Homework Chapter 3 Flashcards
Identify if the transaction will or will not require an adjustment.
Paid weekly employee salaries.
May require an adjustment
In December, Swanstrom Inc. receives a cash payment of $3,500 for services performed during December and a cash payment of $4,500 for services to be performed during the next month. Swanstrom also receives the December utility bill for $600 but does not pay this bill until January. For December, under the accrual basis of accounting, Swanstrom would recognize:
$3,500 of revenue and $600 of expense.
Accrual-basis accounting records revenue when earned and collectability is reasonably assured, regardless of when cash is received. Expenses are recorded when incurred, regardless of when cash is paid.
Identify if the transaction will or will not require an adjustment.
Purchased equipment to be used in the operation of its business.
May require an adjustment
Identify if the transaction will or will not require an adjustment.
Received cash for services to be performed over the next year.
May require an adjustment
Identify if the transaction will or will not require an adjustment.
Merchandise was sold to customers on credit.
Will not require an adjustment
Identify if the transaction will or will not require an adjustment.
A 2-year insurance contract was purchased.
May require an adjustment
McDonald Music sells used CDs for $4.00 each. During the month of April, McDonald sold 7,650 CDs for cash and 13,220 CDs on credit. McDonald’s cash collections in April included $30,600 for CDs sold for cash, $12,800 for CDs sold on credit during the previous month, and $29,850 for CDs sold on credit during April.
Calculate the amount of revenue recognized in April under cash-basis accounting.
$73250
Cash-basis revenue:
Cash collected in April from April cash sales* $30,600
Cash collected in April from March credit sales 12,800
Cash collected in April from April credit sales 29,850
Total cash-basis revenue $73,250
*7,650 units × $4.00 = $30,600
Dallas Company loaned $10,000 to Ewing Company on December 1. Ewing will pay Dallas $720 of interest ($60 per month) in 1 year. Dallas’s adjusting entry at December 31 is:
Interest receivable $60 (debit)
Interest income $60 (credit)
Which transaction would require adjustment at December 31?
a. The sale of merchandise for cash on December 30.
b. Common stock was issued on November 30.
c. Salaries were paid to employees on December 31 for work performed in December.
d. A 1-year insurance policy (which took effect immediately) was purchased on December 1.
D
Identify if the transaction will or will not require an adjustment.
Borrowed money from First Bank by signing a note payable due in 5 years.
May require an adjustment
With the information in the image, prepare a retained earnings statement for Sparrow Company.
Beginning retained earnings: $2255
Add: Net income: $20400
Less: Dividends declared: $10500
Ending retained earnings: $12155
With the information in the image, prepare a single step income statement for Sparrow Company:
Sales revenue: $99600
Expenses
Salaries expense: $49400
Rent expense: $17250
Depreciation expense: $4950
Insurance expense: $2200
Income tax expense: $5400
Total expenses: $79200
Net income: $20400
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Question Content Area
Ron’s Diner received the following bills for April utilities:
Electricity: $625 received on April 29
Telephone: $150 received on May 5
Both bills were paid May 10. On the April balance sheet, Ron’s Diner will report accrued expenses of:
$775
Expenses are recorded as they are incurred. An accrued expense is a previously unrecorded expense that has been incurred but not yet paid in cash.
List these steps of the accounting cycle in their proper order:
Journalize transaction.
Prepare financial statements.
Prepare a trial balance.
Analyze transaction.
Adjust the account.
Close the accounts.
Post to the ledger.
Analyze transaction.
Journalize transaction.
Post to the ledger.
Prepare a trial balance.
Adjust the accounts.
Prepare financial statements.
Close the accounts.
