Chapter 2 Flashcards
Temporary accounts would not include?
A. Salaries expense
B. Accounts receivables
C. Rent revenue
D. All of these answers are incorrect
B. Accounts receivables
Molly’s Auto Detailers maintains its records on the cash basis. During 2024, 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 was:
Multiple Choice
$42,000.
$54,000.
$49,000.
$38,000.
Explanation
Collections $ 72,000
Payments for expenses (21,000)
Add: Increase in assets (accounts receivable) 4,000
Deduct: Decrease in assets (accumulated depreciation) (5,000)
Deduct: Decrease in assets (prepaid expenses) (2,000)
Add: Decrease in liabilities (accrued liabilities) 1,000
Accrual-basis net income $ 49,000
When Castle Corporation pays insurance premiums, the transaction is recorded as a debit to prepaid insurance. Additional information for the year ended December 31 is as follows:
Prepaid insurance at January 1 $ 52,500
Insurance expense recognized during the year 218,750
Prepaid insurance at December 31 61,250
What was the total amount of cash paid by Castle for insurance premiums during the year?
Multiple Choice
$218,750
$166,250
$210,000
$227,500
Explanation
Prepaid Insurance
Debit Credit
Beginning Balance 52,500 Insurance expense $218,750
Cash paid ?
Balance 61,250
Cash paid for insurance = $218,750 − $52,500 + $ 61,250 = $227,500
The correct amount of prepaid insurance shown in a company’s December 31, 2023, balance sheet was $900. On July 1, 2024, the company paid an additional insurance premium of $600. In the December 31, 2024, balance sheet, the amount of prepaid insurance was correctly shown as $500. The amount of insurance expense that should appear in the company’s 2024 income statement is:
Multiple Choice
$1,400.
$1,500.
$1,000.
$600.
Explanation
[$900 (beginning balance) + $600 (additional payment) − $500 (ending balance)]
ANSWER: $1000
The closing process involves:
Multiple Choice
Recording year-end adjusting entries.
Transferring revenue and expense balances to retained earnings.
Closing out the permanent account balances.
All of these answer choices are incorrect.
Explanation
Revenues, expenses, and other temporary equity accounts are closed, reduced to $0, with their balances being transferred to retained earnings.
ANSWER; Transferring revenue and expense balances to retained earnings.
Rite Shoes was involved in the transactions described below.
Purchased $8,200 of inventory on account.
Paid weekly salaries, $920.
Recorded sales for the first week: Cash: $7,100; On account: $5,300.
Paid for inventory purchased in event (1).
Placed an order for $6,200 of inventory.
Required:
Prepare the appropriate journal entry for each transaction.
Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.
Flint Hills, Incorporated has prepared a year-end 2024 trial balance. Certain accounts in the trial balance do not reflect all activities that have occurred.
The Supplies account shows a balance of $540, but a count of supplies reveals only $210 on hand.
Flint Hills initially records the payments of all insurance premiums as expenses. The trial balance shows a balance of $420 in Insurance expense. A review of insurance policies reveals that $125 of insurance is unexpired.
Flint Hills employees work Monday through Friday, and salaries of $2,400 per week are paid each Friday. Flint Hills’ year-end falls on Tuesday.
On December 31, 2024, Flint Hills received a bill for $190 for utilities incurred during December. The bill will be paid in early January of 2025.
Required:
Prepare adjusting journal entries, as needed, for the above items.
Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.
Suppose that Laramie Company’s adjusted trial balance ignored the additional information shown.
Required:
Indicate what effects, if any, this omission would have on the stated components of Laramie Company’s 2024 Income Statement and 12/31/2024 Balance Sheet. Assume no income taxes.
Additional Information
$2,000 interest on a loan was not yet paid or recorded
12/31/2024 Assets
12/31/2024 Liabilities
12/31/2024 Owners’ Equity
2024 Net Income
The adjusted trial balance for China Tea Company at December 31, 2024, is presented below:
Required:
Prepare the closing entries for China Tea Company for the year ended December 31, 2024.
Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)
The general ledger of the Karlin Company, a consulting company, at January 1, 2024, contained the following account balances:
Account Title Debits Credits
Cash $ 30,000
Accounts receivable 15,000
Equipment 20,000
Accumulated depreciation $ 6,000
Salaries payable 9,000
Common stock 40,500
Retained earnings 9,500
Total $ 65,000 $ 65,000
The following is a summary of the transactions for the year:
Provided services, $100,000, of which $30,000 was on account and the balance was received in cash.
Collected on accounts receivable, $27,300.
Issued shares of common stock in exchange for $10,000 in cash.
Paid salaries, $50,000 (of which $9,000 was for salaries payable at the end of the prior year).
Paid miscellaneous expense for various items, $24,000.
Purchased equipment for $15,000 in cash.
Paid $2,500 in cash dividends to shareholders.
Additional information:
Accrued salaries at year-end amounted to $1,000.
Depreciation for the year on the equipment is $2,000.
Required:
1 to 3. Prepare a general journal entry for each of the summary transactions listed.
- Using the T-account balances, prepare an unadjusted trial balance.
- Prepare adjusting journal entries using the additional information provided. Post to the T-accounts (on the T-accounts tab).
- Using the adjusted T-account balances, prepare an adjusted trial balance.
7-a. Prepare an income statement for 2024.
7-b. Prepare a balance sheet as of December 31, 2024.
- Prepare closing entries, and then post to the T-accounts (on the T-accounts tab).
- Prepare a post-closing trial balance.
Explanation
7-b.
Retained earnings = Beginning balance of $9,500 plus net income of $32,000 less dividends of $2,500 = $39,000
The general ledger of the Karlin Company, a consulting company, at January 1, 2024, contained the following account balances:
Account Title Debits Credits
Cash $ 30,000
Accounts receivable 15,000
Equipment 20,000
Accumulated depreciation $ 6,000
Salaries payable 9,000
Common stock 40,500
Retained earnings 9,500
Total $ 65,000 $ 65,000
The following is a summary of the transactions for the year:
Provided services, $100,000, of which $30,000 was on account and the balance was received in cash.
Collected on accounts receivable, $27,300.
Issued shares of common stock in exchange for $10,000 in cash.
Paid salaries, $50,000 (of which $9,000 was for salaries payable at the end of the prior year).
Paid miscellaneous expense for various items, $24,000.
Purchased equipment for $15,000 in cash.
Paid $2,500 in cash dividends to shareholders.
Additional information:
Accrued salaries at year-end amounted to $1,000.
Depreciation for the year on the equipment is $2,000.
Required:
Provide T accounts for each transaction
Selected balance sheet information for the Wolf Company at November 30, and December 31, 2024, is presented below. The company uses the perpetual inventory system and all sales to customers are made on credit.
The following cash flow information also is available:
Cash collected from credit customers, $80,000.
Cash paid for insurance, $5,000.
Cash paid to suppliers of inventory, $60,000 (the entire accounts payable amounts relate to inventory purchases).
Cash paid to employees for salaries, $10,000.
Required:
Determine the following for the month of December:
Prepare summary journal entries to record the month’s sales and cost of those sales.
A. Determine the following for the month of December:
a. Sales revenue $73,000
b. Cost of goods sold $64,000
c. Insurance expense $2,500
d. Salaries expense $8,000
B. Transaction General Journal Debit Credit
1 Accounts receivable 73,000
Sales revenue 73,000
2 Cost of goods sold 64,000
Inventory 64,000
