ACC Test 2 CH. 4

At the end of the accounting period

Adjusting entries are typically prepared:

False

Adjusting entries often involve cash.

Expense Recognition Principle

Adjustments to expense accounts at the end of the accounting period are made to adhere to accrual accounting principles, specifically the ______ principle.

True

As a company uses supplies, an adjustment should be made to decrease an expense account and increase an asset account.

The company earned service revenue of $1,900 on a special job that was completed June 29. Collection will be made during July; no entry has been recorded.

Asset: Accounts Receivable SE: Service Revenue

Depreciation of $1,490 must be recognized on equipment purchased on July 1 of the previous year.

Asset: Accumulated Depreciation - Equipment SE: -Depreciated Expense

On March 31, Cactus paid a six-month premium for property insurance in the amount of $3,180 for coverage starting on that date. Cash was credited and Prepaid Insurance was debited for this amount.

Asset: Prepaid Entry SE: Insurance Expense

Adjusting entries affect

Both income statement and balance sheet accounts

False

Depreciation is a measure of the decline in market value of an asset.

False

If a company forgot to record depreciation on equipment for a period, Total Assets would be overstated and Total Stockholders' Equity would be overstated on the balance sheet.

Cash of $4,140 was collected on May 1 for services to be rendered evenly over the next year beginning on May 1. Deferred Revenue was credited when the cash was received. Two months of this performance obligation have now been fulfilled but not yet recorded.

Liability: Deferred Revenue SE: Service Revenue

On June 1, Cactus collected two months' revenue of $440. At that date, Cactus debited Cash and credited Deferred Revenue for $440. One-half of it has now been earned but not yet recorded.

Liability: Differed Revenue SE: Service Revenue

The income after all adjustments except income taxes was $31,000. The company's federal income tax rate is 25%

Liability: Income Tax payable SE: - Income Tax Expense

The company owes interest of $590 on a bank loan taken out on February 1. The interest will be paid when the loan is repaid next year on January 31.

Liability: Intrest Payable SE: - Intrest Expense

At June 30, wages of $890 were earned by employees but not yet paid. The employees will be paid on the next payroll date, which is July 15.

Liability: Salaries and Wages Payable SE: -Salaries and Wages Expense

True

The purpose of adjusting entries is to transfer net income and dividends to Retained Earnings

If an expense has been incurred but will be paid later, then

a liability account is created or increased and an expense is recorded