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Exam 2: Accounting for Accruals

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Question 51

Multiple Choice

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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.

E) None of the above
F) B) and D)

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Question 52

Multiple Choice

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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.

E) B) and C)
F) A) and C)

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Question 53

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

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA Venture Company paid $50 of interest expense that had been previously accrued.

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?

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?

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

Indicate for each of the following items if the item would be reported on the income statement (IS), statement of changes in stockholders' equity (SE), balance sheet (BS), or statement of cash flows (CF). Some items may appear on more than one statement; if so, identify all applicable statements. 1)Salaries payable2)Land3)Dividends paid to stockholders4)Interest expense5)Accounts payable6)Salaries expense7)Retained earnings8)Revenue9)Cash flows from operating activities10)Beginning common stock11)Issued stock to investors for cash12)Accounts receivable

XYZ Company used $5,000 cash to pay off its accounts payable. With respect to this event, indicate whether each of the following statements is true or false.a)Total assets would decrease.b)Expenses would increase.c)Total liabilities would remain the same.

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

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

Classify each of the following transactions for the purpose of the statement of cash flow as operating activities (OA), investing activities (IA), financing activities (FA), or not reported on the statement of cash flows (NA).________ Sold land________ Provided consulting services on account________ Borrowed funds from the bank________ Paid cash to settle accrued salary expense________ Collected accounts receivable

Accrued interest expense is an asset use transaction.

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?

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

Why are adjustments necessary in an accrual accounting system? What are some common examples?

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

On January 1, Year 1, Wilson Company borrowed $70,000 from State Bank. The note stipulates a 3-year term with a 3 percent interest rate. On December 31, Year 1, Wilson recorded an adjusting entry to accrue interest expense. Based solely on these events, indicate whether each of the following statements is true or false.a)The Year 1 income statement is not affected because interest expense has been accrued but not paid.b)The Year 1 statement of cash flows will show a $70,000 cash inflow from investing activities.c)Accruing interest expense in Year 1 increased a liability.d)Accruing interest expense is a claims exchange transaction.e)Both assets and stockholders' equity decreased in Year 1 as a result of this transaction.

What effect does the recording of revenue normally have on total assets?

Which of the following is not an element of the fraud triangle?