Deck 2: Accounting for Accruals

Question 1

A payment to an employee in settlement of salaries payable decreases an asset and decreases stockholders' equity.

Answer 1

False

Question 2

An increase in an expense may be accompanied by a decrease in a liability.

Answer 2

False

Question 3

Some claims exchange transactions increase liabilities and decrease stockholders' equity.

Answer 3

True

Question 4

The ethical standards for certified public accountants only require that such accountants comply with applicable laws and regulations.

Question 5

The collection of an account receivable is a claims exchange transaction.

Question 6

Certified public accountants are obligated to act in a way that serves the public interest.

Question 7

Accrual accounting usually fails to match expenses with revenues.

Question 8

Companies that use accrual accounting recognize revenues and expenses at the time that cash is received or paid, respectively.

Question 9

The matching concept leads accountants to select the recognition alternative that produces the lowest amount of net income.

Question 10

The cash payment of interest is classified as a financing activity on the statement of cash flows.

Question 11

Providing services to customers on account is an asset exchange transaction.

Question 12

The Sarbanes-Oxley Act includes several significant reforms that affect the auditing profession, but it did not reduce an audit firm's ability to provide nonaudit services to its audit clients.

Question 13

The term "accrual" describes an earnings event that is recognized before cash is received or paid.

Question 14

Issuing a note is an asset use transaction.

Question 15

Accrued interest expense is an asset use transaction.

Question 16

The internal controls of a business are designed to reduce the probability of occurrence of fraud.

Question 17

The bankruptcies of Enron and WorldCom both indicated the occurrence of major audit failures.

Question 18

The governance of a corporation includes the roles and responsibilities of the board of directors, managers, shareholders, and auditor.

Question 19

The primary difference between notes payable and accounts payable is that notes payable generally have longer terms and usually require interest charges.

Question 20

A company may recognize a revenue or expense without a corresponding cash collection or payment in the same accounting period.

Question 21

Which of the following illustrates how the recognition of revenue earned on account affects the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 22

Delta Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on the elements of Delta's statements?

A)Paid a cash dividend
B)Incurred a cash expense
C)Borrowed money from a bank
D)Earned cash revenue

Question 23

Frank Company earned $15,000 of cash revenue. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

A)Option A
B)Option B
C)Option C
D)Option D

Question 24

Garrison Company acquired $23,000 by issuing common stock. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

A)Option A
B)Option B
C)Option C
D)Option D

Question 25

Leece Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on the company's financial statements?

A)Provided consulting services on account
B)Provided consulting services for cash
C)Collected cash in partial settlement of its account receivable
D)The information provided does not represent a completed event.

Question 26

Chico Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on the elements of Chico's financial statements?

A)Issued common stock
B)Earned cash revenue
C)Borrowed money from a bank
D)Paid a cash dividend

Question 27

Sales on account decrease the balance in accounts receivable.

Question 28

Accounts receivable is an asset account on the balance sheet.

Question 29

Accounts payable is reported on the income statement.

Question 30

Jackson Company paid $500 cash for salary expenses. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

A)Option A
B)Option B
C)Option C
D)Option D

Question 31

What happens when a company collects cash from accounts receivable?

A)The asset accounts receivable increases.
B)Stockholders' equity increases.
C)Liabilities decrease.
D)One asset increases and another asset decreases by an equal amount.

Question 32

Perez Company paid a $300 cash dividend. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

A)Option A
B)Option B
C)Option C
D)Option D

Question 33

Tandem Company borrowed $32,000 of cash from a local bank. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

A)Option A
B)Option B
C)Option C
D)Option D

Question 34

Expenses incurred on account increase the accounts receivable balance.

Question 35

Reynolds Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on the elements of Reynolds' statements?

A)Paid a cash dividend.
B)Earned cash revenue.
C)Borrowed money from a bank.
D)The information provided does not represent a completed event.

Question 36

Stannous Company earns $10,000 of revenue on account in Year 1. Cash collections of receivables amount to $3,500 in Year 1 with the remainder being collected in Year 2. Which of the following shows how the collection of cash will affect the company's accounting equation in Year 1?

