Master the Accrual Method
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Questions and Answers

Based on the information provided, how many lemons are needed to make the batch of lemonade?

  • 20 lemons
  • 80 lemons
  • 50 lemons (correct)
  • 60 lemons

    • What is the cost of one lemon?

  • 50 cents
  • 40 cents
  • 20 cents (correct)
  • 60 cents

    • How much did the older sister charge to make 60 glasses of lemonade?

  • $4
  • $3
  • $1 (correct)
  • $2

    • According to the text, what is the formula for calculating the Cost of Goods Sold (COGS)?

    <p>Beginning Inventory + Purchases + Labor - Ending Inventory</p> Signup and view all the answers

    Based on the information provided, what was the total amount of purchases made?

    <p>$24.00</p> Signup and view all the answers

    From the given information, what was the net profit after taxes?

    <p>$15.00</p> Signup and view all the answers

    Which method of accounting is used to fill out the Income Statement?

    <p>Accrual Method</p> Signup and view all the answers

    What was the cost of production for one batch of lemonade?

    <p>$13.00</p> Signup and view all the answers

    What was the total amount of sales for the week?

    <p>$30.00</p> Signup and view all the answers

    What was the bad debt expense for the week?

    <p>$4.00</p> Signup and view all the answers

    Which financial statement would you record the Bad Debt expense on?

    <p>Income Statement</p> Signup and view all the answers

    What is the Bad Debt expense?

    <p>$4.00</p> Signup and view all the answers

    What is the impact of the Bad Debt expense on earnings?

    <p>Reduces earnings</p> Signup and view all the answers

    What is the total profit or earnings for the lemonade sale?

    <p>$17.00</p> Signup and view all the answers

    What is the purpose of the $2 payment to the banker?

    <p>To cover the interest expense</p> Signup and view all the answers

    What does the interest expense represent on the Income Statement?

    <p>The cost of borrowing the money</p> Signup and view all the answers

    What does the $3 payment for the insurance policy represent?

    <p>The cost of the policy</p> Signup and view all the answers

    Where does the insurance policy show up in the financial statements?

    <p>On the Balance Sheet</p> Signup and view all the answers

    Which accounting method recognizes sales when they are earned, regardless of when the cash is received?

    <p>Accrual method</p> Signup and view all the answers

    What happens to the value of a prepaid expense as it is used up?

    <p>It decreases</p> Signup and view all the answers

    What is the impact of an expense on earnings?

    <p>It decreases earnings</p> Signup and view all the answers

    What is the purpose of the Accrual Method of accounting?

    <p>To measure a company's financial position</p> Signup and view all the answers

    Which type of inventory is lemonade considered?

    <p>Finished goods</p> Signup and view all the answers

    What kind of inventory was lemonade while it was being made?

    <p>Work-in-process</p> Signup and view all the answers

    Are the raw materials considered available for sale?

    <p>Yes</p> Signup and view all the answers

    What was the total amount of sales for the lemonade?

    <p>$30</p> Signup and view all the answers

    Which type of inventory is lemonade considered?

    <p>Finished goods</p> Signup and view all the answers

    What kind of inventory was lemonade while it was being made?

    <p>Work-in-process</p> Signup and view all the answers

    Are raw materials considered available for sale?

    <p>Yes</p> Signup and view all the answers

    What happens to the cost of production labor when it is added to inventory?

    <p>It is tied up in inventory until sold</p> Signup and view all the answers

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