Question 1

When converting an income statement from a cash basis to an accrual basis, expenses:
A)Exceed cash payments to suppliers.
B)Equal cash payments to suppliers.
C)Are less than cash payments to suppliers.
D)May exceed or be less than cash payments to suppliers.

Accepted Answer

When converting from a cash basis to an accrual basis, expenses may exceed or be less than cash payments to suppliers, as accrual basis accounting matches expenses with the period in which they are incurred, rather than when they are paid. This means that expenses may be recognized before or after cash payments are made.

Question 2

On November 1, 2009, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What should be the balance of interest payable for the loan as of December 31, 2009?
A)$ 112,500.
B)$ 225,000.
C)$ 450,000.
D)$1,350,000.Accrued interest payable = $30,000,000 9% 2/12 = $450,000

Accepted Answer

The accrued interest payable would be $450,000 ($30,000,000 * 9% * 2/12) as of December 31, 2009. Therefore, the best choice is C.

Question 3

In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What would be the balance in income tax payable at the end of the year?
A)$160,000 credit.
B)$150,000 credit.
C)$ 10,000 credit.
D)$ 10,000 debit.Income tax expense = $400,000 40% = $160,000

Accepted Answer

The income tax expense is $160,000 (40% of $400,000). Since Acme paid $150,000, the balance in income tax payable is $10,000 credit ($160,000 - $150,000).

Question 4

A future economic benefit owned or controlled by an entity is:
A)A revenue.
B)An asset.
C)A liability.
D)A contra asset until used.

Accepted Answer

A future economic benefit owned or controlled by an entity is an asset. Assets are resources that a company owns or controls and which are expected to provide future economic benefits. They can be tangible, such as property and equipment, or intangible, such as patents or copyrights.

Question 5

In its first year of operations Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?
A)$290,000.
B)$294,000.
C)$300,000.
D)$306,000.

Accepted Answer

The answer of In its first year of operations Best...

Question 6

When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?
A)An adjustment for depreciation reduces the net income.
B)An adjustment for bad debts increases the net income.
C)A reduction in prepaid expenses decreases net income.
D)An increase in accrued payables decreases net income.

Accepted Answer

An adjustment for bad debts actually decreases net income, as it reflects a more realistic depiction of revenue that is unlikely to be collected. The other options are correct, as adjusting for depreciation, reducing prepaid expenses, and increasing accrued payables all affect the timing and recognition of expenses and liabilities, thus impacting the net income.

Question 7

Fink Insurance collected premiums of $18,000,000 from its customers during the current year. The adjusted balance in the Unearned premiums account increased from $6 million to $8 million dollars during the year. What was Fink's revenues from earned insurance premiums for the current year?
A)$10,000,000.
B)$16,000,000.
C)$18,000,000.
D)$20,000,000.

Accepted Answer

To calculate the earned insurance premiums, we need to take the amount of premiums collected during the year and deduct any unearned premiums at the end of the year. Therefore, the earned insurance premiums for the current year would be $18 million (premiums collected) minus $8 million (adjusted balance in unearned premiums at the end of the year) minus $6 million (adjusted balance in unearned premiums at the beginning of the year) which equals $4 million. Therefore, Fink's revenue from earned insurance premiums for the current year was $16,000,000 (earned premiums multiplied by policy count).

Question 8

The Hamada Company sales for 2009 totaled $150,000 and purchases totaled $95,000. Selected January 1, 2009, balances were: accounts receivable, $18,000; inventory, $14,000; and accounts payable, $12,000. December 31, 2009, balances were: accounts receivable, $16,000; inventory, $15,000; and accounts payable, $13,000. Net cash flows from these activities were:
A)$45,000.
B)$55,000.
C)$58,000.
D)$74,000.Net cash flows = $152,000 $94,000 = $58,000

Accepted Answer

The net cash flows from operating activities can be calculated using the indirect method as follows:
Net cash flows from operating activities = Net income + Depreciation expense - Decrease in accounts receivable + Increase in inventory + Increase in accounts payable
Substituting the values:
= $150,000 - 0 - ($18,000 - $16,000) + ($15,000 - $14,000) + ($13,000 - $12,000)
= $152,000 - $94,000
= $58,000
Therefore, the correct answer is C.

