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SAINT LOUIS UNIVERSITY MIDTERMS PART 1 ACCOUNTING 101 8. On September 1, 2003, Time Magazine sold 600 1.

Accruals occur when cash flows: A)Occur one-year subscriptions for $81 each. The total amount before expense recognition. B)Occur after received was credited to Unearned subscriptions revenue. revenue or expense recognition. C)Are uncertain. What would be the required adjusting entry at December D)May be substituted for goods or 31, 2003? services. A) Unearned subscriptions revenue 48,600 Subscriptions revenue 16,200 2. An example of a contra account is: A)Depreciation Prepaid subscriptions 32,400 expense. B)Accounts receivable. C)Sales revenue. B) Unearned subscriptions revenue 16,200 D)Accumulated depreciation. Subscriptions revenue 16,200 C) Unearned subscriptions revenue 16,200 3. The purpose of closing entries is to transfer: Subscriptions payable 16,200 A)Accounts receivable to retained earnings when an D) Unearned subscriptions revenue 32,400 account is fully paid. B)Balances in temporary accounts to Subscriptions revenue 32,400 a permanent account. C)Inventory to cost of goods sold when merchandise is sold. D)Assets and liabilities when 9. On December 31, 2002, Typical Fashions had operations are discontinued. balances in its Accounts receivable and Allowance for uncollectible accounts of $48,400 and $940, respectively. 4. Which of the following would not be used as an During 2003, Typical Fashions wrote off $820 in Accounts adjusting entry? receivable and determined that there should be an A) Prepaid Rent Allowance for uncollectible accounts of $1,140 at Rent expense December 31, 2003. Bad debt expense for 2003 would be: B) Cash A)$ 320. B)$1,140. C)$ 820. D) Unearned revenue $1,020. C) Interest expense Interest payable 10. Fink Insurance collected premiums of $18,000,000 D) Bad debt expense from its customers during the current year. The adjusted Allowance for doubtful accounts balance in the Unearned premiums account increased from $6 million to $8 million dollars during the year. What was 5. The adjusting entry required when amounts Fink's revenues from earned insurance premiums for the previously recorded as unearned revenues are earned current year? A)$10,000,000. B)$16,000,000. C) includes: $18,000,000. D)$20,000,000. A)A debit to a liability. B)A debit to an asset. C)A credit to a liability. D)A credit to an asset. 11. For purposes of measuring business income, the life of a business is:a. divided into specific points in time. b. 6. Bland Foods purchased a two-year fire and divided into irregular cycles. c. divided into discrete extended coverage insurance policy on August 1, 2003, and accounting periods. charged the $4,200 premium to Insurance expense. At its d. considered to be a continuous cycle. December 31, 2003, year-end, Bland Foods would record which of the following adjusting entries? 12. Adjusting entries at the end of an accounting period A) Insurance expense 875 would not be required for which of the following Prepaid insurance 875 a. Multiperiod costs that must be split among two or more B) Prepaid insurance 875 accounting periods. Insurance expense 875 b. Multiperiod revenues that must be split among two or C) Insurance expense 875 more accounting periods. Prepaid insurance 3,325 c. Expenses that have been incurred in a given period but Insurance payable 4,200 not as yet recorded in the accounts. D) Prepaid insurance 3,325 d. Revenue that has been earned and recorded in the Insurance expense 3,325 accounting records. 7. The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000. The current pay period ends on Friday, July 3. Neat Clothes is now preparing quarterly financial statements for the three months ended June 30. What is the adjusting entry to record accrued salaries at the end of June? A) Salaries expense 22,400 Prepaid salaries 9,600 Salaries payable32,000 B) Salaries expense 6,400 Salaries payable 6,400 C) Prepaid salaries 9,600 Salaries payable9,600 D) Salaries expense 22,400 Salaries payable22,400 13. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday? a. Salary Expense 10,000 Salary Payable 10,000 b. Salary Expense Cash c. Salary Payable Cash d. Salary Payable Salary Expense 10,000 10,000 10,000 10,000 10,000 10,000

14. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. What journal entry would be recorded (on Wednesday) if the end of the accounting period occurred on a Wednesday? a. Salary Expense 6,000 Salary Payable 6,000 b. Salary Expense Cash c. Salary Payable Cash d. Salary Payable Salary Expense 6,000 6,000 6,000 6,000 6,000 6,000

next accounting period. As a result, current period assets, liabilities, equity, and income, respectively, are: a. Overstated, overstated, correct, correct b. Correct, understated, overstated, overstated c. Overstated, understated, overstated, overstated d. Overstated, understated, correct, correct 18. On November 1, 20X1, Limit Company purchased a one-year insurance policy for $12,000. Limit Company debited Cash and credited Prepaid Insurance for $12,000. At the end of December, 20X1, $2,000 of insurance had expired. The journal entry to properly state all accounts involved on December 31, 20X1, would be: a. Insurance Expense 2,000 Prepaid Insurance 22,000 Cash 24,000 b. Insurance Expense Prepaid Insurance c. Insurance Expense Cash d. Prepaid Insurance Insurance Expense 2,000 2,000 2,000 2,000 2,000 2,000

15. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Blankenship's year-end occurred on Wednesday, at which time a correct adjusting entry was recorded. On the following Friday, which of the following payroll journal entries should be recorded? a. Salary Expense 10,000 Cash 10,000 b. Salary Expense Salary Payable Cash c. Salary Expense Salary Payable Cash 4,000 6,000 10,000 6,000 4,000 10,000

19. Under the the income statement approach to adjusting entries, the receipt of $5,000 of unearned revenue would be recorded by debiting Cash. What account should be credited? a. Cash b. Revenue c. Unearned Revenue d. Prepaid Revenue 20. Simmons Company received and recorded a $5,000 payment for services to be rendered in the future. If the income statement approach to adjusting entries is used, the appropriate adjusting entry at the end of the accounting period for $3,000 of revenue not yet earned would be: a. Service Revenue 3,000 Unearned Service Revenue 3,000 b. Service Revenue Unearned Service Revenue c. Accounts Receivable Unearned Service Revenue d. No entry would be needed. 2,000 2,000 3,000 3,000

d. Salary Payable 10,000 Cash 10,000 16. The appropriate journal entry to record equipment depreciation expense would consist of a debit to Depreciation Expense and a credit to which of the following accounts? a. Equipment b. Accumulated Depreciation: Equipment c. Retained Earnings d. Cash 17. At the end of the current accounting period, Johnson Company failed to record utilities consumed during the period. Johnson will be billed for the utilities during the

PART 2: Match the accounting terms in the list on the left to the accounting concept described in the list on the right. (1) Depreciation (a) The basic conditions require that an exchange has occurred and the earnings process is complete. (2) Calendar Year (b) An asset reflecting advance payment for something that will be consumed over the future. (3) Revenue Recognition (c) An entry usually prepared coincident with the end of accounting period to update the accounting for prepaids, accruals, and other allocations. (4) Cash Basis (d) An annual reporting period that runs from January 1 through December 31. (5) Prepaids (e) Monies collected from customers for services that have not yet been provided. (6) Unearned Revenue (f) An approach that results in the initial recording of prepaids to an asset account and unearned revenues to a liability account.

(7) (8) (9) (10)

Balance Sheet Approach Adjusting Entry Accruals Periodicity Assumption

(g) (h) (i) (j)

The notion that continuous business process can be divided into time intervals such as years, quarters, or months for reporting purposes. A systematic and rational allocation scheme to spread a portion of the total cost of a productive asset to each period of use. Expenses and revenues that gradually accumulate with the passage of time. A simplified non-GAAP based method to record revenues as received and expenses as paid.

