Exam 2: Review of the Accounting Process

On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $2,000,000. The company provided $6,400,000 of services in June and received full payment in July. Royal also incurred expenses of $3,000,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $1,000,000. What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting?

XYZ Corporation receives $100,000 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a:

Prepayments occur when:

The statement of cash flows summarizes transactions that caused cash to change during a reporting period.

The balance sheet can be considered a change or flow statement.

Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of merchandise, costing $620 and sold for $960 on account?

Declared cash dividends on common stock.

Claymore Corporation maintains its book on a cash basis. During 2013, the company collected $825,000 in fees from its clients and paid $512,000 in expenses. You are able to determine the following information about accounts receivable, supplies, prepaid rent, salaries payable, and interest payable: In addition, 2013 depreciation expense on office equipment and furniture is $55,000. Required: Determine accrual basis income for 2013.

What is the purpose of the closing process?

The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:

Mama's Pizza Shoppe borrowed $8,000 at 9% interest on May 1, 2013, with principal and interest due on October 31, 2014. The company's fiscal year ends June 30, 2013. What adjusting entry is necessary on June 30, 2013?

Which of the following is not an adjusting entry?

When a magazine company collects cash for selling a subscription, it is an example of:

Below is a list of accounts in no particular order. Assume that all accounts have normal balances. Required: In column A, indicate whether a debit will: 1. Increase the account balance, or 2. Decrease the account balance. In column B, classify each account according to the following scheme. For contra accounts, indicate the classification of the account to which it relates. 1. A current asset in the balance sheet. 2. A noncurrent asset in the balance sheet. 3. A current liability in the balance sheet. 4. A long-term liability in the balance sheet. 5. A permanent equity account in the balance sheet. 6. A revenue account in the income statement. 7. An expense account shown in the income statement. 8. Account does not appear in either the balance sheet or the income statement. -Accounts receivable

When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?

Wages have been earned but are unpaid at the end of an accounting period.

What is the purpose of the statement of cash flows? List the three major categories of cash flows and give an example of a cash transaction for each category.

What is an accrued liability?

The closing process brings all temporary accounts to a zero balance and updates the balance in the retained earnings account.

On November 1, 2013, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What is the balance of interest payable for the loan as of December 31, 2013?