Accounting Quick Study - Chapter 3
Choose from the following list of terms and phrases to best complete the statements below.
1. (blank) presumes that an organization's activities can be divided into specific time periods. TIME PERIOD ASSUMPTION 2. Financial reports covering a one-year period are know as (blank.) ANNIAL FINANCIAL STATEMENTS 3. A(n) (blank) consists of any 12 consecutive months. FISCAL YEAR 4. (Blank) records revenues when services are provided, and records expenses when incurred. ACCRUAL BASIS ACCOUNTING 5. The value of information is often linked to its (blank.) TIMELINESS
During the year, a company recorded prepayments of expenses in asset accounts, and cash receipts of unearned revenues in liability accounts. At the end of its annual accounting period, the company must make three adjusting entries. (1) Accrue salaries expense. (2) Adjust the Unearned Services Revenue account to recognize earned revenue. (3) Record services revenue earned for which cash will be received the following period. For each of the adjusting entries (1), (2), and (3), indicate the account to be debited and the account to be credited—from a through i below. a. Prepaid Insurance b. Cash c. Salaries Payable d. Unearned Services Revenue e. Salaries Expense f. Services Revenue g. Accounts Receivable h. Accounts Payable i. Depreciation Expense
1. Debit - Salaries Expense Credit - Salaries Payable 2. Debit - Unearned Service Revenue Credit - Service Revenue 3. Debit - Accounts Receivable Credit - Service Revenue
Following are unadjusted balances along with year-end adjustments for Quinlan Company. Complete the adjusted trial balance by entering the adjusted balance for each of the following accounts.
Cash. $8,000 (Dr.) Accounts receivable 6,000 (Dr.) Supplies 2,000 (Dr.) Salaries payable $400 (Cr.) B. Wells, Capital 9,000 (Cr.) Consulting revenue 15,000 (Cr.) Salaries expense 5,900 (Dr.) Supplies expense 2,500 (Dr.)
In its first year of operations, Roma Company reports the following. Earned revenues of $45,000 ($37,000 cash received from customers). Incurred expenses of $25,500 ($20,250 cash paid toward them). Prepaid $6,750 cash for costs that will not be expensed until next year. Compute Roma's first-year net income under the cash basis and the accrual basis of accounting.
Revenues $37,000 (CB). $45,000 (AB) Expenses 27,000 25,500 Net Income $10,000 $19,500 Explanation Cash Accounting Revenues (cash receipts)$37,000 Expenses (cash payments: $20,250 + $6,750) 27,000 Net income$10,000 Accrual Accounting Revenues (earned)$45,000 Expenses (incurred) 25,500 Net income$19,500
Molly Mocha employs one college student every summer in her coffee shop. The student works the five weekdays and is paid on the following Monday. (For example, a student who works Monday through Friday, June 1 through June 5, is paid for that work on Monday, June 8.) The coffee shop adjusts its books monthly, if needed, to show salaries earned but unpaid at month-end. The student works the last week of July, which is Monday, July 28, through Friday, August 1. If the student earns $100 per day, what adjusting entry must the coffee shop make on July 31 to correctly record accrued salaries expense for July?
Salaries expense 400 Salaries payable 400 Explanation Salaries expense: [One student earns, $100 × 4 days, Monday—Thursday]
Record adjusting journal entries for each of the following for year ended December 31. Assume no other adjusting entries are made during the year. a. Accounts Receivable. At year-end, the L. Cole Company has completed services of $19,000 for a client, but the client has not yet been billed for those services. b. Interest Receivable. At year-end, the company has earned, but not yet recorded, $390 of interest earned from its investments in government bonds. c. Accounts Receivable. A painting company collects fees when jobs are complete. The work for one customer, whose job was bid at $1,300, has been completed, but the customer has not yet been billed.
a. Accounts receivable 19,000 Service revenue 19,000 b. Interest receivable 390 Interest revenue 390 c. Accounts receivable 1,300 Service revenue 1,300
For each separate case below, follow the three-step process for adjusting the prepaid asset account at December 31. Step 1: Determine what the current account balance equals. Step 2: Determine what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Assume no other adjusting entries are made during the year.
a. Prepaid Insurance. The Prepaid Insurance account has a $4,700 debit balance to start the year. A review of insurance policies shows that $900 of unexpired insurance remains at year-end. Step 1: Determine what the current account balance equals. $4,700 Debit Step 2: Determine what the current account balance should equal. $900 Debit Step 3: Record the December 31, adjusting entry to get from step 1 to step 2. Insurance Expense 3,800 Prepaid Insurance 3,800 b. Prepaid Insurance. The Prepaid Insurance account has a $5,890 debit balance at the start of the year. A review of insurance policies shows $1,040 of insurance has expired by year-end. Step 1: Determine what the current account balance equals. $5,890 Debit Step 2: Determine what the current account balance should equal. $4,850 Debit Step 3: Record the December 31, adjusting entry to get from step 1 to step 2. Insurance Expense 1,040 Prepaid Insurance 1,040 c. Prepaid Rent. On September 1 of the current year, the company prepaid $24,000 for two years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for $24,000. Step 1: Determine what the current account balance equals. $24,000 Debit Step 2: Determine what the current account balance should equal. $20,000 Debit Step 3: Record the December 31, adjusting entry to get from step 1 to step 2. Rent Expense 4,000 Prepaid Rent 4,000 Explanation a.To record insurance coverage that expired ($4,700 - $900 = $3,800). b.To record insurance coverage that expired ($5,890 - $4,850 = $1,040). c.To record prepaid rent that expired (($24,000/24 months) × 4 months = $4,000).
For each separate case below, follow the three-step process for adjusting the Accumulated Depreciation account at December 31. Step 1: Determine what the current account balance equals. Step 2: Determine what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Assume no other adjusting entries are made during the year.
a. The Krug Company's Accumulated Depreciation account has a $13,500 balance to start the year. A review of depreciation schedules reveals that $14,600 of depreciation expense must be recorded for the year. Step 1: Determine what the current account balance equals. $13,500 Credit Step 2: Determine what the current account balance should equal. $28,100 Credit Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Depreciation expense 14,600 Accumulated depreciation 14,600 b. The company has only one fixed asset (truck) that it purchased at the start of this year. That asset had cost $44,000, had an estimated life of five years, and is expected to have zero value at the end of the five years. Step 1: Determine what the current account balance equals. $0 2: Determine what the current account balance should equal. $8,800 Credit Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Depreciation expense—Truck 8,800 Accumulated depreciation—Truck 8,800 c. The company has only one fixed asset (equipment) that it purchased at the start of this year. That asset had cost $32,000, had an estimated life of seven years, and is expected to be valued at $4,000 at the end of the seven years. Step 1: Determine what the current account balance equals. $0 2: Determine what the current account balance should equal. $4,000 Credit Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Depreciation expense—Equipment 4,000 Accumulated depreciation—Equipment 4,000 Explanation a.To record depreciation expense for the period $13,500 + $14,600 depreciation = $28,100. b.To record depreciation expense for the period ($44,000 cost minus $0 salvage) divided by 5 years = Depreciation expense, $8,800. c.To record depreciation expense for the period ($32,000 cost minus $4,000 salvage) divided by 7 years = Depreciation expense, $4,000.
Classify the following adjusting entries as involving prepaid expenses, unearned revenues, accrued expenses, or accrued revenues.
a. To record revenue earned that was previously received as cash in advance. UNEARNED REVENUES b. To record wages expense incurred but not yet paid (not recorded.) ACCRUED EXPENSES c. To record revenue earned but not yer billed (not recorded.) ACCRUED REVENUES d. To record expiration of prepaid insurance. PREPAID EXPENSES e. To record annual depreciation expense. PREPAID EXPENSES
Record adjusting journal entries for each of the following for year ended December 31. Assume no other adjusting entries are made during the year. a. Unearned Rent Revenue. The Krug Company collected $6,000 rent in advance on November 1, debiting Cash and crediting Unearned Rent Revenue. The tenant was paying 12 months' rent in advance and occupancy began November 1. b. Unearned Services Revenue. The company charges $75 per insect treatment. A customer paid $300 on October 1 in advance for four treatments, which was recorded with a debit to Cash and a credit to Unearned Services Revenue. At year-end, the company has applied three treatments for the customer. c. Unearned Rent Revenue. On September 1, a client paid the company $24,000 cash for six months of rent in advance (the client leased a building and took occupancy immediately). The company recorded the cash as Unearned Rent Revenue.
a. Unearned rent revenue 1,000 Rent revenue 1,000 b. Unearned service revenue 225 Service revenue 225 c. Unearned rent revenue 16,000 Rent revenue 16,000 Explanation a.Rent revenue [($6,000 / 12 months) × 2 months] = $1,000. b.Service revenue ($75 × 3 treatments) = $225. c.Rent revenue [($24,000 / 6 months) × 4 months] = $16,000.