Week 4 Quiz

The bicycle shop (illustrative) prepares statements for its outside users under U.S. GAAP. On which basis must those statements be prepared?

Select one.

• The cash basis
• The accrual basis
• Whichever basis the two founders prefer
• The cash basis for revenues, the accrual basis for expenses

True or false: on Day 6, when a cycling club paid the bicycle shop (illustrative) $1,200 in advance for a season of group tune-ups it had not yet performed, the shop earned $1,200 of revenue under the accrual basis.

True or false.

• True
• False

The FASB's Accounting Standards Update No. 2014-09 (May 2014) sets out five steps for revenue recognition. In the standard's own words, which is the fifth step?

Select one.

• Recognize revenue when the customer's cash is received in full
• Recognize revenue when the contract with the customer is signed by both parties
• Recognize revenue when (or as) the entity satisfies a performance obligation
• Recognize revenue when the business sends the customer its final invoice

The bicycle shop (illustrative) bought $900 of supplies during Month 1. A count on Day 31 finds $350 of supplies on hand. Which month-end adjusting entry does the shop record?

Select one.

• Debit Supplies Expense 550; credit Supplies 550
• Debit Supplies Expense 350; credit Supplies 350
• Debit Supplies 550; credit Supplies Expense 550
• Debit Supplies Expense 550; credit Cash 550 for the supplies used

The bicycle shop's $12,000 of equipment (illustrative) is expected to last 5 years, or 60 months, with no residual value. What is one month's depreciation, and which account is credited?

Select one.

• $2,400, credited to Accumulated Depreciation
• $200, credited to Cash
• $200, credited to Depreciation Payable, a liability
• $200, credited to Accumulated Depreciation

By the end of Month 1, the bicycle shop (illustrative) has performed one quarter of the group tune-ups the cycling club paid $1,200 for in advance. Which adjusting entry records this?

Select one.

• Debit Cash 300; credit Service Revenue 300 for the work done
• Debit Unearned Revenue 300; credit Service Revenue 300
• Debit Service Revenue 300; credit Unearned Revenue 300
• Debit Unearned Revenue 900; credit Service Revenue 900

Accruals are the adjustments where cash moves later. Select every one of the bicycle shop's month-end adjustments (illustrative) that is an accrual.

Select every option that applies.

• Adjustment (a): $550 of supplies used
• Adjustment (e): $400 of wages the mechanic earned but has not been paid
• Adjustment (f): $250 of repairs finished for the delivery company but not yet billed
• Adjustment (d): $300 of the club's prepaid tune-ups performed
• Adjustment (b): $200 of the prepaid insurance policy expired

After adjustment (c), the bicycle shop's books (illustrative) show Accumulated Depreciation of $200. How is that account classified?

Select one.

• As a contra asset with a credit balance that reduces Equipment
• As a liability the shop owes to the seller of the equipment
• As an expense reported on the income statement each month
• As the fall in the equipment's market value since it was bought

The bicycle shop's unadjusted trial balance (illustrative) shows $36,800 on each side. Adjustments (c) $200, (e) $400, and (f) $250 each open a new amount on both sides; adjustments (a), (b), and (d) move amounts within one side. What total does the adjusted trial balance show on each side?

Select one.

• $36,800
• $38,700
• $37,650
• $37,450

True or false: if the bicycle shop (illustrative) had left adjustment (e), the $400 of accrued wages, out entirely, its adjusted trial balance would no longer balance.

True or false.

• True
• False