A)Option A
B)Option B
C)Option C
D)Option D

Question 37

Stanley Company earns $8,000 of revenue on account in Year 1. Cash collections of receivables amount to $4,500 in Year 1 with the remainder being collected in Year 2. Which of the following shows how the recognition of revenue in Year 1 will affect the company's accounting equation?

A)Option A
B)Option B
C)Option C
D)Option D

Question 38

Zimmerman Company sold land for $25,000 cash. The original cost of the land was $25,000. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

A)Option A
B)Option B
C)Option C
D)Option D

Question 39

The balance in accounts receivable represents the amount of cash the company is required to pay in the future.

Question 40

Pizitz Company experienced a business event that affected its financial statements as indicated below. Which of the following events could have caused these effects on the company's financial statements?

A)Collecting cash from customers as payment of accounts receivable
B)Earning cash for providing services to customers
C)Paid cash to purchase land
D)Purchased supplies on account

Question 41

Amber Company recognized accrued salary expense. Which of the following financial statements are affected by this accounting event?

A)Statement of cash flows
B)Income statement
C)Balance sheet
D)Income statement and the balance sheet

Question 42

Recognizing an expense may be accompanied by which of the following?

A)An increase in liabilities
B)A decrease in liabilities
C)A decrease in revenue
D)An increase in assets

Question 43

Which of the following correctly describes how accounts receivable will appear on the financial statements?

A)Asset on the balance sheet
B)Expense on the income statement
C)Liability on the balance sheet
D)Revenue on the income statement

Question 44

Which of the following correctly describes how accounts payable will appear on the financial statements?

A)Expense on the income statement
B)Revenue on the income statement
C)Liability on the balance sheet
D)Asset on the balance sheet

Question 45

Bledsoe Company acquired $18,000 cash by issuing common stock on January 1, Year 1. During Year 1, Bledsoe earned $8,800 of revenue on account. The company collected $6,600 cash from customers in partial settlement of its accounts receivable and paid $5,700 cash for operating expenses. Based on this information alone, what was the impact on total assets during Year 1?

A)Total assets increased by $27,700.
B)Total assets increased by $900.
C)Total assets increased by $21,100.
D)Total assets did not change.

Question 46

ABC Company ended Year 1 with the following account balances:Cash 600, Common Stock 400, and Retained Earnings 200.The following transactions occurred during Year 2:Issued common stock for $19,000 cash.ABC borrowed an additional $11,000 from Chris Bank.ABC earned $9,000 of revenue on account.ABC incurred $4,000 of operating expenses on account.Cash collections of accounts receivables were $6,000.ABC provided additional services to customers for $1,000 cash.ABC purchased land for $14,000.ABC used $3,000 in cash to make a partial payment on its accounts payable.ABC declared and paid a $200 dividend to the stockholdersOn December 31 ABC had accrued salaries of $4,000.What is the net cash flow from operating activities shown on the statement of cash flows for the year ending December 31, Year 2?

A)$4,000
B)$3,800
C)$6,000
D)None of these answer choices is correct.

Question 47

Revenue on account amounted to $5,600. Cash collections of accounts receivable amounted to $3,500. Expenses for the period were $2,900. The company paid dividends of $850. What was net income for the period?

A)$600
B)$2,650
C)$2,700
D)$1,850

Question 48

ABC Company ended Year 1 with the following account balances:Cash 600, Common Stock 400, and Retained Earnings 200.The following transactions occurred during Year 2:Issued common stock for $19,000 cash.ABC borrowed an additional $11,000 from Chris Bank.ABC earned $9,000 of revenue on account.ABC incurred $4,000 of operating expenses on account.Cash collections of accounts receivables were $6,000.ABC provided additional services to customers for $1,000 cash.ABC purchased land for $14,000.ABC used $3,000 in cash to make a partial payment on its accounts payable.ABC declared and paid a $200 dividend to the stockholdersOn December 31 ABC had accrued salaries of $4,000.What is the amount of net income (loss)reported on the December 31, Year 2 income statement?

