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Exam 2: Understanding the Accounting Cycle

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Question 41

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The following transactions apply to Einstein Corporation. a)Issued common stock for $50,000 cash. b)Provided services to customers for $28,000 on account. c)Purchased land for $16,000 cash. d)Purchased $1,500 of supplies on account. e)Paid $12,000 for operating expenses. f)Paid $550 on accounts payable. g)Collected $25,000 cash from customers. h)Accrued $600 of salary expense at year end. i)Paid $2,000 dividends to stockholders. Required: a)Identify the effect on the statement of cash flows for each of the above transactions.Precede a cash outflow amount with a minus sign. b)Classify the above accounting events into one of four types of transactions (asset source,asset use,asset exchange,claims exchange).

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Question 42

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The accounting principle that guides accountants,when faced with a recognition dilemma,to choose the alternative that produces the lowest net income is referred to as

A) the matching concept.
B) internal control.
C) conservatism.
D) materiality.

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Question 43

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Record each of the following events in the horizontal statements model.After each event,record the corresponding December 31 end-of-year adjustment that would be necessary.Precede the amount with a minus sign if the transaction reduces that section of the equation.Precede a cash outflow amount with a minus sign.Enter 0 for items not affected. a)Paid $36,000 for a 1-year lease beginning April 1. b)Paid $3,000 to purchase supplies.At year end,$1,080 of supplies remained. c)Received a $48,000 cash advance for a 6-month contract beginning on Sept.1.

Oregon Co.began operations on January 1,2016,by issuing $10,000 in common stock to the stockholders.On March 1,2016,Oregon accepted an advance of $36,000 to provide services for a one-year period beginning April 1.During 2016,services in the amount of $32,000 were provided to customers on account,and 80% of this amount was collected by year-end.During 2016,operating expenses incurred on account were $24,000,and 60% of this amount was paid by year-end.During the year,Oregon paid $1,200 to purchase supplies.By year-end,$1,080 of the supplies had been used.Dividends to stockholders were $2,000 during the year.During 2016,Oregon paid salaries of $28,000,and on December 31,2016,the company accrued salaries of $2,800. Oregon recorded all appropriate adjusting entries at year end. 1)What would Oregon report for service revenue for 2016? 2)What would Oregon report for salaries expense for 2016? 3)What would Oregon report for supplies expense for 2016? 4)What would the amount be for net cash flows from operating activities for 2016? 5)What is the net income for 2016? 6)What would the balance in the retained earnings account be at December 31,2016?

Revenues and expenses are temporary accounts.

Jack's Snow Removal Company received a cash advance of $6,000 on December 1,2016 to provide services during the months of December,January,and February.The 2016 year-end adjustment to recognize the partial expiration of the contract will

If retained earnings decreased during the year,and no dividends were paid,which of the following must be true?

In a company's annual report,the reader will find a company's income statement,statement of changes in stockholder's equity,balance sheet,and statement of cash flows.These financial statements can help the reader to answer specific questions.Identify which financial statement would be most useful in answering the following questions.If more than one financial statement can answer the question,please identify all applicable statements. 1)How much cash was collected from accounts receivable during the current year? 2)What was the total amount of land owned by the company? 3)What was the total revenue earned by the company during the most recent year? 4)What were the types of claims that the company has against its assets? 5)What was the total amount of cash received by the issuance of common stock? 6)Was the company profitable during the most recent year? 7)What was the amount of cash dividends paid to the stockholders during the most recent year? 8)What was the total amount of cash borrowed by the company during the most recent year? 9)What was the ending balance of retained earnings? 10)What was the amount of change in the cash balance during the current year?

Wheaton Co.performed services for a customer on account.Indicate whether each of the following statements about this transaction is true or false. _____ a)Assets and equity both increase when the revenue is recognized. _____ b)This transaction did not affect cash flows. _____ c)The company recorded an increase in revenue and a decrease in accounts receivable. _____ d)Recognition of revenue would be delayed until cash was received. _____ e)This transaction is an example of an asset exchange transaction.

Consider the following independent scenarios: a)At January 1,2016,accounts receivable was $24,000.Cash collected on accounts receivable during 2016 was $55,000.At December 31,2016,accounts receivable was $30,000. What were the revenues earned on account during 2016? b)At January 1,2016,accounts payable was $19,000.During 2016,expenses on account were $68,000.At December 31,2016,accounts payable was $15,000. What was the amount of cash paid on accounts payable during 2016? c)At January 1,2016,the balance in the prepaid insurance account was $480.On March 1,2016,the company paid $3,000 for insurance coverage for the next 12 months.What was the amount of insurance expense for 2016? d)At January 1,2016,the balance in the supplies account was $550.At December 31,2016,the company counted $400 of supplies on hand.The company reported supplies expense in 2016 of $3,300.What was the total of supplies purchases during 2016?

Which of the following is an asset use transaction?

What is the effect on the accounting equation of a cash payment to creditors?

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.You do not need to enter amounts. -Calloway Company received $750 from a customer for services to be performed at a future date.

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

Which of the following would cause net income on the accrual basis to be different from (either higher or lower than) "cash provided by operating activities" on the statement of cash flows?

The following events apply to Jason's Lawn Service for 2016. 1).Issued stock for $14,000 cash. 2).On January 1,purchased equipment for $12,000.The equipment has an estimated 5-year useful life and a $2,000 salvage value. 3).On May 1,issued a $3,000,5% 3-year note to a local bank. 4).Performed services of $18,400 and received cash. 5).Paid $15,000 of operating expenses. 6).At December 31,adjusted the records to recognize expense associated with use of the equipment and accrued interest. Required: Record the effects of the above events under the appropriate account headings in the accounting formula below.Precede the amount with a minus sign if the transaction reduces that section of the equation.Enter 0 for items not affected.

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 payable 2)Prepaid insurance 3)Dividends paid to stockholders 4)Interest revenue 5)Accounts payable 6)Salaries expense 7)Retained earnings 8)Unearned subscription revenue 9)Cash flows from operating activities 10)Beginning common stock 11)Issued stock to investors for cash 12)Accounts receivable

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.Net income for the period was

Sometimes the recognition of revenue is accompanied by an increase in liabilities.

Use the following information for questions The following accounts and balances were drawn from the records of Carolina Company on December 31,2016: -The amount of net income shown on Carolina's 2016 income statement would amount to: