ADMS 2500 Chapter Notes - Chapter 4: Accrual, Deferred Income, Debits And Credits
ADMS 2500 Full Course Notes
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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. |
Peace Corporation acquired 100 percent of Harmony Inc in anontaxable transaction on December 31, 20X1. The following balancesheet information is available immediately following thetransaction: |
Peace Corporation | Harmony Inc | |||||||||||
| BookValue | FairValues | BookValue | FairValues | |||||||||
| Cash | $ | 30,000 | $ | 30,000 | $ | 8,000 | $ | 8,000 | ||||
| Accounts Receivable,net | 50,000 | 50,000 | 12,000 | 12,000 | ||||||||
| Inventory | 75,000 | 82,000 | 7,000 | 10,000 | ||||||||
| Deferred Tax Asset | 8,000 | 1,000 | ? | |||||||||
| Investment inHarmony | 60,000 | 60,000 | ||||||||||
| Equipment, net | 160,000 | 195,000 | 25,000 | 40,000 | ||||||||
| Patent | 0 | 20,000 | ||||||||||
| TotalAssets | $ | 383,000 | $ | 53,000 | ||||||||
| Accounts Payable | $ | 62,000 | $ | 62,000 | $ | 13,000 | $ | 13,000 | ||||
| Accrued VacationPayable | 15,000 | 15,000 | ||||||||||
| Deferred TaxLiability | 6,000 | 2,000 | ? | |||||||||
| Long-Term Debt | 100,000 | 110,000 | 8,000 | 8,000 | ||||||||
| Common Stock | 150,000 | 20,000 | ||||||||||
| Retained Earnings | 50,000 | 10,000 | ||||||||||
| TotalLiabilities and Equity | $ | 383,000 | $ | 53,000 | ||||||||
| AdditionalInformation |
| 1. | The current and future effective tax rate for both Peace andHarmony is 40 percent. |
| 2. | The recorded deferred tax asset for Peace relates to the booktaxdifferences arising from the allowance for doubtful Accounts andthe Accrued vacation payable. The expenses associated with each ofthese amounts will not be deductible for tax purposes until therelated accounts receivable are written off or until the employeevacation is actually paid out. |
| 3. | The recorded deferred tax asset for Harmony is related solely tothe booktax difference arising from the allowance for doubtfulaccounts. |
| 4. | The recorded deferred tax liability in both Peace and Harmonyrelates solely to the booktax differences arising from thedepreciation of their respective equipment. |
| 5. | Accumulated depreciation on the financial accounting records ofPeace and Harmony is $40,000 and $10,000, respectively. |
| 6. | The Harmony patent was identified by Peace in the due diligenceprocess and has not previously been recorded in the accountingrecords of Harmony. |
| 7. | The book and tax bases of all other assets and liabilities ofPeace and Harmony are the same. |
| Required: |
| a. | Compute the tax bases of the assets and liabilities for Peaceand Harmony, where different from the amounts recorded in therespective accounting records. |
| b. | Compute the fair value of the deferred tax assets and deferredtax liabilities for Harmony. |
| c. | Prepare all of the consolidation entries needed to prepare theworksheet for Peace and Harmony at the date of acquisition.(If no entry is required for a transaction/event, select"No journal entry required" in the first accountfield.) |
| d. | Prepare the consolidation worksheet for Peace and Harmony at thedate of acquisition. (Values in the first two columns (the"parent" and "subsidiary" balances) that are to be deducted shouldbe indicated with a minus sign, while all values in the"Consolidation Entries" columns should be entered as positivevalues. For accounts where multiple adjusting entries are required,combine all debit entries into one amount and enter this amount inthe debit column of the worksheet. Similarly, combine all creditentries into one amount and enter this amount in the credit columnof the worksheet.) |
