ACCT 2100 Lecture Notes - Lecture 4: Revenue Recognition, Cash Flow, Accrual
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Question 23
If a resource has been consumed but a bill hasnot been received at the end of the accountingperiod, then
an expense should be recorded when the bill is received. | ||
an expense should be recorded when the cash is paid out. | ||
an adjusting entry should be made recognizing the expense. | ||
it is optional whether to record the expense before the bill isreceived. |
3 points
Question 24
Prepaid expenses are
paid and recorded in an asset account before they are used orconsumed. | ||
paid and recorded in an asset account after they are used orconsumed. | ||
incurred but not yet paid or recorded. | ||
incurred and already paid or recorded. |
3 points
Question 25
If a business has received cash in advance of services performedand credits a liability account, the adjusting entry needed afterthe services are performed will be
debit Unearned Service Revenue and credit Cash. | ||
debit Unearned Service Revenue and credit Service Revenue. | ||
debit Unearned Service Revenue and credit Prepaid Expense. | ||
debit Unearned Service Revenue and credit AccountsReceivable. |
3 points
Question 26
The preparation of adjusting entries is
straight forward because the accounts that need adjustment willbe out of balance. | ||
often an involved process requiring the skills of aprofessional. | ||
only required for accounts that do not have a normalbalance. | ||
optional when financial statements are prepared. |
3 points
Question 27
On January 1 of the current year, Doolittle Company purchasedfurniture for $7,560. The company expects to use the furniture for3 years. The asset has no salvage value. The book value of thefurniture at December 31of this year is
$0. | ||
$2,520. | ||
$5,040. | ||
$7,560. |
3 points
Question 28
Husker Du Supplies Inc. purchased a 12-month insurance policy onMarch 1 of the current year for $1,800. At March 31, the adjustingjournal entry to record expiration of this asset will include a
debit to Prepaid Insurance and a credit to Cash for $1,800. | ||
debit to Prepaid Insurance and a credit to Insurance Expense for$200. | ||
debit to Insurance Expense and a credit to Prepaid Insurance for$150. | ||
debit to Insurance Expense and a credit to Cash for $150. |
At June 30, 2017, the end of its most recent fiscal year, Primrose Comp Consultants’ post-closing trial balance was as follows:
Debit | Credit | |||
Cash | $5,860 | |||
Accounts receivable | 1,340 | |||
Supplies | 770 | |||
Accounts payable | $450 | |||
Unearned service revenue | 1,250 | |||
Common stock | 4,000 | |||
Retained earnings | 2,270 | |||
$7,970 | $7,970 |
The company underwent a major expansion in July. New staff was hired and more financing was obtained. Culver conducted the following transactions during July 2017, and adjusts its accounts monthly.
July | 1 | Purchased equipment, paying $4,000 cash and signing a 2-year note payable for $22,400. The equipment has a 4-year useful life. The note has a 6% interest rate which is payable on the first day of each following month. | |
2 | Issued 22,400 shares of common stock for $56,000 cash. | ||
3 | Paid $4,200 cash for a 12-month insurance policy effective July 1. | ||
3 | Paid the first 2 (July and August 2017) months’ rent for an annual lease of office space for $4,500 per month. | ||
6 | Paid $4,300 for supplies. | ||
9 | Visited client offices and agreed on the terms of a consulting project. Culver will bill the client, Connor Productions, on the 20th of each month for services performed. | ||
10 | Collected $1,340 cash on account from Milani Brothers. This client was billed in June when Culver performed the service. | ||
13 | Performed services for Fitzgerald Enterprises. This client paid $1,250 in advance last month. All services relating to this payment are now completed. | ||
14 | Paid $450 cash for a utility bill. This related to June utilities that were accrued at the end of June. | ||
16 | Met with a new client, Thunder Bay Technologies. Received $13,400 cash in advance for future services to be performed. | ||
18 | Paid semi-monthly salaries for $12,300. | ||
20 | Performed services worth $31,400 on account and billed customers. | ||
20 | Received a bill for $2,500 for advertising services received during July. The amount is not due until August 15. | ||
23 | Performed the first phase of the project for Thunder Bay Technologies. Recognized $11,200 of revenue from the cash advance received July 16. | ||
27 | Received $16,800 cash from customers billed on July 20. |
Adjustment data:
1. | Adjustment of prepaid insurance. | |
2. | Adjustment of prepaid rent. | |
3. | Supplies used, $1,400. | |
4. | Equipment depreciation, $550 per month. | |
5. | Accrual of interest on note payable. | |
6. | Salaries for the second half of July, $12,300, to be paid on August 1. | |
7. | Estimated utilities expense for July, $900 (invoice will be received in August). | |
8. | Income tax for July, $1,340, will be paid in August |
*Journalize July Transactions**