PART 3: Following are three separate transactions that pertain to prepaid items. Evaluate each item and prepare the journal entries that would be needed for the initial recording and subsequent end-of-20X3 adjusting entry. Assume the company uses the balance sheet approach, and the initial recording is to an asset account. The company has a calendar year-end and does not make any adjusting entries prior to December 31. (1) The company purchased an 18-month insurance policy for $18,000 on June 1, 20X3. (2) The company started 20X3 with $20,000 in supplies (this was previously recorded, and you do not need to make an entry for the beginning balance), purchased $30,000 in supplies during the year, and found only $13,000 in supplies on hand at the end of 20X3. (3) The company paid $2,500 to rent a truck. The rental period began on December 16, 20X3, and ends on February 14, 20X4. PART 4 : Mohamed Bakar Alidini recently formed a business in the Republic of Yemen to process liquefied natural gas for export to other countries. Natural gas can be converted to a liquid by cooling it to -163 degrees Celsius. It then assumes a highly compressed state and can be transported by specially designed cryogenic vessels. Mohamed's business invested 80,000,000 (Yemeni Rials/YER) in a cooling/containment chamber with a 4-year life. The chamber will have no remaining value at the end of the 4-year period. (a) Prepare journal entries to record annual depreciation assuming Alidini uses the straight-line method. PART 5: Stargate Publishing issues the Weekly Window. The company's primary sources of revenue are sales of subscriptions to customers and sales of advertising in the Weekly Window. Stargate owns its building and has excess office space that it leases to others. The following transactions involved the receipt of advance payments. Prepare the indicated journal entries for each set of transactions. (1) On September 1, 20X5, the company received a $24,000 payment from an advertising client for a 6month advertising campaign. The campaign was to run from November, 20X5, through the end of April, 20X6. Prepare the journal entry on September 1, and the December 31 end-of-year adjusting entry. (2) The company began 20X5 with $120,000 in unearned revenue relating to sales of subscriptions for future issues. During 20X5, additional subscriptions were sold for $1,230,000. Magazines delivered during 20X5 under outstanding subscriptions totaled $1,020,000. Prepare a summary journal entry to reflect the sales of subscriptions, and the end-of-year adjusting entry to reflect magazines delivered. (3) The company received a $3,000 rental payment on December 16, 20X5, for the period running from mid-December to Mid-January. Prepare the December 16 journal entry, as well as the December 31 end-of-year adjusting entry PART 6: Creative Hearing Technologies of London recently introduced a blue-tooth enabled hearing aid that allows hearing-disabled users to not only hear better, but also interface with their cell phones and digital music players. The company reports the following four transactions and events related to December of 20X7, and is seeking your help to prepare the end-of-year adjusting entries needed at December 31. (1) On December 1, the company borrowed 10,000,000 at an 8% per annum interest rate. The loan, and all accrued interest, is due in 3 months. (2) Early in December, the company licensed their new technology to Apple Bites Computer, Inc., for use in Apple's existing product lines. The agreement provides for a royalty payment from Apple to Creative based on Apple's sales of products using the licensed technology. As of December 31, 45,000 is due under the agreement for actual sales made by Apple to date. (3) Creative pays many employee's on an hourly basis. As of December 31, there are 5,320 unpaid labor hours already worked, at an average hourly rate of 17. (4) The company estimates that utilities used during December, for which bills will be received in January, amount to 20,000. PART 7: Examine each of the following fact scenarios, then prepare initial and end-of-year adjusting entries (when needed) assuming (a)(SET A) use of asset method/liability approach (b)(SET B) use of expense/revenue method. You may assume a calendar year end for each scenario. Scenario A $1,500, one-year insurance policy was purchased on June 1, 20X1. 1 Scenario $20,000 of unearned revenue was collected on August 1, 20X1. 40% of this amount was earned by the end of 2 the year. Scenario On December 1, 20X1, $3,000 was prepaid for space in a trade-show booth. The trade show is in February of 3 20X2. Scenario A $1,000 customer deposit for future services was received on April 1, 20X1. On June 20, 20X1, the 4 customer canceled the agreement and received a full refund.

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