d ereators with and reported only incurred whether or not cash is paid b. when t
ID: 2600704 • Letter: D
Question
d ereators with and reported only incurred whether or not cash is paid b. when they are inourred and paid at the same d. if they are paid ater they are incurred 14. La More Company had the following transactions during 2013 Sales of $4,500 on account Paid $1,875 cash in salaries for 2013 -Collected $2,000 for services to be performed in 2014 Purchased airline tickets for $250 in December for a trip to take place in 2014 What is La More's 2013 net income using accrual accounting? a $2,875 b. $4,875 c $4,625 d. $2,625 15. Walton Company collected $9,600 in May of 2013 for 4 months of service which would take place from October of 2013 through January of 2014. The revenue reported from this transaction during 2013 would be: b. $7,200 c $9,600 d. $2,400. 16. Masterfalls Corporation purchased a one-year insurance policy in January 2013 for $30,000. The insurance policy is in effect from March 2013 through February 2014. If the company neglects to make the proper year-end adjustment for the expired insurance: a. net income and assets will be understated by $25,000 b. net income and assets will be overstated by $25,000. c. net income and assets will be understated by $5,000. d net income and assets will be overstated by $5,000. . At March 1, 2014, Candy Inc. had supplies on hand of $1,500. During the month, Candy purchased supplies of $2,900 and used supplies of $2,800. The March 31 balance sheet should report what balance in the supplies account? a. $1,500 b. $1,600 c. $2,800 d. $2,900Explanation / Answer
Solution -12:
As per principal of accounting, the expense recognition principle matches expenses with revenue.
Solution - 13:
Using accrual accounting, expenses are recorded and reported only when they are incurred whether or not cash is paid.
Solution - 14:
Net Sales = $4,500
Collection of $2,000 for services is unearned income and same is related to year 2014.
Salary for 2013 = $1,875
Purchase of airline ticket in 2013 for 2014 trip is a prepaid expense to reconginzed in 2014.
Therefore net income as per accrual accounting = $4,500 - $1,875 = $2,625
Solution - 15:
Amount collected for services from Oct'13 to Jan;'14 = $9,600
Revenue for one month = $9600/4 = $2,400
Revenue for Oct'13 to Dec'13 for 3 months will be reconginzed in 2013 = $2,400 * 3 = $7,200
Solution - 16:
Journal entry to be made at the time of purchase of insurance policy:
Prepaid insurance A/c Dr $30,000
To Cash A/c Cr $30,000
Expense to be recongized in 2013 from march to december = $30000*10/12 = $25,000
If company neglects to make year end adjustment and book insurance expense for $25,000 then it will reduce company expenditure and increase its net income. Therefore as a result, Net income and assets will be overstated by $25,000.
Solution 17:
Opening Supplies = $1,500
Purchase = $2,900
Consumption = $2,800
Closing supplies value = $1,500 + $2,900 - $2,800 = $1,600
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