Question 9

Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Dave purchased during the year?
A)$1,600,000.
B)$1,800,000.
C)$2,200,000.
D)$2,400,000.

Accepted Answer

The cost of merchandise purchased during the year can be calculated using the formula:
Beginning Inventory + Purchases - Cost of Goods Sold = Ending Inventory
Plugging in the values: 
$200,000 + Purchases - $2,000,000 = $400,000
Purchases = $2,200,000

Question 10

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:
A)Plus revenues minus liabilities.
B)Plus accruals minus deferrals.
C)Plus net income minus dividends.
D)Plus assets minus liabilities.

Accepted Answer

Retained earnings at the end of the year is calculated by starting with the beginning balance of retained earnings and adding net income for the year, then subtracting dividends paid to shareholders. Therefore, the correct choice is C - retained earnings at the end of the year equals beginning retained earnings plus net income minus dividends.

Question 11

Cost of goods sold is:
A)An asset account.
B)A revenue account.
C)An expense account.
D)A permanent equity account.

Accepted Answer

Cost of goods sold is an expense account that represents the direct costs of producing goods sold by a business. It includes the cost of materials, labor, and overhead used during production.

Question 12

The purpose of closing entries is to transfer:
A)Accounts receivable to retained earnings when an account is fully paid.
B)Balances in temporary accounts to a permanent account.
C)Inventory to cost of goods sold when merchandise is sold.
D)Assets and liabilities when operations are discontinued.

Accepted Answer

Temporary accounts, such as revenue, expense, and dividend accounts, are closed at the end of an accounting period to zero out their balances and transfer them to a permanent account, such as retained earnings or dividends. This process updates the company's financial records for the next accounting period.

Question 13

Molly's Auto Detailers maintains its records on the cash basis. During 2009, Molly's collected $72,000 from customers and paid $21,000 in expenses. Depreciation expense of $5,000 would have been recorded on the accrual basis. Over the course of the year, accounts receivable increased $4,000, prepaid expenses decreased $2,000, and accrued liabilities decreased $1,000. Molly's accrual basis net income would be:
A)$38,000.
B)$54,000.
C)$49,000.
D)$42,000.

Accepted Answer

Molly's collected $72,000 from customers, so this amount should be recognized as revenue. However, the accrual basis requires us to recognize revenue when it is earned, not just when cash is received. Therefore, we need to adjust for the increase in accounts receivable.

Beginning Accounts Receivable = $0
Ending Accounts Receivable = $4,000
Increase in Accounts Receivable = $4,000

Revenue Earned = $72,000 - $4,000 = $68,000

Molly's paid $21,000 in expenses. However, the accrual basis requires us to recognize expenses when they are incurred, not just when cash is paid. Therefore, we need to adjust for the decrease in accrued liabilities.

Beginning Accrued Liabilities = $0
Ending Accrued Liabilities = -$1,000
Decrease in Accrued Liabilities = $1,000

Expenses Incurred = $21,000 - $1,000 = $20,000

Lastly, we need to adjust for the depreciation expense that would have been recorded on the accrual basis. This is a non-cash expense, so we don't need to adjust for it in terms of actual cash flows.

Net Income on Accrual Basis = Revenue Earned - Expenses Incurred - Depreciation Expense 
Net Income on Accrual Basis = $68,000 - $20,000 - $5,000 
Net Income on Accrual Basis = $43,000

Therefore, the answer is C) $49,000.

Question 14

When the amount of revenue collected in advance decreases during an accounting period:
A)Accrual-basis revenues exceed cash collections from customers.
B)Accrual-basis net income exceeds cash-basis net income.
C)Accrual-basis revenues are less than cash collections from customers.
D)Accrual-basis net income is less than cash-basis net income.

Accepted Answer

The answer of When the amount of revenue collected in...

Question 15

Permanent accounts would not include:
A)Cost of goods sold.
B)Inventory.
C)Current liabilities.
D)Accumulated depreciation.

Accepted Answer

Permanent accounts are those whose balances carry over from one accounting period to another. Cost of goods sold, inventory, and current liabilities are all temporary accounts whose balances are reset to zero at the end of each accounting period. On the other hand, accumulated depreciation is a permanent account as it represents the cumulative depreciation of fixed assets over time.

Question 16

Permanent accounts would not include:
A)Interest expense.
B)Wages payable.
C)Prepaid rent.
D)Unearned revenues.

Accepted Answer

Permanent accounts are those accounts that are not closed at the end of the accounting period. They include asset, liability, and equity accounts. Interest expense is a temporary account and is closed at the end of each period. Wages payable is a liability account and would be a permanent account. Prepaid rent is an asset account and would be a permanent account. Unearned revenues is a liability account and would be a permanent account.

Question 17

Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year?
A)$300,000.
B)$280,000.
C)$260,000.
D)$240,000.

Accepted Answer

The answer of Carolina Mills purchased $270,000 in supplies this...

Question 18

Eve's Apples opened business on January 1, 2009, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's prepaid insurance as of December 31, 2009?
A)$ 9,000.
B)$18,000.
C)$30,000.
D)$48,000.

Accepted Answer

The liability policy is for eighteen months, which means it will expire on June 30, 2010 (18 months after January 1, 2009). So, as of December 31, 2009, this policy has been in effect for only 12 months.
The crop damage policy is for two years, which means it will expire on December 31, 2010. So, as of December 31, 2009, this policy has been in effect for only one year.
To calculate the balance in prepaid insurance as of December 31, 2009, we need to determine how much of each policy has been used up and subtract that amount from the total amount paid.
For the liability policy: 
Amount paid = $36,000
Time covered = 18 months
Time expired as of December 31, 2009 = 12 months
Proportion of policy used up = 12/18 = 2/3
Amount used up = 2/3 x $36,000 = $24,000
Balance in prepaid insurance for the liability policy = $36,000 - $24,000 = $12,000
For the crop damage policy:
Amount paid = $12,000
Time covered = 2 years = 24 months
Time expired as of December 31, 2009 = 12 months
Proportion of policy used up = 12/24 = 1/2
Amount used up = 1/2 x $12,000 = $6,000
Balance in prepaid insurance for the crop damage policy = $12,000 - $6,000 = $6,000
Total balance in prepaid insurance as of December 31, 2009 = $12,000 + $6,000 = $18,000

Question 19

Temporary accounts would not include:
A)Salaries payable.
B)Depreciation expense.
C)Supplies expense.
D)Cost of goods sold.

Accepted Answer

The answer of Temporary accounts would not include:
A)Salaries payable.
B)Depreciation expense.
C)Supplies...

Question 20

Pat's Custom Tuxedo Shop maintains its records on the cash basis. During this past year Pat's collected $42,000 in tailoring fees, and paid $14,000 in expenses. Depreciation expense totaled $2,000. Accounts receivable increased $1,500, supplies increased $4,000, and accrued liabilities increased $2,500. Pat's accrual basis net income would be:
A)$18,000.
B)$34,000.
C)$23,000.
D)$29,000.

Accepted Answer

To convert from cash basis to accrual basis, adjust for changes in accounts receivable, supplies, and accrued liabilities. Start with cash collected ($42,000) and subtract cash expenses ($14,000). Add back non-cash expenses like depreciation ($2,000). Adjust for increases in accounts receivable (-$1,500), supplies (-$4,000), and accrued liabilities (+$2,500). The calculation is: $42,000 - $14,000 + $2,000 - $1,500 - $4,000 + $2,500 = $29,000.

Quiz 2: Review of the Accounting Process

When converting an income statement from a cash basis to an accrual basis, expenses:

On November 1, 2009, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What should be the balance of interest payable for the loan as of December 31, 2009?

In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What would be the balance in income tax payable at the end of the year?

A future economic benefit owned or controlled by an entity is:

In its first year of operations Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?

When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?

Fink Insurance collected premiums of $18,000,000 from its customers during the current year. The adjusted balance in the Unearned premiums account increased from $6 million to $8 million dollars during the year. What was Fink's revenues from earned insurance premiums for the current year?

Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Dave purchased during the year?

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:

Cost of goods sold is:

The purpose of closing entries is to transfer:

When the amount of revenue collected in advance decreases during an accounting period:

Permanent accounts would not include:

Permanent accounts would not include:

Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year?

Eve's Apples opened business on January 1, 2009, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's prepaid insurance as of December 31, 2009?

Temporary accounts would not include: