Chapter 2 Review of the Accounting Process CPA Questions - Edubirdie

University:
Concordia University Wisconsin
Course:
ACCT 3100 | Intermediate Accounting I
Academic year:

2021
Views:

283

Pages:

1
Author:

Carissa Thomas

CPA REVIEW QUESTIONS 1. d. The event is recorded as an increase to accounts receivable and an increase in revenue. An increase to accounts receivable represents an increase in assets and the increase in revenue will increase net income which will in turn increase retained earnings. 2. b. The amount accrued as commissions for each salesperson will be any commissions due over and above the fixed salary as follows: A B C Fixed salary $10,000 $14,000 $18,000 Commissions $8,000 $24,000 $36,000 Excess $ —0— $10,000 $18,000 The amount accrued is $28,000. 3. b. A net decrease in accounts receivable means that cash collections exceeded accrual revenue. Therefore, cash basis income would be higher when compared to accrual basis. A net decrease in accrued liabilities indicates that cash payments for expenses are greater than accrual expenses. Therefore, cash basis income would be lower than accrual basis income. 4. a. Cash basis income: Cash collected in May $3,200,000 Accrual basis income: Revenue recognized in April Less: Expenses recognized in April Income 5. d. Expense recognized Add: Increase in prepaid insurance Cash paid for insurance 2–42 $3,200,000 (1,500,000) $1,700,000 $437,500 17,500 $455,000

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