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Exam 2: Understanding the Accounting Cycle

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Question 71

Multiple Choice

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The Redding Company recorded salaries earned by employees but not yet paid.Which of the following represents the effect of this transaction on the financial statements?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

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

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Question 72

Multiple Choice

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Jaycox Company received $1,000 cash from the issue of stock on January 1,2012.During 2012 the Jaycox Company earned $3,500 of revenue on account.The company collected $2,400 cash from accounts receivable and paid $3,000 cash for operating expenses.Based on this information alone:

A) total assets increased by $1,500.
B) total assets decreased by $3,500.
C) total assets increased by $2,400.
D) total assets did not change.

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

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Question 73

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Explain the meaning of the term "matching concept."

On December 31,2012,Detroit Co.paid $6,000 cash for insurance coverage for the year 2013.What is the effect of this transaction on the financial statements for the 2012 reporting period?

Businesses often recognize a revenue or expense,even though the corresponding cash collection or payment did not occur in the same accounting period.

In the vertical statements model,why is it important to list the financial statements in the proper order?

Accounts that are closed include expenses,dividends,and unearned revenues.

Revenue is the economic benefit derived from operating a business.

What is a deferral?

Which of the following would be included in the "cash flows from financing activities" section of the statement of cash flows?

The entry to recognize salary expense incurred but not yet paid involves which of the following?

The amount of insurance expense reported on the income statement for 2012 would be:

On December 1,2012,Hays Company prepaid rent for three months in the amount of $1,500.On December 31,Hays prepared an adjusting entry to recognize $500 of rent expense.Show the effect of the adjusting entry.

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

The amount of total liabilities appearing on the December 31,2012 balance sheet would be:

Revenues and liabilities are temporary accounts that are closed at the end of the accounting period.

What effect does providing services on account have on the statement of cash flows? The balance sheet?

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

Dent Company received $1,200 cash in advance for magazine subscriptions that the company agreed to send to subscribers in the future.

Nikonowicz Enterprises experienced the following events during 2012,its first year in operation: The business acquired $10,000 cash by issuing common stock to investors. The business purchased land for $6,000 cash. Services were provided to customers for $8,000 cash. Services were provided to customers for $3,000 on account. Operating expenses of $5,000 were incurred and paid in cash. Operating expenses of $2,000 were incurred on account. A dividend of $1,000 was paid to the owners of Nikonowicz Enterprises. Based on this information,the amount of retained earnings as of December 31,2012,was