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

Sam Sleimy wants to borrow money to expand his lawn maintenance business.He knows that his bank will want to see a full set of this year's financial statements before agreeing to lend the company money.Normally his company bills customers at the end of each month,for services that have already been performed.Sam tells the company accountant,Tom Trueheart,to start billing all regular customers in advance,and record revenue for the amounts that have been billed.This means that bills for January of next year will be sent out in December. 1.What effect will billing customers in advance have on this year's income statement for the year ended December 31? How will the balance sheet be affected? Why would Sam ask Tom Trueheart to do this? 2.Would it be ethical for Tom to do as Sam asks? Why?

A company's computer system is housed on a separate floor of the company's corporate headquarters.Employees must enter their thumbprints on an electronic lock before the elevator will take them to this floor.This control is primarily designed to prevent ________.

An electronic cash register in a department store will not allow anyone to enter a sales transaction without an authorization code.This control is primarily designed to prevent ________.

Magic,Inc.collected $24,000 in October 2011 from customers in exchange for 12-month subscriptions to its monthly magazine Magic Times.The October issue was the first issue of the subscription.Which statement below is true regarding the effects of collecting the cash from customers in October?

The records of Adam's Apple,Inc.revealed the following amounts at December 31,2011 before adjustments: Part A: In the worksheet below,record the effect of these six adjustments on the accounting equation.Show the correct dollar amounts,and write in the titles of the accounts affected. a.$400 of the advertising paid in advance remained unused. b.The equipment,purchased on January 1,has a useful life of 5 years with no residual value.Record the depreciation for the year. c.Four months of the 12-month insurance policy have NOT expired. d.Interest is owed on the 6%,9-month note issued on November 1,2011. e.$6,000 was earned of the amounts collected in advance from customers. f.$4,000 was owed to employees for work done in December. Part B: Fill in the adjusted balances as of December 31,2011: Part C: Calculate Adam's Apple's net income for the year ended December 31,2011.$________

Avatar,Inc.bought a machine on January 1,2011 for $96,000.The machine is expected to last for 8 years,after which it will be worthless.How much accumulated depreciation will Avatar report at December 31,2011?

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 will the company report these events on its statement of cash flows for the month of June?

Selected data from BabCo.'s accounting system are provided below.All account 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 information below.The table does NOT include all of the accounts that will be adjusted. a.Interest accrues on a $30,000 note payable at the rate of 6.5% per year and the note has been unpaid all year. b.Equipment with a cost of $100,000,a 10-year estimated useful life,and salvage value of $5,000 was owned and used all year. c.$300 of the supplies were used during the year. d.The prepaid rent balance relates to a 12-month policy purchased on November 1,2011. e.$500 of the unearned revenue is now earned. f.The salaries expense account balance does not include $5,000 of employee salaries earned but unpaid.

If an adjustment related to employee salaries has been made,you would expect to see the Salaries payable account on the income statement.

Rent-a-Wreck,Inc.paid $12,000 cash for a one-year insurance policy on November 1,2012.What adjustment should the company make before preparing its annual financial statements on December 31,2012?

On January 1,2010,We Haul,Inc.bought a $48,000 truck,which has no residual value and an expected life of 6 years.How much accumulated depreciation should the company report at December 31,2012?

Lumbers,Inc.lends $3,000 at 12% to an employee on September 1,2012.The employee agrees to pay the interest and principal in two years.Which of the following will be reported on Lumbers' year ended December 31,2012 financial statements?

Miss Happ of Ace Electronics forgot to make the adjusting entry for supplies used during the accounting period.As a result of this mistake ________.

Adjusting entries always affect at least one balance sheet and one income statement account.

Avatar,Inc.bought a machine on January 1,2011 for $96,000.The machine is expected to last for 8 years,after which it will be worthless.How much depreciation expense will Avatar show on its income statement for the year ended December 31,2011?

Maxine,Inc.bought a machine on January 1,2012 for $48,000.The machine is expected to last for 8 years,after which it will be worthless.How much depreciation expense will Maxine show on its balance sheet at December 31,2012?

Company A has a profit margin on sales ratio of 8% and Company B has a profit margin on sales ratio of 12%.Which of the following must be true?

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.What will the company report for prepaid insurance on its balance sheet at December 31,2012?

A contra-asset is ________.

Mac,Inc.purchased a truck on October 1,2011 in exchange for a 12-month,9%,$100,000 note.What effect does the October 31,2011 adjusting entry for interest have on the company's total assets?