ACCT 2101 Exam 2 Study Guide Chapters 4 � 6

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ACCT 2101Exam2Study Guide Chapters4–6Chapter 41.The periodicity assumption states that:a.a transaction can only affect one period of time.b.estimates should not be made if a transaction affects more than one time period.c.adjustments to the enterprise's accounts can only be made in the time period whenthe business terminates its operations.d.the economic life of a business can be divided into artificial time periods.2.One of the accounting concepts upon which adjustments for prepayments and accruals arebased is:a.expense recognition.b.cost.c.monetary unit.d.economic entity.3.An accounting time period that is one year in length is called:a.a fiscal year.b.an interim period.c.the time period assumption.d.a reporting period.4.Expenses are recognized when:a.they contribute to the production of revenue.b.they are paid.c.they are billed by the supplier.d.the invoice is received.5.Therevenuerecognitionprincipledictatesthatrevenueshouldberecognizedintheaccounting records:a.when cash is received.b.when it is earned.c.at the end of the month.d.in the period that income taxes are paid.6.A flower shop makes a large sale for $1,000 on November 30.The customer issent astatement on December 5 and a check is received on December 10.The flower shopfollowsGAAPandappliestherevenuerecognitionprinciple.Whenisthe$1,000considered to be earned?a.December 5b.December 10c.November 30d.December 17.Under the cash basis of accounting:a.Revenue is recognized when services are performed.b.Expenses are matched with the revenue that is produced.c.cash must be received before revenue is recognized.d.a promise to pay is sufficient to recognize revenue.

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8.Under the accrual basis of accounting:a.cash must be received before revenue is recognized.b.net income is calculated by matching cash outflows against cash inflows.c.events that change a company's financial statements are recognized in the periodthey occur rather than in the period in which cash is paid or received.d.the ledger accounts must be adjusted to reflect a cash basis of accounting beforefinancial statements are prepared under generally accepted accounting principles.9.The following is selected information from L Corporation for the fiscal year ending October 31,2011.Cash received from customers$300,000Revenue earned370,000Cash paid for expenses170,000Cash paid for computers on November 1, 2010 that willbe used for 3 years48,000Expenses incurred including any depreciation216,000Proceeds from a bank loan, part of which was used topay for the computers100,000Based on the accrual basis of accounting, what is LCorporation’s net income for theyear ending October 31, 2011?a.$184,000b.$154,000(370000–216000)c.$152,000d.$170,00010.La More Company had the following transactions during 2011:Sales of $4,500 on accountCollected $2,000 forservices to be performed in 2012Paid $1,375 cash in salaries for 2011Purchased airline tickets for $250 in December for a trip to take place in 2012What is La More’s 2011 net income using accrual accounting?a.$3,375b.$5,375c.$5,125d.$3,125(4500–1375)11.La More Company had the following transactions during 2011.Sales of $4,500 on accountCollected $2,000 for services to be performed in 2012Paid $1,125 cash in salariesPurchased airline tickets for $250 in December for a trip totake place in 2012What is La More’s 2011 net income using cash basis accounting?a.$5,375b.$875c.$5,125d.$625(2000–1125–250)

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12.Given the data below for a firm in its first year of operation, determine net income under thecash basis of accounting.Revenue earned$14,000Accounts receivable3,000Expenses incurred7,250Accounts payable (related to expenses)750Supplies purchased with cash1,800a.$4,500b.$9,000c.$2,700(11000–6500–1800)d.$4,95013.Given the databelow for a firm in its first year of operation, determine net income under theaccrual basis of accounting.Revenue earned$14,000Accounts receivable3,000Expenses incurred7,250Accounts payable (related to expenses)750Supplies purchased with cash1,800a.$6,750(14000–7250)b.$9,000c.$4,500d.$7,20014.Adjusting entries are made to ensure that:a.expense are recognized in the period in which they are incurred.b.revenues are recorded in the period in which they are earned.c.balance sheet and income statement accounts have correct balances at the end ofan accounting period.d.All of the above.15.An adjusting entry:a.affects two balance sheet accounts.b.affects two income statement accounts.c.affects a balance sheet account and an income statement account.d.is always a compound entry.16.Accrued expenses are:a.incurred but not yet paid or recorded.b.paid and recorded in an asset account after they are used or consumed.c.paid and recorded in an assetaccount before they are used or consumed.d.incurred and already paid or recorded.17.Accrued revenues are:a.received and recorded as liabilities before they are earned.b.earned and recorded as liabilities before they are received.c.earned butnot yet received or recorded.d.earned and already received and recorded.

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