Question

35. A small company may be able to justify using a cash basis of accounting if they have: A) Sales under $1,000,000. B) no accountants on staff. C) few receivables and payables. D) all sales and purchases on account. 36. East University sold season tickets for the 2016 football season for $160,000. A total of 8 games will be played during September, October and November. Assuming all the games are played, the Unearned Revenue balance that will be reported on the December 31" balance sheet will be: A) $0. B) $60,000. C) $100,000 D) $160,000. 37. Cathy Cline, an employee of Welker Company, will not receive her paycheck until April 2nd. Based on services performed form March 15th to March 30th, her salary was $900. The adjusting entry for Welker Company on March 31" is: A) Salaries Expense 900 Salaries Payable 900 900 B) No entry is required C) Salaries Expense Cash 900 900 D) Salaries Payable Cash 900

Answer 1

35.

A small company may be able to justify using a cash basis of accounting if they have few receivables and payables.

Correct option is (C)

When number of business transaction is lee, cash basis of accounting is justified. But with the increase in the number of transaction (i.e. receivables and payable) cash basis becomes ineffective.

36.

Revenue of $160,000 was received for games to be played in September, October and November. Since all the games have been played before December, hence all of $160,000 revenue has been earned. Hence, unearned revenue on December 31 is Zero.

Correct option is (A)

37.

Salary expense of $900 has become accrued on March 31, will include a debit to salary expense by $900 (Since increase in expense is debited) and a credit to salaries payable by $900 (Since increase in liabilities is credited).

Correct option is (A)

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