Question 1

Accrued expenses are ordinarily reported on the balance sheet as:

Accepted Answer

Accrued expenses are expenses that have been incurred but not yet paid. Therefore, they are obligations that the company owes to others, making them a liability and reported on the balance sheet as such.

Question 2

A&M Co.provided services of $1,000,000 to clients on account.How does this transaction affect A&M's accounts?

Accepted Answer

When A&M provided services to clients on account, it means that they will receive payment in the future. This increases their accounts receivable since the client owes them money. At the same time, the service provided generates revenue for the company, which increases their revenue account. Therefore, choice B is the best option.

Question 3

Accumulated depreciation is a(n):

Accepted Answer

Accumulated depreciation is a contra asset account that represents the total amount of depreciation expense that has been recorded on an asset since its acquisition. As a contra asset, it is subtracted from the cost of the asset on the balance sheet to arrive at its net book value.

Question 4

Which of the following is an example of an intangible asset?

Accepted Answer

Goodwill, patents, and copyrights are all examples of intangible assets, meaning they do not have a physical presence but have value to a company.

Question 5

While calculating the carrying value of a building, its accumulated depreciation is:

Accepted Answer

To calculate the carrying value of a building, its accumulated depreciation is subtracted from the building's cost. This is because accumulated depreciation represents the portion of the building's cost that has been used up or consumed over time.

Question 6

XYZ Co.paid $1,000 in dividends to stockholders.How does this transaction affect the accounts of XYZ?

Accepted Answer

Payment of dividends involves giving away a portion of the company's profits or retained earnings to the stockholders. This is a cash outflow and will reduce the company's cash balance. At the same time, since dividends are paid from retained earnings, this will reduce the amount of profits that have been accumulated by the company over time, hence decreasing the retained earnings account. Therefore, Choice A is the correct answer.

Question 7

When cash is paid to suppliers on account, which section of the Statement of Cash Flows is affected?

Accepted Answer

When cash is paid to suppliers on account, it is considered as an operating activity and affects the Cash Flow from Operating Activities section of the Statement of Cash Flows.

Question 8

The unearned rent account has a balance of $60,000.If $4,000 of the $60,000 is unearned at the end of the accounting period, the amount of the adjusting entry is:

Accepted Answer

The adjusting entry should reflect the portion of the unearned rent that has been earned during the accounting period. Since $4,000 is still unearned, we need to subtract that from the total balance of $60,000 to get the amount that has been earned: $60,000 - $4,000 = $56,000. Therefore, the adjusting entry should be a credit to Unearned Rent for $4,000 (to reflect the portion that is still unearned) and a debit to Rent Revenue for $56,000 (to reflect the portion that has been earned). The total of these two amounts is $60,000, which matches the original balance in the Unearned Rent account.

Question 9

Eagle Eye, Inc., a corporation, received an additional investment of $6,000 cash in exchange for shares of common stock.How does this transaction affect Eagle Eye's accounts?

Accepted Answer

The transaction involves receiving an investment in exchange for shares of common stock. This means that Eagle Eye's common stock account will increase by $6,000, reflecting the additional stock issued. At the same time, the company receives cash of $6,000, so the cash account will also increase by that amount. Therefore, the correct answer is option B. The other choices are incorrect because they do not accurately reflect the nature of the transaction.

Question 10

The reduction in the ability of a fixed asset to provide service over time is called:

Accepted Answer

Depreciation is the systematic allocation of the cost of a fixed asset to expense over its useful life. It reflects the reduction in the asset's value or usefulness due to wear and tear, obsolescence, or other factors. Deferral recognition refers to the postponement of recognizing revenue or expenses until a later period. Consolidation refers to the combination of financial statements of two or more companies into a single set of statements. Accumulation refers to the gradual increase or buildup of something over time.

Question 11

Unearned rent, representing rent for the next six months' occupancy, would be reported on the landlord's balance sheet as a(n):

Accepted Answer

Unearned rent is a liability because it is rent that has been received but not yet earned. The landlord has an obligation to provide occupancy for the next six months in exchange for the rent, so it is considered a liability until it is earned.

