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

Needem,Inc.borrowed $100,000 from Lendem Commercial Bank,on April 1,2009 and agreed to repay the principal plus interest on April 1,2012.The note bears interest at 9% annually (do not compound).Fill in the blanks in the chart below.

Which of the following statements best explains why adjustments need to be made at the end of every accounting period?

Which of the following is a TRUE statement about the matching principle?

Adjusting entries are usually recorded at the beginning of every accounting period.

The following is a partial list of items from Chewy Candy,Inc.'s June 30,2011 financial statements.Its fiscal year runs from July 1 to June 30. Part A: In the worksheet below,record the effect of these five adjustments on the accounting equation for the year ended June 30,2011.Show the correct dollar amounts,and write in the titles of the accounts affected. 1.Adjusted the $3,600,3-year insurance policy that began on July 1,2010. 2.Accrued interest on its $100,000,12% note issued on July 1,2010.Interest and principal are due January 1,2012. 3.Earned $10,000 of the subscription revenue that had been collected in advance. 4.Adjusted the ten months of rent that was paid in advance on March 1,2011. 5.Owed salaries of $2,000 at yearend.Payday is on July 3,2011. Part B: Fill in the adjusted balances as of June 30,2011.Some of the accounts that have been adjusted are not included in this table.

An accrual is a transaction in which the action comes after the exchange of cash.

Clean Sweep,Inc.started the month of June with $800 worth of cleaning supplies.During the month,Clean Sweep purchased $300 of supplies for cash.At June 30,$200 worth of supplies was unused.How much cleaning supplies expense will the company show on its income statement for the month of June?

On May 1,Counts,Inc.has a balance of $1,000 in office supplies.During May,the company buys $500 more of the office supplies.On May 31,the company counts the supplies and finds $200 of supplies remaining.What will the company report on its May 31 balance sheet?

How much interest will accrue over ten months on a $50,000,6% loan?

Bankrupt & Baroque,Inc.borrowed $10,000 on January 1 from E-Z Bank for three months at a 6% annual interest rate.The amount of interest due as of January 31 equals $200.

Supplies on the balance sheet equals the amount of supplies used up during a period.

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

Rent a Wreck,Inc.began operations on July 1,2012.On July 1,the company paid $9,600 cash in advance for a one-year insurance policy beginning on that day.Cash paid for insurance on the company's statement of cash flows for the month ended July 31,2012 equals ________.

On April 1,Spring Floral,Inc.has a balance of $300 in Supplies.During April,the company buys $900 more of the supplies.On April 30,the company counts the supplies and finds $200 of supplies remaining.What will the company report on its month ended April 30 income statement?

On May 1,Counts,Inc.has a balance of $1,000 in office supplies.During May,the company pays $500 for more supplies.On May 31,the company counts the supplies and finds $200 of supplies remaining.What will the company report on its statement of cash flows for the month of May?

On October 1,2011,Sammy Sosa Company borrowed $80,000 cash on an 8-month,12 % note payable.Interest on the note will be paid when the principal is repaid.On October 1,2011,the company used the cash to buy $80,000 of equipment.The equipment has a 5-year estimated useful life and zero residual value.Use the space provided below to describe how these transactions will be reported on the company's financial statements for the year ended December 31,2011. The statement of cash flows: The income statement: The balance sheet:

What type of account is Unearned revenue?

What accounting principle justifies depreciating certain long-term assets?

Explain the matching principle.

The purpose of adjusting entries is to update the account balances at the end of the period.