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Exam 2: Understanding the Accounting Cycle

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Question 51

True/False

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In the closing process,the amounts in temporary accounts are moved to Retained Earnings,a permanent account.

A) True
B) False

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Question 52

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Recognition of revenue may result in which of the following?

A) a decrease in a liability
B) an increase in a liability
C) an increase in assets
D) A and C

E) All of the above
F) C) and D)

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Question 53

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The purpose of the accrual basis of accounting is to:

On October 1,2012,Warren Company Consulting accepted $20,000 in advance for a consulting job that should take 12 months.At December 31,the company had completed one fourth of the job. Required: a)Record the effects of the above two transactions on the accounting equation. Assets = Liabilities + Equity Event No. 1)______________________________________________________________ 2)______________________________________________________________ b)Answer the following questions pertaining to the above events. 1)What amount of revenue will appear on the 2012 income statement related to these events? 2)What amounts,if any,will appear on the balance sheet at December 31,2012? 3)What amount,if any,will appear on the 2012 statement of cash flows? In which section would the amount appear?

Liu Co.made an adjusting entry to reflect one year's expiration of insurance.Three years of insurance had been prepaid at the beginning of the year,with the entire amount being recorded as prepaid insurance.Show the effects of the adjusting entry.

Describe the difference between temporary and permanent accounts and indicate which accounts are closed.

Osborn Company provided services to a customer on account.Which of the following represents the effect of this transaction on the financial statements?

Sefcik Company purchased supplies on account.Which of the following choices accurately reflects how this event would affect the company's financial statements?

On January 1,2012,the balance in the Supplies account was $6,000.During the year,$13,500 of supplies were purchased for cash.After the year-end adjustments were prepared,the balance in the supplies account was $8,300 on December 31,2012. Required: a)What amount of Supplies Expense will be reported on the 2012 income statement? b)What amount,if any will be reported on the 2012 statement of cash flows for supplies,and in what section?

Which of the following is an asset source transaction?

The adjustment to record the completion of services for which clients had paid in advance would involve which of the following?

On October 1,2012,Gruene Company received $1,200 cash in advance for 12 months of magazine subscriptions.On December 31,2012,Gruene made the adjusting entry showing that three months of magazines had been provided to subscribers.Show the effect of the adjustment on the financial statements.

The term "recognition" means to report an economic event in the financial statements.

Thomas Corporation began business by issuing $2,000 of common stock on January 1,2012.The business performed $8,000 of service on account in 2012 and collected $6,000 of this amount by year end.It paid operating expenses of $4,500 and paid a $500 dividend to stockholders. Required: a)What is the amount of total assets at the end of 2012? b)What is the amount of cash on hand at the end of 2012? c)What is the net income for 2012? d)Prepare a balance sheet for 2012.

What is the purpose of the closing process?

How does conservatism affect revenue recognition?

Give an example of a transaction that increases a liability and decreases equity.

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

Adjusting entries do not affect a business's Cash account.

What was the amount of Nez's net income for 2012?