Question 12

Which of the following statements is prepared with various sections, subsections, and captions?

Accepted Answer

A classified balance sheet is prepared with various sections, including current assets, long-term assets, current liabilities, long-term liabilities, and stockholders' equity. Each section may have subsections and captions to provide more detail on the accounts listed within it.

Question 13

QRT Co.received $1,560 advance from Zync Inc.as rent for the use of a building owned by QRT Co.How does this transaction affect QRT's accounts if QRT recognizes a liability on receipt of the rent?

Accepted Answer

If QRT recognizes a liability on receipt of the rent, it means that they have received payment in advance and have an obligation to provide the agreed-upon service (use of the building) in the future. This creates an unearned rent liability, which is increased by the $1,560 advance payment received. Therefore, cash is increased, and unearned rent is increased. Option A is incorrect because sales revenue is not affected by rental income. Option B is incorrect because rent income is not decreased, but rather deferred until the rental service is provided. Option D is incorrect because prepaid rent is not applicable in this scenario.

Question 14

Interest receivable is an example of:

Accepted Answer

Interest receivable is revenue that has been earned but not yet received, therefore it is an example of accrued revenue.

Question 15

X&Y Co.received $4,000 in payments from clients for services billed in a previous month.What effect does this transaction have on the accounts under the accrual basis of accounting?

Accepted Answer

Under the accrual basis of accounting, revenues are recognized when earned, not when cash is received. Since the services were billed in a previous month, the revenue was already recognized at that time. The $4,000 payment simply converts one asset (accounts receivable) into another (cash), leaving the total assets unchanged.

Question 16

Electrodo Co.purchased land for $55,000 with $20,000 paid in cash and $35,000 in notes payable.What effect does this transaction have on the accounts under the accrual basis of accounting?

Accepted Answer

The transaction increases assets (land) by $55,000 and increases liabilities (notes payable) by $35,000. Cash, an asset, decreases by $20,000, but this is offset by the increase in land, leading to a net increase in assets of $35,000.

Question 17

When cash is received in payment of an account receivable, which section of the Statement of Cash Flows is affected?

Accepted Answer

Cash received in payment of an account receivable is a cash inflow related to operating activities, therefore it affects Cash Flow from Operating Activities section of the Statement of Cash Flows.

Question 18

The balance in the office supplies account on May 1 was $6,380, supplies purchased during June were $4,740, and the supplies on hand at May 31 were $2,360.The amount to be used for the appropriate adjusting entry is:

Accepted Answer

To calculate the amount for the adjusting entry, we need to subtract the supplies on hand at the end of the period from the total amount of supplies purchased during the period. Therefore,
Supplies purchased during June = $4,740
Supplies on hand at May 31 = $2,360
Supplies used during June = $4,740 - $2,360 = $2,380
So, the appropriate adjusting entry would be to debit the supplies expense account for $2,380 and credit the office supplies account for $2,380. Therefore, the total balance in the office supplies account after the adjusting entry would be $6,380 + $4,740 - $2,380 = $8,760. Hence, the correct answer is C) $8,760.

Question 19

Accrued revenue is shown on a balance sheet as:

Accepted Answer

Accrued revenue is revenue that has been earned but not yet received. It is considered an asset because it represents revenue that the company will receive in the future.

Question 20

XYZ Co.received $3,000 in payments from clients for services billed in a previous month.Which accounts will be affected and by what amounts under the accrual basis of accounting?

Accepted Answer

Under the accrual basis of accounting, when XYZ Co. receives $3,000 in payments for services previously billed, Cash increases by $3,000 because the company is receiving money. At the same time, Accounts Receivable decreases by $3,000 because the amount owed by clients (previously recorded as Accounts Receivable) is being paid off.

Quiz 3: Basic Accounting Systems: Accrual Basis