A)$6,200
B)$5,800
C)$6,000
D)$2,000
E)None of these answer choices is correct

Question 49

In Year 1, Dale Company incurred $4,000 of utility expense on account. Dale paid cash for these expenses in Year 2. Which of the following shows how paying cash for Year 1's utility expense will affect Dale's accounting equation in Year 2?

A)Option A
B)Option B
C)Option C
D)Option D

Question 50

Bledsoe Company acquired $17,000 cash by issuing common stock on January 1, Year 1. During Year 1, Bledsoe earned $8,500 of revenue on account. The company collected $6,000 cash from customers in partial settlement of its accounts receivable and paid $5,400 cash for operating expenses. Based on this information alone, what was the impact on total assets during Year 1?

A)Total assets increased by $20,100.
B)Total assets increased by $600.
C)Total assets increased by $26,100.
D)Total assets did not change.

Question 51

Paying cash to settle a salaries payable obligation will affect which section of the statement of cash flows?

A)Financing activities
B)Operating activities
C)Noncash activities
D)Investing activities

Question 52

Janzen Company recorded employee salaries earned but not yet paid. Which of the following represents the effect of this transaction on the horizontal financial statements model?

A)Option A
B)Option B
C)Option C
D)Option D

Question 53

ABC Company ended Year 1 with the following account balances:Cash 600, Common Stock 400, and Retained Earnings 200.The following transactions occurred during Year 2:Issued common stock for $19,000 cash.ABC borrowed an additional $11,000 from Chris Bank.ABC earned $9,000 of revenue on account.ABC incurred $4,000 of operating expenses on account.Cash collections of accounts receivables were $6,000.ABC provided additional services to customers for $1,000 cash.ABC purchased land for $14,000.ABC used $3,000 in cash to make a partial payment on its accounts payable.ABC declared and paid a $200 dividend to the stockholdersOn December 31 ABC had accrued salaries of $4,000.What is the amount of retained earnings that will be shown on the balance sheet prepared at the end of Year 2?

A)$2,000
B)$5,800
C)$6,000
D)$6,200

Question 54

Mary Company collected cash from an account receivable. Which of the following financial statements are affected by this accounting event?

A)Income statement and the statement of cash flows
B)Statement of changes in stockholders' equity
C)Balance sheet and the statement of cash flows
D)Income statement and the balance sheet

Question 55

During Year 1 China Enterprises experienced the following events.(1)Earned $10,000 of revenue on account(2)Incurred $9,000 of expenses on accountBased on this information, which of the following describes the combined effects of both events on the amount of total assets, net income and cash flow from operating activities shown on the Year 1 financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 56

Which of the following shows how a payment made to settle an accrued expense, such as salaries payable, will affect a company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 57

Addison Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on Addison's financial statements?

A)Issued common stock
B)Earned revenue on account
C)Earned cash revenue
D)Collected cash from customers in partial settlement of its accounts receivable.

Question 58

Revenue on account amounted to $5,000. Cash collections of accounts receivable amounted to $2,300. Expenses for the period were $2,100. The company paid dividends of $450. What was net income for the period?

A)$1,200
B)$2,900
C)$2,850
D)$2,450

Question 59

Greg Company recognized revenue on account. Which of the following financial statements are affected by this accounting event?

A)Balance sheet
B)Income statement
C)Statement of cash flows
D)Income statement and the balance sheet

Question 60

Which of the following choices accurately reflects how the recording of accrued salary expense affects the financial statements of a business?

A)Option A
B)Option B
C)Option C
D)Option D

Question 61

Nelson Company experienced the following transactions during Year 1, its first year in operation.Acquired $12,000 cash by issuing common stockProvided $4,600 of services on accountPaid $3,200 cash for operating expensesCollected $3,800 of cash from customers in partial settlement of its accounts receivablePaid a $200 cash dividend to stockholdersWhat is the amount of net income that will be reported on the Year 1 income statement?

A)$1,400
B)$800
C)$1,000
D)$1,200

Question 62

Nelson Company experienced the following transactions during Year 1, its first year in operation.Acquired $6,800 cash by issuing common stock.Provided $3,100 of services on account.Paid $1,800 cash for operating expenses.Collected $2,300 of cash from customers in partial settlement of its accounts receivable.Paid a $140 cash dividend to stockholders.What is the amount of net income that will be reported on the Year 1 income statement?

A)$940
B)$1,300
C)$1,080
D)$800

Question 63

Nelson Company experienced the following transactions during Year 1, its first year in operation.Acquired $12,000 cash by issuing common stockProvided $4,600 of services on accountPaid $3,200 cash for operating expensesCollected $3,800 of cash from customers in partial settlement of its accounts receivablePaid a $200 cash dividend to stockholdersWhat is the balance of the retained earnings that will be reported on the balance sheet as of December 31, Year 1?

A)$1,200
B)$1,000
C)$1,400
D)$13,200

Question 64

Rushmore Company provided services for $45,000 cash during Year 1. Rushmore incurred $36,000 of operating expenses on account during Year 1, and by the end of the year, $9,000 of that amount had been paid with cash. If these are the only accounting events that affected Rushmore during Year 1, which of the following statements is true?

A)The amount of net loss shown on the income statement is $9,000.
B)The amount of net income shown on the income statement is $27,000.
C)The amount of net income shown on the income statement is $9,000.
D)The amount of net cash flow from operating activities shown on the statement of cash flows is $18,000.

Question 65

The following account balances were drawn from the Year 1 financial statements of Grayson Company: What is the balance of the Common Stock account?

A)$15,400
B)$19,900
C)$900
D)$20,800

Question 66

Warren Enterprises began operations during Year 1. The company had the following events during Year 1: The business issued $38,000 of common stock to its stockholders.The business purchased land for $30,000 cash.Services were provided to customers for $34,000 cash.Services were provided to customers for $23,000 on account.The company borrowed $34,000 from the bank.Operating expenses of $30,000 were incurred and paid in cash.Salary expense of $2,600 was accrued.A dividend of $22,000 was paid to the stockholders of Warren Enterprises.
What is the balance of the Retained Earnings account as of December 31, Year 1?

A)$57,000
B)$2,400
C)$24,400
D)$23,000

Question 67

On December 31, Year 1, Gaskins Company owed $4,500 in salaries to employees who had worked during December but will not be paid until January, Year 2. If the year-end adjustment is properly recorded on December 31, Year 1, what will be the effect of this accrual on net income and cash flows from operating activities reported for Year 1?

A)No effect on net income; no effect on cash flow from operating activities
B)Decrease in net income; no effect on cash flow from operating activities
C)Increase in net income; decrease in cash flow from operating activities
D)No effect on net income; decrease in cash flow from operating activities

Question 68

Revenue on account amounted to $9,000. Cash collections of accounts receivable amounted to $8,100. Cash paid for operating expenses was $7,500. The amount of employee salaries accrued at the end of the year was $900. What was the net cash flow from operating activities?

A)$900
B)$600
C)$1,500
D)$8,700

Question 69

Rushmore Company provided services for $25,500 cash during Year 1. Rushmore incurred $19,000 of operating expenses on account during Year 1, and by the end of the year, $6,500 of that amount had been paid with cash. If these are the only accounting events that affected Rushmore during Year 1, which of the following statements is true?

A)The amount of net loss shown on the income statement is $6,500.
B)The amount of net income shown on the income statement is $12,500.
C)The amount of net cash flow from operating activities shown on the statement of cash flows is $13,000.
D)The amount of net income shown on the income statement is $6,500.

Question 70

Nelson Company experienced the following transactions during Year 1, its first year in operation.Acquired $9,200 cash by issuing common stock.Provided $5,500 of services on account.Paid $2,400 cash for operating expenses.Collected $3,500 of cash from customers in partial settlement of its accounts receivable.Paid a $260 cash dividend to stockholders.What is the balance of the retained earnings that will be reported on the balance sheet as of December 31, Year 1?

