A.3. Accruals And Deferrals

5 Questions | By Abayam8825 | Updated: Mar 21, 2022 | Attempts: 521

A. 3. Accruals and Deferrals

Questions and Answers

1.

Under a royalty agreement with another company, Wand Co. will pay royalties for the assignment of a patent for three years. The royalties paid should be reported as expense
- A.
  
  In the period paid.
- B.
  
  In the period incurred.
- C.
  
  At the date the royalty agreement began.
- D.
  
  At the date the royalty agreement expired.
2.

Clark Co.’s advertising expense account had a balance of $146,000 at December 31, 2010, before any necessary year-end adjustment relating to the following: Included in the $146,000 is the $15,000 cost of printing catalogs for a sales promotional campaign in January 2011. Radio advertisements broadcast during December 2010 were billed to Clark on January 2, 2011. Clark paid the $9,000 invoice on January 11, 2011. What amount should Clark report as advertising expense in its income statement for the year ended December 31, 2010?
- A.
  
  $122,000
- B.
  
  $131,000
- C.
  
  $140,000
- D.
  
  $155,000
3.

An analysis of Thrift Corp.’s unadjusted prepaid expense account at December 31, 2010, revealed the following: An opening balance of $1,500 for Thrift’s comprehensive insurance policy. Thrift had paid an annual premium of $3,000 on July 1, 2009. A $3,200 annual insurance premium payment made July 1, 2010. A $2,000 advance rental payment for a warehouse Thrift leased for one year beginning January 1, 2011. In its December 31, 2010 balance sheet, what amount should Thrift report as prepaid expenses?
- A.
  
  $5,200
- B.
  
  $3,600
- C.
  
  $2,000
- D.
  
  $1,600
4.

Roro, Inc. paid $7,200 to renew its only insurance policy for three years on March 1, 2010, the effective date of the policy. At March 31, 2010, Roro’s unadjusted trial balance showed a balance of $300 for prepaid insurance and $7,200 for insurance expense. What amounts should be reported for prepaid insurance and insurance expense in Roro’s financial statements for the three months ended March 31, 2010? (Prepaid insurance; Insurance expense )
- A.
  
  $7,000 $300
- B.
  
  $7,000 $500
- C.
  
  $7,200 $300
- D.
  
  $7,300 $200
5.

Aneen’s Video Mart sells one- and two-year mail order subscriptions for its video-of-the-month business. Subscriptions are collected in advance and credited to sales. An analysis of the recorded sales activity revealed the following: Subscriptions expirations: In Aneen’s December 31, 2010 balance sheet, the balance for unearned subscription revenue should be
- A.
  
  $495,000
- B.
  
  $470,000
- C.
  
  $465,000
- D.
  
  $340,000