acg quiz 4

adjusting entries can be classified as A: accruals and deferrals B: postponements and advancements C: advancements and postponements D: deferrals and postponements E: accruals and advances

A: accruals and deferrals

A corporation received a check for $36,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. The corporation increases unearned rent revenue when it collected the rent and it prepares financial statements dated December 31. The appropriate year-end adjusting journal entry that the realty company must record for the first year would be a $9,000 debit to Rent Revenue and a $9,000 credit to Unearned Rent Revenue. $27,000 debit to Unearned Rent Revenue and a $27,000 credit to Rent Revenue. $9,000 debit to Unearned Rent Revenue and a $9,000 credit to Rent Revenue. No adjusting entry is necessary. $27,000 debit to Rent Revenue and a $27,000 credit to Unearned Rent Revenue.

C: $9,000 debit to Unearned Rent Revenue and a $9,000 credit to Rent Revenue. Solution:The revenue earned from October 1 through December 31 = 36,000 x 3/12 = 9,000. The year-end adjusting entry reduces the liability (i.e., Unearned Revenue) and increases the amount of revenue earned. Debit the Unearned Revenue account to decrease it and credit the Revenue account to increase it.

The accounting cycle is a series of certain steps that businesses, such as corporations, perform in sequence and repeat in each accounting period. Although steps may be missing among the options listed below, which of the following lists steps of the accounting cycle in their correct order? A: Prepare the financial statements, prepare the trial balance, and post the closing entries. B: Journalize the closing entries, prepare the adjusted trial balance, and prepare the financial statements, C: Post the transactions, journalize the adjusting entries, and prepare the financial statements. D: Post the transactions, journalize the closing entries, and prepare the financial statements. E: Post the transactions, prepare the post-closing trial balance, and journalize the transactions.

C: Post the transactions, journalize the adjusting entries, and prepare the financial statements. The correct order is (i) use source documents to analyze transactions, (ii) journalize transactions, (iii) post transactions to the ledger, (iv) prepare the trial balance, (v) journalize and post the adjusting entries, (vi) prepare the adjusted trial balance, (vii) prepare the financial statements, (viii) journalize and post the closing entries, (ix) and prepare the post-closing trial balance.

In its first year, a company performed services for a customer and billed the customer $10,000. In the second year, the customer pays the company for the services rendered in the first year. In the first year, the company incurred and paid $3,000 of wage expense. If the company uses the accrual-basis of accounting, then it will report A: revenue of $10,000 and expense of $3,000 in the second year. B: revenue of $10,000 in the first year and expense of $3,000 in the second year. C: no revenue or expenses in either year. D: revenue of $10,000 in the second year and expense of $3,000 in the first year. E: revenue of $10,000 and expense of $3,000 in the first year.

E: revenue of $10,000 and expense of $3,000 in the first year. The accrual-basis of accounting recognizes revenues when the performance obligation is satisfied regardless of when the customer pays and it records expenses when incurred regardless of when they are paid. The company performed the services in Year 1 so the company should recognize the revenue in Year 1 even though the customer did not pay the company until Year 2. The company incurred the expenses in Year 1 so the company should recognize the expenses in Year 1 regardless of when the company paid the expenses.

When accrual-basis accounting is used, expenses are recognized when they are billed by the supplier. an invoice is received. they contribute to the production of revenue they are paid. at the start of the year.

they contribute to the production of revenue. Solution:Recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands, is commonly called accrual basis accounting. Expenses are incurred when they contribute to the production of revenue. For example, wage expense is incurred when a company's employees perform services for the company.

The following is information is from a certain corporation's financial records for the current fiscal year. i. Cash received from customers, $255,000 ii. Revenue earned, $230,000 iii. Cash paid for wages, $115,000 iv. Wage expense incurred, $110,000 v. Cash paid during the current year for computers that will be used for 3 years, $30,000 vi. Depreciation expense, $10,000 vii. Proceeds from issuing debt (e.g., borrowed money from a bank), $30,000 viii. Interest incurred on debt, $3,000 ix. Cash paid for supplies, $2,000 x. Supplies expense incurred, $4,000 What is the company's net income for the current year using the cash-basis of accounting? $108,000 $136,000 $125,000 $110,000 $86,000

A 108000 Solution:The cash-basis of accounting recognizes revenues in the year cash is collected from customers regardless of when the performance obligation is satisfied and it recognizes expenses in the year they are paid regardless of when they are incurred.Net income using the cash-basis = Cash collected from customers - cash paid for expenses incurredNet income using the cash-basis = $255,000 - 115,000 - 30,000 - 2,000 = $108,000

Based on the following adjusted trial balance: Garnet & Gold Corporation Adjusted Trial Balance As of December 31 Cash 800 Accounts Receivable 200 Inventory 2,000 Building 30,000 Retained Earnings 10,000 Dividends 3,000 Revenues 7,000 Selling and Administrative Expense 1,000 Insurance Expense 1,000 Determine the amount that will be reported as retained earnings on the post-closing trial balance. A: $12,000 B: $9,000 C: $2,000 D: $10,000 E: $14,000

