Session 6 Handout: 9/15/14
Supplemental Instruction
IowaStateUniversity / Leader:
Course:
Instructor:
Date:

True/False:

  1. _____ Financing Activities are the primary source of revenues and expenses.
  2. _____ Net income indicates the amount by which stockholders’ equity increases as a result of a company’s profitable operations.
  3. _____ With the time period assumption the long life of a company is divided into shorter periods, such as months, quarters, and years.
  4. _____ The revenues and expenses on the balance sheet report the financial impact of activities in just the current period whereas items on an income statement will continue to have a financial impact beyond the end of the current period.
  5. _____ Accrual basis accounting reports revenues when they are earned and expenses when they are incurred, regardless of the timing of cash receipts or payments.
  6. _____ Cash basis accounting is required under GAAP.

Multiple Choice:

  1. Which of the following is the entry to be recorded by a law firm when it receives a payment from a new client that will be earned when services are provided in the future?
  2. Debit accounts receivable; credit legal services revenue
  3. Debit unearned revenue; credit legal services revenue
  4. Debit cash; credit unearned revenue
  5. Debit unearned revenue; credit cash
  6. Which account is least likely to be debited when revenue is recorded?
  7. Accounts payable
  8. Accounts receivable
  9. Cash
  10. Unearned revenue
  11. Web Corporation reported the following amounts on its income statement: services revenue, $32500; utilities expense, $300; net income, $1600; and income tax expense, $900. If the only other amount reported on the income statement was for selling expenses, what amount would it be?
  12. $2200
  13. $29700
  14. $30000
  15. $30900
  16. What is the correct way to record the following event: ToysRUs collected $64000 in cash on $132000 of sales of merchandise, the rest were put on accounts.
  17. Sales Revenue132000

Cash64000

Accounts Payable68000

  1. Cash 64000

Accounts Receivable68000

Sales Revenue132000

  1. Cash68000

Accounts Payable64000

Sales Revenue132000

  1. Sales Revenue132000

Cash64000

Accounts Receivable68000

  1. This period Nike had sales revenue of $68975, selling expenses of $10340, general and administrative expenses of $6785, other revenue of $1538, and other expenses totaling $38562. What was Nike’s net income for the period?
  2. $14826
  3. $15203
  4. $11750
  5. $12457
  1. In the expanded accounting equation, what is different from the basic accounting equation
  2. There is no difference between the two
  3. In the expanded accounting equation, Assets is expanded to show that it includes revenues
  4. In the expanded accounting equation, Liabilities is expanded to show that it includes expenses
  5. In the expanded accounting equation, Stockholders’ equity is expanded to show that it consists of retained earnings which includes revenues and expenses

Use the balance sheet and list of activities for Linny Lawn Care provided to answer the following:

June 2012 Activities:

  1. Purchased and used gas for mowers and edgers, paying $90 in cash at a local gas station
  2. In early June, received $1600 cash from the city in advance for lawn maintenance service for June through September ($400 each month). The entire amount is to be recorded as Unearned Revenue
  3. In early June, purchased $300 of insurance covering six months, June through November. The entire payment is to be recorded in June.
  4. Mowed lawns for residential customers who are billed every two weeks. A total of $5200 of service was billed and is to be recorded in June.
  5. Residential customers paid $3500 on their accounts.
  6. Paid wages every two weeks. Total cash paid in June was $3900.
  7. Received a bill for $320 from the local gas station for additional gas purchased on account and used in June.
  8. Paid $100 on accounts payable.
  1. Analyze the activities with the goal of indicating their effects on the basic accounting equation, using the format shown in the chapter.
  2. Prepare journal entries to record the transactions identified among the activities
  3. Summarize the effects of each transaction in the appropriate T-accounts and compute ending balance. The accounts you should use include cash, accounts receivables, note receivable, prepaid insurance, equipment, land, accounts payable, unearned revenue, note payable, contributed capital, retained earnings, service revenue, wages expense, and fuel expense. (All begin with an account balance of $0)
  4. Use the amounts in the T-accounts to prepare an unadjusted trial balance at June 30, 2012.