c. On September 1, borrowed $150,000 from First Provincial Bank by issuing a 12% bank loan payable due in three months. d. On September 5, schedules for 20 racing days in September, 25 racing days in October, and 15 racing days in November were printed for $3,000. (e) The accountant for the company that operates the concessions (food and drink stands) reported that gross receipts for September were $140,000. Ten percent is due to Clover Race Track and will be paid by October 10.

McCloud Realty received a cheque for $21,000 on July 1, which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Revenue was credited for the full $21,000. Financial statements will be prepared on July 31. McCloud Realty should make the following adjusting entry on July 31:

For a private company reporting under ASPE, adjusting entries must be prepared at least quarterly.

Under IFRS, revenue recognition criteria include recognizing revenue when

An adjusted trial balance must be prepared before the adjusting entries can be recorded.

Fang's Tune-Up Shop Ltd. uses the accrual basis of accounting. Fang services a car on May 31. The customer picks up the vehicle on June 1 and mails payment to Fang on June 5. Fang receives the cheque in the mail on June 6. When would Fang recognize the revenue as being earned?

Revenue results when there is an increase in a liability or a decrease in an asset.

The carrying amount of a depreciable asset is always equal to its actual value because depreciation is a valuation technique.

Under the cash basis of accounting, revenue is only recognized when cash is received.

Which one of the following is not a justification for adjusting entries?

Recording transactions that affect a company's financial statements in the periods in which they occur rather than when cash is received or paid is called