accounting chapter 3

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ______.

$22,000

Expense should be recorded to recognize the the cost of using long-lived assets, such as equipment, during the accounting period.

Depreciation

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months.

The adjusting entry for an accrued revenue always includes:

a debit to an asset account a credit to a revenue account

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as

accrual-basis accounting

Andy records an adjusting entry for deferred revenue. Andy should:

debit a liability account credit a revenue account

The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____.

depreciation expense; accumulated depreciation

The statement of stockholders' equity includes these amounts:

ending balance retained earnings dividends for the period net income

Under cash-basis accounting

expenses are recorded when cash is paid. revenues are recorded when cash is received.

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

Revenues and expenses are reported in the:

income statement

Deferred revenue is a(n) ______.

liability

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period.

owed

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as _____.

prepaid expenses; assets

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary

After the adjusting entries have been completed, the adjusted balance in the Supplies account represents:

the cost of supplies remaining at the end of the accounting period

is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.

Depreciation

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset

The adjusting entry for prepaid rent requires a(n) _____ to rent expenses and a(n) _____ to prepaid rent

debit; credit

An adjusting entry is necessary to record interest expense at year-end because the interest:

has already been incurred

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

With respect to current assets, _______ refers to how quickly an asset can be converted to cash.

liquidity

A company pays a 6-month insurance premium at the beginning of October. A company pays for 4 months of advertising in the Wall Street Journal on November 1.

prepayments that require adjustment at the end of the period

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

______ -basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.

accrual

Neumann Corporation purchases supplies that will be used during the following quarter. At the time of purchase, the supplies should be recorded as a(n)

asset

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

The adjusting entry for supplies used requires a ______ to Supplies and a ______ to Supplies Expense.

debit; credit

The adjusting entry to record the supplies used during the period will result in a(n) ______.

decrease to Supplies and an increase to Supplies Expense

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) ______ in the asset account and a(n) ______ in the expense account.

decrease; increase

Prepaid expenses should be ______ by the cost of the asset used during the accounting period.

decreased

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.

decreased; increased

Adjusting entries are made at the ___________ of the accounting period, while daily transactions are made throughout the accounting period.

end

djusting entries are made at the _____ of the accounting period, while daily transactions are made throughout the accounting period.

end

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) ______ in the period the benefit expires

expense

Which of these is a long-term liability?

mortgage payable due in 20 years

True or false: The adjusting entry to record depreciation does not directly reduce the long-lived asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.

true

Adjusting entries:

update the accounts to their proper balances. are needed before financial statement preparation.

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______.

amount of the prepayment that remains towards future rental periods

At the beginning of the accounting period, the balances of temporary accounts

are zero

________ is defined as the "cost of borrowing money."

interest

Which of the following transactions would normally be recorded as an asset when cash is paid?

rent paid in advance

On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?

$35,910 ($53,520/24 months*7 months remaining)+($34,800/24 months*14 months remaining) Note that the question is asking for the Prepaid rent on the balance sheet on December 31, 2020 and not the expense on the income statement.

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?

Taggert will credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Insurance Expense for $300 on Dec. 31. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.

Which of the following statements is correct regarding a long-lived asset such as equipment?

When adjusting entries are recorded, the original cost in the Equipment account will not change.

occur when the cash flow occurs after either the expense is incurred or the revenue is earned

accruals

After the adjusting entries have been completed, the balance in the Rent Expense account represents the:

cost of rent for the accounting period

Accumulated Depreciation has a normal _______ balance which indicates that it ______ total assets.

credit; decreases

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a:

debit to Deferred Revenue credit to Revenue

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes:

debit to Insurance Expense credit to Prepaid Insurance

An adjusting entry for accrued expenses involves:

debit to an expense credit to a liability

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense; asset

True or false: Accumulated Depreciation is a contra-account to a long-lived asset account, such as Equipment. This means that it is added to the balance of the long-lived asset in the balance sheet.

false

True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

false

The expense that relates to notes payable and accumulates or accrues throughout the accounting period is referred to as ______ expense.

interest

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

Which of the following financial statements typically is prepared last?

statement of cash flows

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

Which of the following expressions correctly calculates "total assets?"

Current assets plus long-term assets

Which of the following would be referred to as "accruals?"

Expenses incurred, not yet paid Goods and services provided, not yet collected

Supplies that are not used immediately are recorded as a(n) ______ when purchased.

asset

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?

december 31st

revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.

deferred

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

A classified balance sheet shows subtotals for current _______ and current ______

assets liabilities

After the adjusting entries have been completed, the ending balance in the Supplies account represents the cost of supplies ______.

remaining at the end of the accounting period

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

expense

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

The post-closing trial balance helps to verify that:

we prepared and posted closing entries correctly the accounts are ready for next period's transactions