Accounting Chapter 4 SmartBook

Match the balance sheet account with the most likely income statement account that will be affected when this account is adjusted at the end of the accounting period Accumulated Depreciation

Depreciation Expense

Burrows, Inc. borrowed $1,000 on a 12%, 1-year note payable. The amount of interest incurred in one month equals ______

$10

For the current year ended, Textable, Inc.'s multi-step income statement reports gross profit of $80,000, operating income of $60,000 and a pretax income of $10,000. Textable's income tax rate is 34%. Income Tax Expense for the year equals ___________

$3400

Burrows, Inc. borrowed $10,000 on a 6-month note payable at 6% annually. The amount of interest incurred in one month equals

$50

For a note receivable that was created on November 1, 2018 and is due for repayment on October 31, 2019, what is the time fraction needed to compute interest revenue for the year ended December 31, 2018

2/12

True or false: Since Retained Earnings is involved in the closing process, it is considered a temporary account.

False: Although Retained Earnings is involved in the closing process, it is a permanent, not a temporary, account.

True or false: The term "defer" means "in advance"

False: Defer means to "postpone until later"

True or false: To calculate a company's income tax obligation, the income after tax is multiplied by the company's tax rate

False: The income before (not after) tax is multiplied by the company's tax rate

Which financial statement reports the amount of prepaid expenses used during the accounting period?

Income statement

Which financial statement reports the amount of supplies used during the accounting period?

Income statement

Which balance sheet account would most likely require an adjusting entry to avoid understating liabilities?

Notes Payable

Match the account with the proper description Accumulated Depreciation

On the balance sheet and reports the amount of asset cost used since the asset began to help generate revenue

Match the account with the proper description Depreciation Expense

On the income statement and reports the amount of asset cost used during the current accounting period

Identify the impact on the accounting equation of a prepayment of an expense paid in cash

Prepaid expenses, an asset account, increases Cash decreases

Match the balance sheet account with the most likely income statement account that will be affected when this account is adjusted at the end of the accounting period Prepaid Expenses

Rent Expense

Match the balance sheet account with the most likely income statement account that will be affected when this account is adjusted at the end of the accounting period Unearned Revenue

Revenue

Select all accounts on an unadjusted trial balance that may require an adjusting entry

Supplies Unearned revenue Prepaid expenses

Match the balance sheet account with the most likely income statement account that will be affected when this account is adjusted at the end of the accounting period Supplies

Supplies Expense

Which of the following statements most accurately describes the purposes of the closing entries?

To establish zero balances in the income statement accounts and to transfer net income into retained earnings

What are the effects on the accounting equation from the adjustment for revenue earned during the accounting period that had previously been recorded as a liability

Total liabilities will decrease and total stockholders' equity will increase

What are the effects on the accounting equation from the adjusting entry for interest expense accrued, but not paid, at the end of the accounting period?

Total liabilities will increase and total stockholders' equity will decrease

What are the effects on the accounting equation from the adjustment for wages incurred, but not yet paid, during the accounting period?

Total liabilities will increase and total stockholders' equity will decrease

Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following items on the statement of stockholders' equity to be overstated? (Check all that apply.)

Total stockholders' equity Ending retained earnings Net income

Match the balance sheet account with the most likely income statement account that will be affected when this account is adjusted at the end of the accounting period Accrued Expenses Payable

Utilities Expense

If a company debits Interest Receivable and credits Interest Revenue, it must be recording _________

amounts earned from its investments but not yet collected

The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the ________________ process

closing

After the adjustments have been completed, the balance in the Rent Expense account represents the ___________

cost of rent for the accounting period

Balance sheet accounts, such as Supplies or Prepaid rent, ____________ as a result of deferral adjustments

decrease

The adjusting entry to record the supplies used during the period will result in a

decrease to Supplies and an increase to Supplies Expense

After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the __________

depreciation for the current fiscal year

Initially, a prepayment for items such as rent or insurance are recorded as assets and later are recorded as an ______________ in the period the benefit expires

expense

Income Tax Expense is a(n) ____________

expense on the income statement and reports the income tax incurred for the period, paid and/or unpaid

The adjustment for supplies used during the period will result in an __________ to the Supplies Expense account

increase

Miss Take, the accountant, forgot to record the interest owed at the end of the accounting period. As a result of this error, __________

liabilities will be understated stockholders' equity will be overstated

Permanent accounts are found on _________

only the balance sheet

Adjustments ensure that liabilities are reported as all amounts _________ at the end of the accounting period

owed

In accrual accounting, to defer means to ______________ recording the other side of the cash transaction as a revenue or expense. Instead, the other side of the cash entry is recorded as a liability or prepaid

postpone

Adjustments made to expense accounts at the end of the accounting period adhere to the expense ____________ principle

recognition

Miss Hap, the company's accountant, forgot to make the adjusting entry to record the amount of prepaid expenses used during the period. As a result __________

stockholders' equity will be overstated assets will be overstated

In a deferral adjustment for revenues collected in advance that are now earned, __________

the liability recorded when cash was received is decreased by the adjustment for the revenue being earned

The 3 variables needed to calculate interest are the ___________

time period covered in the interest calculation principal annual interest rate

Adjusting entries are typically recorded _________

to ensure revenues and expenses are recorded in the period in which they occur, even though the cash will be collected or paid in a future period at the end of the accounting period

After the adjustments have been completed, the adjusted balance in the Accumulated Depreciation account represents the ____________

total depreciation taken on the long-lived assets since their purchase

After the adjustments have been completed, the adjusted balance in the Income Tax Expense account represents ___________

total income tax that has been paid or accrued during the period

After the adjustments have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies ______

used during the accounting period

______________ adjustments involve adjusting entries where the revenue has been earned or the expense has been incurred, and the cash will be collected or paid in the future

Accrual

Which of the following adjusting entries will increase Net Income and hence may tempt management to misstate the estimated amount?

Adjusting deferred revenues Adjusting accrued expenses

Which of the following adjusting entries will decrease assets and stockholders' equity?

Adjusting for amounts used that were paid in advance Adjusting for depreciation on equipment

Match the balance sheet account with the most likely income statement account that will be affected when this account is adjusted at the end of the accounting period Cash

Adjustment will not affect this account

Which of the following line items appear on a statement of stockholders' equity? (Check all that apply.)

Common stock Dividends declared Net income Retained earnings from the prior period