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Exam 3: Accrual Accounting and the Financial Statements

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Question 41

Multiple Choice

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A company using the cash basis of accounting receives cash for services yet to be performed.The entry to record the cash received will involve a credit to:

A) Prepaid Revenue
B) Service Revenue
C) Accrued Revenue
D) Deferred Revenue

E) C) and D)
F) B) and D)

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Question 42

Multiple Choice

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The adjusting entry for unearned revenue always involves a:

A) debit to a revenue account and a credit to a liability account
B) debit to a liability account and a credit to a revenue account
C) debit to an asset account and a credit to a liability account
D) debit to an asset account and a credit to a revenue account

E) A) and B)
F) None of the above

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Question 43

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The cash basis of accounting records the impact of all business transactions as they occur.

Accrual accounting provides some ethical challenges that cash accounting avoids.

Barley & Hops Company was formed in 2014.During the year the company had the following events occur: 1.The company issued $100,000 in common shares for cash. 2.The company purchased equipment for $15,000,paying $5,000 down and signing a 1-year,8% note for the balance. 3.The company hired 4 employees. 4.The company had sales of $250,000.All sales were on account. 5.The company incurred the following expenses: rent: $2,000,salaries: $20,000,advertising $2,000 and utilities $4,000.All expenses were paid in cash.

Given the adjusted trial balance for Destiny Inc.below as of December 31,2017 prepare the income statement and statement of retained earnings for the year ended December 31,2017.

Accounts which are closed at the end of an accounting period include:

A journal entry contains a debit to an expense account and a credit to a payable account.This is an example of a(n) :

The adjusting entry to allocate the cost of a plant asset such as equipment involves a credit to:

On September 1 of the current year,Prepaid Rent was debited for $3,000.This amount represents payment for one year of rent,paid in advance.The adjusting entry on December 31 will involve a:

Net income appears on:

Prepaid expenses are often referred to as deferrals because the recording of the expense is deferred until after cash is paid.

Prohibition Ltd.trial balance at December 31,2017,is shown below.Prepare the closing entries.

A company using the accrual basis of accounting pays for one year of rent in advance.The entry to record this payment will involve a debit to:

Accumulated depreciation is classified as a(n) :

Which of the following combinations of ratios is preferable?

Explain the significance of the debt ratio.

People using the cash basis of accounting for their business generally make better decisions.

Current assets are typically more liquid than non-current assets and therefore harder to convert into cash.

Current assets include: