Exam 3: Accruals and Deferrals: Timing Is Everything in Accounting

Describe the accrual basis of accounting.

The entry to record the purchase of a truck is to increase Truck expense and decrease Cash.

Selected data from Babel Co.'s accounting system are provided below.All balances are before year-end adjustments and all data relate to the year ended December 31,2011.Determine the amount that will be reported for each of the items in the table below,after the appropriate adjustments have been made using the following information: a.The note has been unpaid all year and bears interest at 5 %. b.The equipment,which was owned and used all year,has a 3-year estimated useful life with a $0 estimated residual value. c.$500 of the supplies were used during the year. d.The Prepaid insurance balance relates to a 6-month policy purchased on April 1,2011. e.$5,000 of the unearned revenue is now earned. f.The Salaries expense account balance does not include $25,000 of employee salaries earned but unpaid.

Clean Sweep,Inc.paid $7,200 on May 1,2011 for 12 months' insurance coverage starting May 1.How much insurance expense should appear on the company's income statement for the year ended December 31,2011?

Show the effects of each of the following items on assets,liabilities,and shareholders' equity.Show the appropriate dollar amount using parentheses for negative amounts.Account titles are not required.The first transaction has been done for you. a.Earned $8,000 in sales revenues in the last week of the month but haven't billed (invoiced)or collected from the customers yet b.Prepaid rent used up,$2,000 c.Of the $600 in office supplies on hand at the beginning of the period,only $50 remains on hand at the end of the period. d.Interest accumulated but unpaid on a note payable amounts to $300 e.Depreciation of the long-term assets amounts to $1,200 f.Wages and salaries earned by employees but unpaid amount to $5,000

Explain why adjustments are needed at the end of each accounting period.

Slumbers,Inc.borrows $3,000 at 12% from a bank on September 1,2012 and agrees to pay the interest and principal in two years.Which of the following will be reported on the year ended December 31,2012 financial statements?

Miss Happ of Ace Electronics forgot to make the adjusting entry for depreciation on the company's equipment.As a result of this mistake ________.

Where should a user of accounting information look to evaluate the operating performance of an entity?

On January 1,2011,Swinger,Inc.purchases a batting machine for $240,000 that has an estimated useful life of 5 years and an expected residual value of $20,000.What is the effect of this transaction on the company's statement of cash flows for the year ended December 31,2012?

An increase in a company's profit margin on sales ratio from one year to the next is considered an improvement in operations.

Reader,Inc.collected $12,000 in October 2011 from customers in exchange for 12-month subscriptions to its monthly magazine Reader.The October issue was the first issue of the subscription.How much revenue should the company report on its income statement for the year ended March 31,2012?

Rent-a-Wreck,Inc.paid $36,000 cash for a two-year insurance policy on April 1,2011.What adjustment should the company make before preparing its annual financial statements on December 31,2011?

Selected data from RuthCo.'s accounting system are provided below.All balances are BEFORE year-end adjustments and all data relate to the year ended December 31,2011.Determine the amount that will be reported for each of the items in the table below,after the appropriate adjustments have been made using the following information.Also indicate the financial statement where each item appears,using IS for the income statement and BS for the balance sheet.The table does NOT include all accounts that will be adjusted. a.A $40,000 note payable has been unpaid all year and bears interest at 9%. b.Equipment that was owned and used all year has a historical cost of $35,000,a 6-year estimated useful life,and a $5,000 estimated residual value. c.$400 of the supplies were consumed during the year. d.The prepaid insurance balance relates to a 12-month policy purchased on July 1,2011. e.$18,000 of the unearned revenue is now earned. f.Salaries expense does not include $15,000 of employee salaries that have been earned but not yet paid.

Which financial statement shows Cash collected from customers?

What is book or carrying value?

An accrual is ________.

Use the following code to identify the financial statement(s)where each of these line items is shown.(Remember that some line items may be found on more than one statement.) a.Balance sheet b.Income statement c.Statement of changes in shareholders' equity d.Statement of cash flows ______ 1.Cash collected from customers ______ 2.Revenues earned ______ 3.Unearned revenue ______ 4.Salaries payable ______ 5.Salaries expense ______ 6.Cash paid to employees

Salaries payable on the balance sheet most likely means that ________.