Exam 3: Measuring Business Income

The following amounts are taken from the balance sheets of Baltic Company: December 31, 2010 December 31, 2009 Accrued liabilities \ 44,000 \ 37,500 Prepaid expenses 14,000 18,500 During 2010, expenses related to accrued liabilities were $30,500, and expenses related to prepaid expenses were $21,000. a. Compute cash payments related to accrued liabilities. b. Compute cash payments related to prepaid expenses.

Which two broad account categories are used to determine net income? Define each category and list two examples of each type.

Direct cause-and-effect relationships between revenues and costs can usually be demonstrated.

When a credit sale takes place,

Which of the following accounts would not need to be adjusted at year end?

An adjusting entry would not include which of the following accounts?

A contra account is an account whose balance is subtracted from an associated account in the financial statements.

An adjusted trial balance proves the balance of the ledger accounts after the adjusting entries have been posted.

Which of the following transactions results in an increase in expenses?

What is the purpose of adjusting entries?

Erwin Press pays wages of $6,000 every Friday for a five-day workweek. June 30, the last day of the fiscal year, falls on a Tuesday. In the journal provided, prepare the June 30 adjusting entry as well as the July 3 follow-up entry when the wages are paid. Omit explanations.

The cost of doing business is also known as

An adjusting entry cannot include a debit to a(n)

When the estimates involved in earnings management begin moving outside a reasonable range, the financial statements can become misleading.

Which of the following transactions will not result in an increase in revenues?

The following amounts are taken from the balance sheets of Milman Company: During 2010, expenses related to prepaid expenses were $103,000, and expenses related to accrued liabilities were $197,000. Determine the amount of cash payments related to prepaid expenses and to accrued liabilities for 2010.

Antonio's Pizza has a delivery truck it purchased for $30,000. The truck has an estimated useful life of six years and will be worthless at the end of that time. In the partial balance sheet below, show exactly how the truck would be disclosed after it has been used for two years. Also calculate total assets.

Accounting periods should be of equal length to facilitate comparisons between periods.

Financial statement time periods should be of equal length

Net income is misleading when revenue is overstated or expenses are understated by significant amounts.