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Acc 221 Exam 2

Accrual-basis accounting
The companies record in the periods in which the events occur, transactions that change a companys financial statements, even if cash was not exchanged.
Accrued expenses
Expenses incurred but not yet paid in cash or recorded
Accrued revenues
Revenues for services performed but not yet received in cash
Adjusting entires
Entries made at the end of an accounting period to ensure that the revenue recognition and expense recongnition principles are followed
Book value
The difference between the cost of a depreciable asset and its related accumulated depreciation
Cash-basis accounting
Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash
Closing entries
Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders equity account, Retained Earnings.
Contra asset account
An account that is offset against an asset account on the balance sheet
Depreciation
The process of allocating the cost of an asset to expense over its useful life
Earnings management
the planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income
Income Summary
A temporary account used in closing revenue and expense accounts
Revenue recognition principle
The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied
How do you close revenue accounts?
List out all the revenues first and then credit the income summary
How do you close expense accounts?
Debit the income summary first and the list all expenses
How do you close out net income to retained earnings?
List income summary first then retained earnings. The number you put in is Revenues minus expenses (net income)
How do you close out dividends to retained earnings?
List Retained earnings first then dividends.
How do you find ending retained earnings balance?
Beginning balance plus all credit balances minus debit balances.
The equipment depreciates at $280 per month
Depreciation Expense- Debit 840 (280 x 3) quarterly
Accumulated Depreciation Equipment – Credit 840
Half of the unearned rent revenue was earned during the quarter.
Unearned Rent revenue- Debit 5710 ( 11420/2)
Rent Revenue- Credit 5710
Interest of $310 is accrued on the notes payable.
Interest Expense- Debit 310
Interest Payable – Credit 310
Supplies on hand total $890
Supplies Expense – Debit (3060-890) 2170
Supplies- Credit 2170
Insurance expires at the rate of $490 per month.
Insurance Expense – Debit ( 490 x 4) 1470
Prepaid Insurance – Credit 1470
How much cash do you pay for rent if:
Rent expense is 9500
wages expenses is 8600
Prepaid rent is 900 (2014) and 300 ( 2013)
Salaries and Wages Payable 500 (2014) and 400 (2013)
Rent expense 9500
Less prepaid rent 300 (2013)
Plus prepaid rent 900 (2014)
Cash paid = 10100
How much do you pay for wages if:
Wages expenses is 8600
Salaries and wages payable 500 (2014) and 400 (2013)
Wages Expesnes 8600
Add Salaries 400 (2013)
Less Salaries 500 (2014)
Cash Paid = 8500
The Thoma Company began the year with a $3,000 balance in the Supplies account. During the year, $8,500 of additional supplies were purchased. A physical count of supplies on hand at the end of the year revealed that $8,300 worth of supplies had been used during the year. No adjusting entry has been made until year end.
Supplies Expense 8300
Supplies 8300
The Leno Company has a calendar year-end accounting period. On July 1, the company purchased office equipment for $30,000. It is estimated that the office equipment will depreciate $200 each month. No adjusting entry has been made until year end.
Depreciation Expense 1200
Accumulated Equipment 1200
Yeats Realty is in the business of renting several apartment buildings and prepares monthly financial statements. It has been determined that 2 tenants in $900 per month apartments and one tenant in the $1,000 per month apartment had not paid their December rent as of December 31st
Accounts Recievable 2800
Rent Revenue 2800
Expenses are recognized when:
they contribute to a production of revenue
The revenue recognition principle dictates that revenue should be recognized in the accounting records:
when the performance obligation is satisfied
In a service-type business, revenue is recognized
when the service is performed.
The expense recognition principle matches:
Expenses with revenues
Otto’s Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?
August 31
The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that
efforts should be matched with accomplishments
Using accrual accounting, expenses are recorded and reported only:
when they are incurred whether or not cash is paid
La More Company had the following transactions during 2013:
• Sales of $4,500 on account
• Collected $2,000 for services to be performed in 2014
• Paid $1,875 cash in salaries for 2013
• Purchased airline tickets for $250 in December for a trip to take place in 2014
What is La More’s 2013 net income using accrual accounting?
$4,500 – $1,875 = $2,625
La More Company had the following transactions during 2013.
• Sales of $4,500 on account
• Collected $2,000 for services to be performed in 2014
• Paid $1,325 cash in salaries
• Purchased airline tickets for $250 in December for a trip to take place in 2014
What is La More’s 2013 net income using cash basis accounting?
$2,000 – $1,325 – $250 = $425
Discount term of 2/10, n/30 mean that a 10% cash discount is available if payment is made within 30 days.
false
Jax Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Jax pays the shipping charges of $200?
A debit to Inventory for $200
Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21?
Credit to Cash for $1,600
On what amount is a sales discount based?
Invoice price less returns and allowances
is true when recording the sale of goods for cash in a perpetual inventory system?
Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.
What type of accounts are Sales Returns and Allowances and Sales Discounts?
Contra revenue accounts
Arbor Corporation had reported the following amounts at December 31, 2014: Sales revenue $184,000; ending inventory $11,600; beginning inventory $17,200; purchases $60,400; purchases discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900. Calculate the cost of goods available for sale.
$17,200 + $60,400 – $3,000 – $1,100 + $600 = $74,100.

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