Exam 3: Measuring Business Income

Which of the following accounts probably would not appear in a trial balance but probably would appear in an adjusted trial balance?

Given the adjusted trial balance below, prepare (in good form) an income statement, statement of owner's equity, and balance sheet. The name of the business is Duncore Secretarial Service and the accounting period coincides with the calendar year.

When a net loss has been suffered, the Owner's Capital account will contain a negative balance.

A depreciable asset's original cost can typically be obtained by referring to the balance sheet.

Accounting periods of greater than a year are called interim periods.

A company recorded office supplies in an asset account when the supplies were purchased. Failure to take inventory and make an adjusting entry will result in an

Failure to record depreciation at year end will result in an

Which of the following is a condition required by the SEC for the recognition of revenue?

The income statement for Catlett Company included the following revenues and expenses for 2010: Fees earned \ 103,000 Wages expense 44,700 Insurance expense 8,500 Interest expense 5,200 Listed below are the related balance sheet account balances at year end for this year and last year: This Year Last Year Unearned Fees \ 7,800 \ 6,600 Wages Payable 2,700 3,300 Prepaid Insurance 1,200 0 Interest Payable 0 800 a. Compute cash received for fees during the year. b. Compute cash paid for wages during the year. c. Compute cash paid for insurance during the year. d. Compute cash paid for interest during the year.

Revenue cannot be recognized unless delivery of goods has occurred or services have been rendered.

In accounting, depreciation refers to the decline in value of a plant asset.

Which of the following transactions will not result in the recognition of an expense?

In the space below, state whether each situation is a deferral or an accrual. ______a. Unrecorded interest on savings bonds is $765. ______b. Property taxes that have been incurred but that have not yet been paid or recorded amount to $1,034. ______c. Legal fees of $2,890 were collected in advance. By year end, 70 percent were still unearned. ______d. Prepaid Insurance had a $900 balance prior to adjustment. By year end, 25 percent was still unexpired. ______e. Salaries earned by employees by year end but not yet paid or recorded amounted to $1,655. ______f. Services totaling $690 have been performed but not yet recorded or billed.

Susan Kane won the mayoral election in the City of Ashley partly on the basis of her charge that Allen Ross, the former mayor, was responsible for the budget deficit. After taking office, she hired a major international accounting firm to straighten things out. This excerpt appeared in an article from a leading business publication, West End Business Review: [A riddle] Q: When is a budget deficit not a deficit? A: When it is a surplus, of course. Ashley Mayor Susan Kane was once again caught with egg on her face last week as she and her financial advisers tried to defend that riddle. On one hand, Comptroller Jim Guan, a Kane appointee, testified in hearings that the city had actually ended 20x5 with a $6 million surplus, not the much-reported deficit. He said further that the modest surplus grew to $54 million as a result of tax-enrichment supplements to the 20x5 balance sheet. On the other hand, the mayor stuck by the same guns she used last year on her predecessor. The city had ended 20x5, under the Allen Ross administration, not merely without a surplus, but with a deficit. The apparent discrepancy can be explained. Like most U.S. cities, Ashley operates under a modified accrual accounting basis. This is a combination of the cash basis and the accrual basis. The modified accrual basis differs from the accrual basis in that revenue is recorded when it is collected. The collection of Ashley's parking tax, which is assessed on all city parking lots and garages, is an example. The tax is assessed and collected on a quarterly basis, but the city doesn't collect the amount due for the last quarter of 20x6 until the first quarter of 20x7. Under ideal accrual methods, the parking revenues should be recorded in the 20x6 financial statements. Under a cash approach, the revenues would be recorded in the 20x7 budget. What the city did before was to record the money whenever it was advantageous politically. That, combined with the infamous revolving funds, allowed the city to hide the fact it was running large deficits under former Mayor Ross. That also means that no one really knew where the city stood. The auditors are now reallocating the parking revenues to the 20x7 budget but are accruing other revenues by shifting the period of collection from a year in the past. Overall, more revenues were moved into earlier fiscal years than into later years, inflating those budgets. Thus, the 20x7 deficit is a surplus. The article concluded: The upshot is that both Mayor Kane and Mr. Guan (the comptroller) were correct. There was a deficit in the 20x5 corporate or checkbook fund, but because of corrections taking place now, a surplus exists. a. Do you agree with the way the auditors handled parking revenues? Support your answer by explaining which method of accounting you think a city should use. b. Comment on the statement, "Systematically applied accounting principles will allow all to know exactly where the city stands."

All decreases in owner's equity are a result of expenses.

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

The carrying value of equipment is the estimated dollar amount the equipment could be sold for.

An adjusted trial balance will probably list more accounts than are listed in the trial balance.

During the performance of the steps in the accounting cycle, the trial balance and the adjusted trial balance are prepared at two key points. Using specific names where applicable, discuss the time of preparation and the purpose served by both of these trial balances.

Which of the following pairs of accounts could not possibly appear in the same adjusting entry?