Exam 2: Accounting for Accruals

Nelson Company experienced the following transactions during Year 1, its first year in operation.Acquired $9,200 cash by issuing common stock.Provided $5,500 of services on account.Paid $2,400 cash for operating expenses.Collected $3,500 of cash from customers in partial settlement of its accounts receivable.Paid a $260 cash dividend to stockholders.What is the amount of total assets that will be reported on the balance sheet as of December 31, Year 1?

Indicate whether each of the following statements regarding preparing financial statements is true or false.a)Accounts receivable is a liability account.b)Salaries payable is on the income statement.c)Interest expense is on the income statement.d)Accounts payable is on the statement of cash flows.e)Notes payable is a liability account.f)Interest payable is an asset account.

Fancy Foods Incorporated had an ending balance in accounts payable of $6,000. The company incurred $72,000 of operating expenses on account and paid $90,000 cash to settle accounts payable. Determine the beginning balance in accounts payable.

Which of the following is an asset use transaction?

Osage Corporation began business operations and experienced the following transactions during Year 1: 1)Issued common stock for $25,000 cash2)Issued a $20,000, 6% 4-year note to the bank on February 13)Provided services to customers for $80,000 cash4)Paid $38,000 for operating expenses5)Accrued interest expense on the note6)Paid a $4,000 dividend to shareholders Required:Record the above transactions on a horizontal financial statements model to reflect their effect on Osage's financial statements. In the last column, enter OA, IA, FA for the type of cash flow activity, or NA if there is no activity.

The balance in accounts receivable represents the amount of cash the company is required to pay in the future.

Accounts payable is reported on the income statement.

The primary difference between notes payable and accounts payable is that notes payable generally have longer terms and usually require interest charges.

Indicate whether each of the following statements regarding the four types of accounting events is true or false.a)Asset exchange transactions involve an increase in one asset and a decrease in another asset.b)An asset source transaction involves an increase in assets and an increase in a corresponding claims account.c)An asset use transaction cannot result in an increase in stockholders' equity.d)Asset exchange transactions cannot affect cash flows.e)Some claims exchange transactions involve an increase in a liability account and a decrease in an stockholders' equity account.

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA Banks Company performed $5,000 of services for customers on account.

For each of the following transactions, indicate the type by entering AS for asset source transactions, AU for asset use transactions, AE for asset exchange transactions, and CE for claims exchange transactions.1)________ Paid $2,000 in dividends to its stockholders2)________ Recorded the accrual of $1,000 in salaries to be paid later3)________ Issued common stock for $20,000 in cash4)________ Earned revenue to be collected next year5)________ Paid the salaries accrued in #2 above6)________ Received cash from customers in #4 above7)________ Purchased land for cash

Stanley Company earns $8,000 of revenue on account in Year 1. Cash collections of receivables amount to $4,500 in Year 1 with the remainder being collected in Year 2. Which of the following shows how the recognition of revenue in Year 1 will affect the company's accounting equation?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA Amity Company signed contracts for $25,000 of services to be performed in the future.

Warren Enterprises began operations during Year 1. The company had the following events during Year 1: The business issued $38,000 of common stock to its stockholders.The business purchased land for $30,000 cash.Services were provided to customers for $34,000 cash.Services were provided to customers for $23,000 on account.The company borrowed $34,000 from the bank.Operating expenses of $30,000 were incurred and paid in cash.Salary expense of $2,600 was accrued.A dividend of $22,000 was paid to the stockholders of Warren Enterprises. What is the balance of the Retained Earnings account as of December 31, Year 1?

Companies that use accrual accounting recognize revenues and expenses at the time that cash is received or paid, respectively.

Janzen Company recorded employee salaries earned but not yet paid. Which of the following represents the effect of this transaction on the horizontal financial statements model?

Rushmore Company provided services for $45,000 cash during Year 1. Rushmore incurred $36,000 of operating expenses on account during Year 1, and by the end of the year, $9,000 of that amount had been paid with cash. If these are the only accounting events that affected Rushmore during Year 1, which of the following statements is true?

Which of the following is an asset source transaction?

Which of the following correctly describes how accounts receivable will appear on the financial statements?

ABC Company ended Year 1 with the following account balances:Cash 600, Common Stock 400, and Retained Earnings 200.The following transactions occurred during Year 2:Issued common stock for $19,000 cash.ABC borrowed an additional $11,000 from Chris Bank.ABC earned $9,000 of revenue on account.ABC incurred $4,000 of operating expenses on account.Cash collections of accounts receivables were $6,000.ABC provided additional services to customers for $1,000 cash.ABC purchased land for $14,000.ABC used $3,000 in cash to make a partial payment on its accounts payable.ABC declared and paid a $200 dividend to the stockholdersOn December 31 ABC had accrued salaries of $4,000.What is the amount of retained earnings that will be shown on the balance sheet prepared at the end of Year 2?