Exam 2: Understanding the Accounting Cycle

On December 31,2016,Gaskins Co.owed $4,500 in salaries to employees who had worked during December but would be paid in January.If the year-end adjustment is properly recorded on December 31,2016,what will be the effect of this accrual on the following items for Gaskins?

Warren Enterprises had the following events during 2016: The business issued $40,000 of common stock to its stockholders. The business purchased land for $24,000 cash. Services were provided to customers for $32,000 cash. Services were provided to customers for $10,000 on account. The company borrowed $32,000 from the bank. Operating expenses of $24,000 were incurred and paid in cash. Salary expense of $1,600 was accrued. A dividend of $8,000 was paid to the stockholders of Warren Enterprises. Assuming the company began operations during 2016,the amount of retained earnings as of December 31,2016 would be:

Use the following information for questions Nelson Company experienced the following transactions during 2016,its first year in operation. 1.Issued $12,000 of common stock to stockholders. 2.Provided $4,600 of services on account. 3.Paid $3,200 cash for operating expenses. 4.Collected $3,800 of cash from accounts receivable. 5.Paid a $200 cash dividend to stockholders. -The amount of net income recognized on Nelson Company's 2016 income statement is:

An increase in an expense may be accompanied by a decrease in a liability.

Determine whether each of the following events are asset source (AS),asset use (AU),asset exchange (AE),or claims exchange (CE)transactions. _____1)Borrowed $6,000 from creditors _____2)Issued common stock to investors for $8,000 cash _____3)Paid one year's rent in advance _____4)Provided services to customers and received $35,000 cash _____5)Paid creditors $10,000 _____6)Received $3,000 of revenue in advance _____7)Provided services to customers on account,$12,000 _____8)Collected $2,000 from accounts receivable _____9)Recognized accrued salary expense of $2,000 _____10)Adjusted the records for supplies used of $800

Use the following information for questions Nelson Company experienced the following transactions during 2016,its first year in operation. 1.Issued $12,000 of common stock to stockholders. 2.Provided $4,600 of services on account. 3.Paid $3,200 cash for operating expenses. 4.Collected $3,800 of cash from accounts receivable. 5.Paid a $200 cash dividend to stockholders. -The amount of retained earnings appearing on Nelson Company's December 31,2016 balance sheet is:

Describe the purpose of the closing process.

The year-end adjustment to recognize one month's work on the three-month contract results in a $2,000 decrease in liabilities (unearned revenue)and an increase in equity (retained earnings due to recognizing revenue). The following account balances were drawn from the 2016 financial statements of Grayson Company: -Jason Company paid $7,200 for one year's rent in advance beginning on October 1,2015.Jason's 2015 income statement would report rent expense,and its statement of cash flows would report cash outflow for rent,respectively,of

The balance in a revenue account at the beginning of an accounting period will always be

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.You do not need to enter amounts. -Amity Co.signed contracts for $25,000 of services to be performed in the future.

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.You do not need to enter amounts. -Todd Co.collected $2,000 cash from accounts receivable.

The following data were taken from the accounting records of Li Company at December 31,2016 after adjusting entries have been entered.The December 31,2016 closing entries have not been made. Required: a)List the accounts that should be closed at the end of 2016. b)Prepare an income statement for Li Company for 2016. c)What is the balance in retained earnings after closing entries have been made?

Regarding the effects of end-of-period adjustments,state whether each of the following statements is true or false. _____ a)Recording the usage of supplies involves an increase in liabilities and a decrease in equity. _____ b)The accrual of salaries is considered a claims exchange transaction. _____ c)Recording services performed on a prepaid contract involves a decrease in liabilities and an increase in assets. _____ d)End-of-period adjustments often affect cash flows. _____ e)Failure to record accrued salaries at the end of the year will cause reported net income to be higher than it should have been.

The bankruptcies of Enron and WorldCom both indicated the occurrence of major audit failures.

Hernandez Company began business operations and experienced the following transactions during 2016: 1)Issued common stock for $50,000 cash. 2)Provided services to customers for $125,000 on account. 3)Purchased $2,500 of supplies on account. 4)Paid $30,000 cash to rent office space for a 12-month period beginning July 1. 5)Collected $115,000 cash from customers. 6)Paid cash for $90,000 of operating expenses. 7)Adjusted the accounting records to reflect that there was $750 of supplies remaining on hand at year-end. 8)Recorded an end-of-year adjustment to recognize rent expense. Required: a)Record the above transactions on a horizontal statements model,reflecting their effect on the different financial statements.Precede the amount with a minus sign if the transaction reduces that section of the equation.Precede a cash outflow amount with a minus sign.Enter 0 for items not affected. b)Prepare Hernandez Company's income statement,balance sheet and statement of cash flows for the year ended December 31,2016.

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

Use the following information for questions The following accounts and balances were drawn from the records of Carolina Company on December 31,2016: -Total assets on Carolina's December 31,2016 balance sheet would amount to:

Thurston Company started its business on January 1,2016 by issuing $15,000 of common stock.On January 1,the company purchased equipment for $10,500.The equipment is estimated to have a 3-year useful life and a $1,500 salvage value.On March 1,Thurston issued a $27,000,6% 5-year note to Community Bank.Customers paid Thurston $54,000 for services performed in 2016.The company paid $33,000 for operating expenses,and paid a $900 dividend to the stockholders.At year-end,Thurston recognized interest expense on the note and depreciation expense on the computer. Required: a)What is the amount of interest expense Thurston will recognize in 2016? b)What is the book (carrying)value of the computer at the end of 2016? c)What is the net income for 2016? d)Prepare a balance sheet for 2016.

Use the following information for questions The following accounts and balances were drawn from the records of Carolina Company on December 31,2016: -The amount of Carolina's retained earnings after closing on December 31,2016 was:

Discuss the importance of ethics in the accounting profession.