A company has the following three events in December:

December 1 - Pay last month's rent (November), $500.

December 15 - Pay rent for the current month (December), $500.

December 31 - Pay rent for the following year, $6,000.

How much would be recorded as Rent Expense for the month of December using accrual-basis accounting?

A) $6,500.

B) $7,000.

C) $1,000.

D) $500.

Answer: D

The following events pertain to Bills Company:

December 28, 2021 Bills was contacted by a customer for possible accounting and tax services.

December 30, 2021 Bills signed a formal agreement with the customer to provide accounting and tax services in 2022.

January 4, 2022 The customer paid $1,000 in advance for the services to be provided by Bills Company.

January 11, 2022 Bills provided accounting and tax services to the customer.

Using accrual-basis accounting, on which date should Bills Company record revenue for the accounting and tax services?

A) December 30, 2021.

B) December 31, 2021.

C) January 4, 2022.

D) January 11, 2022.

Answer: D

Consider the following transactions:

The company uses supplies purchased in the previous period, $1,500.

The company pays cash for rent in advance, $6,000.

The company repays a loan to the bank, $10,000 (ignore any interest cost).

The amount of accrual-basis expense is ________ while the amount of cash-basis expense is ________.

A) $6,000; $11,500

B) $6,000; $16,000

C) $1,500; $16,000

D) $1,500; $6,000

Answer: D

The following events pertain to Bills Company:

December 28, 2021 Bills was contacted by a customer for possible accounting and tax services.

December 30, 2021 Bills signed a formal agreement with the customer to provide accounting and tax services in 2022.

January 4, 2022 The customer paid $1,000 in advance for the services to be provided by Bills Company.

January 11, 2022 Bills provided accounting and tax services to the customer.

Using cash-basis accounting, on which date should Bills Company record revenue for the accounting and tax services?

A) December 30, 2021.

B) December 31, 2021.

C) January 4, 2022.

D) January 11, 2022.

Answer: C

When a company provides services on account, which of the following would be recorded using cash-basis accounting?

A) Debit to Cash.

B) Debit to Service Revenue.

C) Credit to Deferred Revenue.

D) No entry would be recorded.

Answer: D

Pawn Shops Unlimited recorded the following four transactions during April. Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual-basis or cash-basis accounting?

A) Purchased $500 of office supplies on account (supplies were used in May and paid for in May).

B) Paid $1,800 for a six-month insurance policy covering the period July 1—December 31.

C) Paid $700 for an advertisement that appeared in the May 17 edition of the Las Vegas Sun newspaper.

D) Received $300 from customers for services performed in March.

Ch3 answer: A

Pawn Shops Unlimited recorded the following four transactions during April. Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual-basis or cash-basis accounting?

A) Received $600 from customers for services to be provided in May.

B) Paid $1,800 for a six-month insurance policy covering the period July 1—December 31.

C) Paid $700 for an advertisement that appeared in the April 17 edition of the Las Vegas Sun newspaper.

D) Received $300 from customers for services performed in March.

Ch3 answer: C