A)$10,300
B)$12,040
C)$3,100
D)$2,840

Question 71

Nelson Company experienced the following transactions during Year 1, its first year in operation.Acquired $12,000 cash by issuing common stockProvided $4,600 of services on accountPaid $3,200 cash for operating expensesCollected $3,800 of cash from customers in partial settlement of its accounts receivablePaid a $200 cash dividend to stockholdersWhat is the amount of net cash flows from operating activities that will be reported on the Year 1 statement of cash flows?

A)$400
B)$600
C)$1,400
D)$1,200

Question 72

Nelson Company experienced the following transactions during Year 1, its first year in operation.Acquired $12,000 cash by issuing common stockProvided $4,600 of services on accountPaid $3,200 cash for operating expensesCollected $3,800 of cash from customers in partial settlement of its accounts receivablePaid a $200 cash dividend to stockholdersWhat is the amount of total assets that will be reported on the balance sheet as of December 31, Year 1?

A)$12,400
B)$12,600
C)$13,400
D)$13,200

Question 73

Warren Enterprises began operations during Year 1. The company had the following events during Year 1:The business issued $40,000 of common stock to its stockholders.The business purchased land for $24,000 cash.Services were provided to customers for $32,000 cash.Services were provided to customers for $10,000 on account.The company borrowed $32,000 from the bank.Operating expenses of $24,000 were incurred and paid in cash.Salary expense of $1,600 was accrued.A dividend of $8,000 was paid to the stockholders of Warren Enterprises. What is the balance of the Retained Earnings account as of December 31, Year 1?

A)$10,000
B)$8,400
C)$16,400
D)$42,000

Question 74

Which of the following are "matched" under the matching concept?

A)Expenses and revenues
B)Expenses and liabilities
C)Assets and stockholders' equity
D)Assets and liabilities

Question 75

Nelson Company experienced the following transactions during Year 1, its first year in operation.Acquired $7,400 cash by issuing common stock.Provided $3,700 of services on account.Paid $1,950 cash for operating expenses.Collected $2,600 of cash from customers in partial settlement of its accounts receivable.Paid a $170 cash dividend to stockholders.What is the amount of net cash flows from operating activities that will be reported on the Year 1 statement of cash flows?

A)$1,750
B)$340
C)$1,580
D)$650

Question 76

Mize Company provided $45,500 of services on account, and collected $38,000 from customers during the year. The company also incurred $37,000 of expenses on account, and paid $32,400 against its payables. How do these events impact the elements of the horizontal financial statements model?

A)Total assets would increase.
B)Total liabilities would increase.
C)Total equity would increase.
D)All of these answer choices are correct.

Question 77

Revenue on account amounted to $6,200. Cash collections of accounts receivable amounted to $5,900. Cash paid for operating expenses was $4,100. The amount of employee salaries accrued at the end of the year was $1,900. What was the net cash flow from operating activities?

A)$1,800
B)$1,900
C)$2,100
D)$7,700

Question 78

Nelson Company experienced the following transactions during Year 1, its first year in operation.Acquired $9,200 cash by issuing common stock.Provided $5,500 of services on account.Paid $2,400 cash for operating expenses.Collected $3,500 of cash from customers in partial settlement of its accounts receivable.Paid a $260 cash dividend to stockholders.What is the amount of total assets that will be reported on the balance sheet as of December 31, Year 1?

A)$10,040
B)$10,300
C)$12,300
D)$12,040

Question 79

Which of the following statements is true regarding accrual accounting?

A)Revenue is recorded only when cash is collected.
B)Expenses are recorded when they are incurred.
C)Revenue is recorded in the period when it is earned.
D)Revenue is recorded in the period when it is earned and expenses are recorded when they are incurred.

Question 80

The following account balances were drawn from the Year 1 financial statements of Grayson Company: What is the balance of the Common Stock account?

A)$11,450
B)$8,700
C)$950
D)$11,400