The following information pertains to Sooner Company:

May 1 Customer ordered an installation service to be done by Sooner Company on May 15.

May 2 Customer paid cash for the installation job to be done on May 15.

May 8 The Sooner Company purchased installation supplies on account for the job.

May 15 The installation job was started and completed.

May 20 Amount owed for supplies purchased on May 8 is paid.

Assuming that Sooner Company uses cash-basis accounting, when would the company record the expense related to the supplies?

A) May 2.

B) May 8.

C) May 15.

D) May 20.

Answer: D

When the balance of the Deferred Revenue account decreases during an accounting period:

A) Accrual-basis revenues exceed cash collections from customers.

B) Accrual-basis expenses exceed cash collections from customers.

C) Accrual-basis revenues are less than cash collections from customers.

D) Accrual-basis net income is less than cash-basis net income.

Answer: A

Which transaction would not be recorded under cash-basis accounting?

A) Providing services to customers for cash.

B) Paying one year of rent in advance.

C) Paying salaries to employees.

D) Purchasing supplies on account.

Answer: D

When the amount of interest receivable decreases during an accounting period:

A) Accrual-basis revenues exceed cash collections from borrowers.

B) Accrual-basis net income exceeds cash-basis net income.

C) Accrual-basis revenues are less than cash collections from borrowers.

D) Accrual-basis expenses are less than cash payments to borrowers.

Answer: C

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 primary difference between accrual-basis and cash-basis accounting is:

A) The timing of when revenues and expenses are recorded.

B) Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting.

C) Accrual-basis accounting violates both the concepts of revenue recognition and expense recognition.

D) Adjusting entries are only a necessary part of cash-basis accounting.

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

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

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