ACC 200 EXAM 2 REVIEW QUESTIONS WITH
VERIFIED SOLUTIONS
Bookmyer Company experienced a business event that affected its financial statements as
indicated below:
Assets (-) & Equity (-); Expenses (+) & Net Income (-); NO effect on Cash Flows
Recognized supplies expense
T/F:
A cost may be recorded as an expense or as an asset purchase.
True
When a company purchases supplies on account
liabilities increase
Howard Company purchased $300 of supplies on account. Which of the following shows
how this purchase will affect Howard's accounting equation?
Assets (supplies) increase by $300 & Liabilities (accounts payables) increases by $300; When
supplies are purchased on account assets (supplies) and liabilities (accounts payable) increase.
how will paying cash to purchase supplies will affect a company's financial statements?
asset exchange transaction. One asset (cash) decreases and another asset (supplies) increases.
Total assets is not affected. The income statement is not affected at the time supplies are
purchased. Instead, the income statement will be affected at the time the amount of supplies used
is determined at the end of the accounting period. Since cash was paid to purchase the supplies,
there will be a cash outflow from operating activities shown on the statement of cash flows.
Knoll Company started Year 2 with a $500 balance in its Cash account, a $500 balance in
its Supplies account and a $1,000 balance in its common stock account. During Year 2 the
company experienced the following events.
(1) Paid $400 cash to purchase supplies
(2) Physical count revealed $100 of supplies on hand at the end of Year 2
Based on this information the amount of supplies expense reported on the Year 2 income
statement is
800
Delta Company started Year 2 with a $1,700 balance in its Cash account, a $700 balance in
its Supplies account and a $2,400 balance in its Common Stock account. During Year 2 the
company experienced the following events.
(1) Paid $1,600 cash to purchase supplies.
(2) Physical count revealed $400 of supplies on hand at the end of Year 2.
, Based on this information, which of the following show how the year end adjusting entry
required to recognize supplies expense would affect Delta's account balances?
The expense recognition would cause assets (supplies) to decrease by $1,900 and equity
(retained earnings) to decrease by $1,900.
Which of the following shows how adjusting the accounts to recognize supplies expense will
affect a company's financial statements?
Recognizing supplies expense at the end of the accounting period is an asset use transaction. The
asset account (cash) decreases, supplies expense increases, net income decreases, and
stockholders' equity (retained earnings) decreases. There is no effect on cash flow. The effect on
cash flow occurs at the time the company pays for the supplies not when the supplies are
expensed.
When a company purchases prepaid rent, it
defers recognition of rent expense.
T/F: Prepaid insurance is shown on the income statement.
False
Baltimore Company paid $3,600 cash for the right to use office space during the coming
year. Which of the following shows how this event would affect Baltimore's ledger
accounts?
Paying cash to purchase the right to use office space in the future is an asset exchange event. One
asset account (cash) decreases and another asset account (prepaid rent increases). The
recognition of rent expense is deferred until a future date when the office space is used in the
process of generating revenue.
Which of the following shows how paying cash for an insurance policy that protects the
company for some future time period affects a company's financial statements?
Paying cash for insurance that will be used in the future is an asset exchange transaction. One
asset account (cash) decreases and another asset account (prepaid insurance) increases. The
amount of total assets is not affected (NA). The income statement is not affected. The cash
outflow is shown in the operating activities section of the statement of cash flows.
On October 1 of Year 1, Wilburn Company paid cash for an insurance policy that would
provide protection for a one year term. Which of the following shows how the required
adjusting entry on December 31, Year 1, will affect Wilburn's financial statements?
The adjusting entry is an asset use transaction. The asset account (prepaid insurance) decreases
reflecting the use of insurance coverage. The expense recognition decreases the amount of net
income and ultimately stockholders' equity (retained earnings). The cash flow occurred at the
time the insurance was purchased. There is no cashflow effect at the time the expense is
recognized on December 31.
VERIFIED SOLUTIONS
Bookmyer Company experienced a business event that affected its financial statements as
indicated below:
Assets (-) & Equity (-); Expenses (+) & Net Income (-); NO effect on Cash Flows
Recognized supplies expense
T/F:
A cost may be recorded as an expense or as an asset purchase.
True
When a company purchases supplies on account
liabilities increase
Howard Company purchased $300 of supplies on account. Which of the following shows
how this purchase will affect Howard's accounting equation?
Assets (supplies) increase by $300 & Liabilities (accounts payables) increases by $300; When
supplies are purchased on account assets (supplies) and liabilities (accounts payable) increase.
how will paying cash to purchase supplies will affect a company's financial statements?
asset exchange transaction. One asset (cash) decreases and another asset (supplies) increases.
Total assets is not affected. The income statement is not affected at the time supplies are
purchased. Instead, the income statement will be affected at the time the amount of supplies used
is determined at the end of the accounting period. Since cash was paid to purchase the supplies,
there will be a cash outflow from operating activities shown on the statement of cash flows.
Knoll Company started Year 2 with a $500 balance in its Cash account, a $500 balance in
its Supplies account and a $1,000 balance in its common stock account. During Year 2 the
company experienced the following events.
(1) Paid $400 cash to purchase supplies
(2) Physical count revealed $100 of supplies on hand at the end of Year 2
Based on this information the amount of supplies expense reported on the Year 2 income
statement is
800
Delta Company started Year 2 with a $1,700 balance in its Cash account, a $700 balance in
its Supplies account and a $2,400 balance in its Common Stock account. During Year 2 the
company experienced the following events.
(1) Paid $1,600 cash to purchase supplies.
(2) Physical count revealed $400 of supplies on hand at the end of Year 2.
, Based on this information, which of the following show how the year end adjusting entry
required to recognize supplies expense would affect Delta's account balances?
The expense recognition would cause assets (supplies) to decrease by $1,900 and equity
(retained earnings) to decrease by $1,900.
Which of the following shows how adjusting the accounts to recognize supplies expense will
affect a company's financial statements?
Recognizing supplies expense at the end of the accounting period is an asset use transaction. The
asset account (cash) decreases, supplies expense increases, net income decreases, and
stockholders' equity (retained earnings) decreases. There is no effect on cash flow. The effect on
cash flow occurs at the time the company pays for the supplies not when the supplies are
expensed.
When a company purchases prepaid rent, it
defers recognition of rent expense.
T/F: Prepaid insurance is shown on the income statement.
False
Baltimore Company paid $3,600 cash for the right to use office space during the coming
year. Which of the following shows how this event would affect Baltimore's ledger
accounts?
Paying cash to purchase the right to use office space in the future is an asset exchange event. One
asset account (cash) decreases and another asset account (prepaid rent increases). The
recognition of rent expense is deferred until a future date when the office space is used in the
process of generating revenue.
Which of the following shows how paying cash for an insurance policy that protects the
company for some future time period affects a company's financial statements?
Paying cash for insurance that will be used in the future is an asset exchange transaction. One
asset account (cash) decreases and another asset account (prepaid insurance) increases. The
amount of total assets is not affected (NA). The income statement is not affected. The cash
outflow is shown in the operating activities section of the statement of cash flows.
On October 1 of Year 1, Wilburn Company paid cash for an insurance policy that would
provide protection for a one year term. Which of the following shows how the required
adjusting entry on December 31, Year 1, will affect Wilburn's financial statements?
The adjusting entry is an asset use transaction. The asset account (prepaid insurance) decreases
reflecting the use of insurance coverage. The expense recognition decreases the amount of net
income and ultimately stockholders' equity (retained earnings). The cash flow occurred at the
time the insurance was purchased. There is no cashflow effect at the time the expense is
recognized on December 31.
