Survey of Accounting 5th Edition By Edmonds – Test Bank

Survey of Accounting 5th Edition By Edmonds – Test Bank

Survey of Accounting, 5e (Edmonds)

Chapter 2  Accounting for Accruals and Deferrals

1) Bledsoe Company received $17,000 cash from the issue of stock on January 1, Year 1. During Year 1, Bledsoe earned $8,500 of revenue on account. The company collected $6,000 cash from accounts receivable and paid $5,400 cash for operating expenses. Based on this information alone, during Year 1,

A) Total assets increased by $20,100.

B) Total assets increased by $600.

C) Total assets increased by $26,100.

D) Total assets did not change.

Answer:  A

Explanation:  $17,000 (cash) + $8,500 (accounts receivable) + $6,000 (cash) − $6,000 (accounts receivable) − $5,400 (cash) = $20,100 increase

Difficulty: 3 Hard

Topic:  Accounting for Receivables

Learning Objective:  02-01 Show how receivables affect financial statements.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

2) Addison Company experienced an accounting event that affected its financial statements as indicated below:

Which of the following accounting events could have caused these effects on Addison’s statements?

A) Issued common stock.

B) Earned revenue on account.

C) Earned cash revenue.

D) Collected cash from accounts receivable.

Answer:  B

Explanation:  Earning revenue on account increases assets (accounts receivable) and increases revenue, which increases net income and equity (retained earnings). It does not affect cash flows.

Difficulty: 2 Medium

Topic:  Accounting for Receivables

Learning Objective:  02-01 Show how receivables affect financial statements.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

3) Which of the following choices accurately reflects how the recording of accrued salary expense affects the financial statements of a business?

A) Option A

B) Option B

C) Option C

D) Option D

Answer:  C

Explanation:  Accruing salary expense increases liabilities (salaries payable) and increases expenses, which decreases net income and equity (retained earnings). It does not affect cash flows.

Difficulty: 2 Medium

Topic:  Accounting for Payables (Adjusting the Accounts)

Learning Objective:  02-02 Show how payables affect financial statements.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

4) Which of the following transactions does not involve an accrual?

A) Recording interest earned that will be received in the next period.

B) Recording operating expenses incurred but not yet paid.

C) Recording salary expense incurred but not yet paid.

D) Recording the pre-payment of two years’ worth of insurance.

Answer:  D

Explanation:  Recording the pre-payment of two years’ worth of insurance involves a deferral, not an accrual. A deferral occurs when cash changes hands before revenue or expense is recognized. All other choices are accruals: interest receivable, accounts payable, and salaries payable.

Difficulty: 3 Hard

Topic:  Accounting for Prepaid Items

Learning Objective:  02-06 Show how accounting for prepaid items affects financial statements.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement