Question

1. What's required when creating an adjusting entry when amounts were previously recorded as deferred revenues?
    

   A. A debit to a liability
   B. A credit to an asset
   C. A credit to a liability
   D. A debit to an asset

2. Andy's Dry Cleaners maintains its records on the cash basis. During 2015, Andy'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. Andy's accrual basis net income would be
    

   A. $42,000
   B. $38,000
   C. $49,000
   D. $54,000

3. Sunset Rentals received $12,000 for 24 months' rent in advance. How should Sunset record this transaction?
    

   A.

Interest expense 12,000
    Interest payable 12,000

   B.

Prepaid rent 12,000
    Rent expense 12,000

   C.

Salaries expense 12,000
    Salaries payable 12,000

   D.

Cash 12,000
    Deferred revenue 12,000

4. Amy's Computers is preparing an annual report for the current fiscal year. The company's controller has asked for your help in determining how best to disclose information about the inventory costing method. Where should this information be disclosed?
    

   A. In a separate disclosure note
   B. In the summary of significant accounting policies note
   C. On the face of the balance sheet
   D. It doesn't need to be disclosed

5. What can be said about the results of efforts to converge US and international accounting standards between 2002 and 2012?

A. The SEC staff concluded that there aren't any important differences between US and international accounting standards.    B. No material efforts were made to converge the two standards.    C. The SEC staff concluded that it's feasible for the United States to adopt IFRS.    D. The SEC staff concluded that it's not feasible for the United States to adopt IFRS 6. On November 1, 2015, Toys-R-Us borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What should be the balance of interest payable for the loan as of December 31, 2015?         A. $225,000    B. $1,350,000    C. $450,000    D. $112,500

Answer 1

Solution:

1) The correct answer is (a) i.e. A debit to a liability.

Explanation: When the deferred revenues are recorded is creates liability of the company. Because the revenue will recognize when it will actually due. So at the time of reverse the deferred revenue the liability balance should be reduced by debiting the liability.

2) The correct answer is (c) i.e. 49000

Explanation:

Cash income = 72000

Less: Expenses = 21000

Less: Depreciation = 5000

Add: Accounts Receivable = 4000

Less: Prepaid Expenses = 2000

Add: Outstanding Liability = 1000

Net Income on Accrual Basis = 49000

3) The correct answer is (d) i.e.

Cash a/c Dr. 12000

Deferred Revenue Cr. 12000

Explanation: The income received in advance will be recorded as liability and it should be recorded as deferred revenue. The received of cash increased the cash balance so the cash account is debited and deferred revenue account is credited.

4) The correct answer is (b) i.e. In the summary of significant accounting policies note

Explanation:

The significant accounting policies delas with the treatment and disclosure of each item of the financial statement. So the inventory costing method should be disclosed in significant accounting policies.