A: $12,000 Permanent accounts (i.e., assets, liabilities, and equities) are not closed. Temporary accounts (i.e., revenues, expenses, and dividends) are closed to retained earnings (i.e., an Income Summary account can be used as an intermediate step). Closing revenues increases retained earnings. Closing dividends and expenses decreases retained earnings. Post-closing: Ending retained earnings = beginning retained earnings + revenues - expenses - dividends = $10,000 + 7,000 - 1,000 - 1,000 - 3,000 = $12,000

Closing entries must be journalized and posted. Which of the following accounts will not be closed each year-end? Accounts Receivable Depreciation Expense Dividends Revenue All of these accounts will be closed each year-end

A: accounts receivable Solution: Closing entries transfer the balances from temporary accounts, such as revenues, expenses, and dividends, to the retained earnings account. Revenues are closed by debiting each revenue account. Expenses are closed by crediting each expense account. Some companies close revenues and expenses to an income summary account and then close the income summary account to retained earnings. Dividends are closed directly to the retained earnings account. Closing revenues increases retained earnings. Closing expenses and dividends decreases retained earnings. After closing them, revenues, expenses, and dividends have zero balances. Temporary accounts are not included on the post-closing trial balance.

Accrued revenues are revenues for services performed that have not yet been recorded. If a company fails to record a year-end adjusting entry for accrued revenues, the company's assets will be understated asset and its revenue will be understated. assets will be overstated and its revenue will be understated. liabilities will be overstated and its revenue will be understated. liabilities will be understated and its revenue will be understated. equity will be overstated and its revenue will be understated.

A: assets will be understated asset and its revenue will be understated. Solution: If a company fails to record a year-end adjusting entry for accrued revenues, the company's revenue will be understated. Understating revenue understates retained earnings and stockholders' equity. Failing to accrue revenues also understates accounts receivable understating assets.

The year-end trial balance for Garnet & Gold Corporation appears as follows: Cash$ 300 Accounts Receivable500 Prepaid Insurance60 Supplies140 Equipment4,000 Accumulated Depreciation, Equipment$ 800 Unearned Revenues300 Common Stock1,000 Retained Earnings1,400 Service Revenue3,000 Salaries and Wages Expense1,000 Rent Expense500 If the company has not yet recorded its performance of $100 of services to a customer who had paid in advance, the company should record an adjusting entry that debits Unearned Revenue for $100 and credits Service Revenue for $100. debits Service Revenue for $200 and credits Unearned Revenue for $200. debits Unearned Revenue for $100 and credits Cash for $100. debits Service Revenue for $100 and credits Unearned Revenue for $100. debits Unearned Revenue for $200 and credits Service Revenue for $200.

A: debits Unearned Revenue for $100 and credits Service Revenue for $100. Solution:The trial balance lists the company's accounts and their balances on a particular date before adjusting entries have been recorded. This company's trial balance shows that Unearned Revenue has a $300 balance. However, this balance does not include the effects of services performed to customers who prepaid for services. Unearned Revenues is overstated. The adjusting entry decreases Unearned Revenues and increases Service Revenue by $100. The ending balance of Unearned Revenue will become $200. Debit the Unearned Revenue account by $100 and credit the Service Revenue account by $100.

Prepaid expenses are: paid and recorded in an asset account before they are used or consumed. paid and recorded in an asset account after they are used or consumed. not yet recognized as incurred and recorded as liabilities. recognized as incurred and recorded as liabilities. incurred expenses that have not yet been paid.

A: paid and recorded in an asset account before they are used or consumed. Solution:Accrued expenses (e.g., interest expense, salaries expense, etc.) incurred and recorded before they are paid.

If the year-end adjusting entry to record salaries owed to employees were omitted then A: stockholders' equity would be overstated. B: retained earnings would be correctly stated. C: assets would be understated. D: expenses would be overstated. E: liabilities would be overstated.

A: stockholders' equity would be overstated. The adjusting entry to record salaries owed at year-end would include a debit to the Salaries and Wages Expense account and a credit to the Salaries and Wages Payable account. This adjusting entry would increase salaries expense. This adjusting entry (if recorded) increases the company's expenses which decreases its net income, and decreasing net income decreases retained earnings (and stockholders' equity). This adjusting entry also increases a payable account which is a liability so it increases liabilities. This questions asks for the effect of omitting (or forgetting) this adjusting entry. Omitting the adjusting entry to record salaries causes several errors, including understating expenses, overstating net income, overstating retained earnings, overstating stockholders' equity, and understating liabilities.

On August 1, a company purchased equipment for $16,000. The equipment's estimated salvage value is $1,000. The machine will be depreciated using straight-line depreciation and a five year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a $3,000 debit to Depreciation Expense and a $3,000 credit to Accumulated Depreciation. $1,250 debit to Depreciation Expense and a $1,250 credit to Accumulated Depreciation. $1,250 debit to Accumulated Depreciation and a $1,250 credit to Depreciation Expense. $3,000 debit to Accumulated Depreciation and a $3,000 credit to Depreciation Expense. $3,000 debit to Equipment and a $3,000 credit to Cash.

B: $1,250 debit to Depreciation Expense and a $1,250 credit to Accumulated Depreciation. Solution:Straight-line annual depreciation per year = (Cost - Salvage value)/Life = (16,000 - 1,000)/5 = $3,000 per yearThe correct adjusting entry to record depreciation for 5 months (i.e., August 1 through December 31) is $3,000 per year x 5/12 = $1,250.The year-end adjusting entry to record depreciation includes a debit to Depreciation Expense and a credit to Accumulated Depreciation.

On September 1, a corporation paid $15,000 to its landlord for 3 months' rent beginning September 1. It debited prepaid rent when it recorded the payment. If the corporation prepares financial statements on September 30, the appropriate adjusting journal entry to make on September 30 would be a A: $10,000 debit to Rent Expense and a $10,000 credit to Prepaid Rent. B: $5,000 debit to Rent Expense and a $5,000 credit to Prepaid Rent. C: No adjusting entry is necessary. D: $10,000 debit to Prepaid Rent and a $10,000 credit to Rent Expense. E: $5,000 debit to Prepaid Rent and a $5,000 credit to Rent Expense.

B: $5,000 debit to Rent Expense and a $5,000 credit to Prepaid Rent. The company should record rent expense for the month of September. Since the cost of three months' of rent totals $15,000, the company's monthly rent expense is $5,000 (i.e., one-third of the three month cost). The month-end adjusting journal entry to record rent expense (and to decrease prepaid rent to its correct ending balance) would be a debit to Rent Expense for $5,000 and a credit to Prepaid Rent for $5,000.

A company borrowed money from a bank by signing a four-month note payable in the amount of $16,000 on December 1. The note requires the company to pay interest at an annual rate of 9%. The company records adjusting entries on December 31. The adjusting entry that the company should record for accrued interest on December 31 would include A: a credit to Interest Expense for $120. B: a debit to Interest Expense for $120. C: a debit to Interest Expense for $360. D: none of these because no adjusting entry would be necessary. E: a credit to Interest Expense for $360.

B: a debit to Interest Expense for $120. Interest = Principal x Rate x Time = $16,000 x 9% x 1/12 = $120After one month, the accrued interest is $120.Interest rates are always annual interest rates unless specifically stated otherwise. This loan charges 6% annual interest per year.The debtor records an adjusting entry to record accrued interest.Debit: Interest Expense, $120Credit: Interest Payable, $120

In the closing process total revenues are determined to be $5,750 while total expenses are determined to be $3,875 and total dividends are $1,350. The retained earnings account will decrease by $1,875. increase by $525. increase by $1,875. Retained earnings does not change. decrease by $525.

B: increase by 525 Solution:Retained earnings will increase by revenues of $5,750, decrease by expenses of $3,875 and decrease by dividends or $1,350; retained earnings increases by $525.

If the year-end adjusting entry to record salaries owed to employees were omitted then retained earnings would be correctly stated. liabilities would be understated. expenses would be overstated. assets would be understated. stockholders' equity would be understated.

B: liabilities would be understated. Solution:The adjusting entry to record salaries owed at year-end would include a debit to the Salaries and Wages Expense account and a credit to the Salaries and Wages Payable account. This adjusting entry would increase salaries expense. This adjusting entry (if recorded) increases the company's expenses which decreases its net income, and decreasing net income decreases retained earnings (and stockholders' equity). This adjusting entry also increases a payable account which is a liability so it increases liabilities. This questions asks for the effect of omitting (or forgetting) this adjusting entry. Omitting the adjusting entry to record salaries causes several errors, including understating expenses, overstating net income, overstating retained earnings, overstating stockholders' equity, and understating liabilities.

A corporation's depreciation in the current year is $800. The company's accountant recorded the year-end adjusting entry for depreciation as a debit to depreciation expense for $800 and a credit to cash for $800. The company's A: net income will be correctly stated but total assets will be understated by $800. B: net income and total assets will be correctly stated. C: net income and total assets will be overstated by $800. D: net income and total assets will be understated by $800. E: net income will be correctly stated but total assets will be overstated by $800.

B: net income and total assets will be correctly stated. Debit: Depreciation expense for $800Credit Accumulated Depreciation for $800This company failed to credit accumulated depreciation. Crediting accumulated depreciation lowers total assets (i.e., recall accumulated depreciation is a contra asset). Rather, this company reduced cash which reduces total assets by the same amount that crediting accumulated depreciation would have reduced total assets.

Financial statements can be prepared directly from the post-closing trial balance. reversing trial balance. adjusted trial balance. trial balance. All of these are correct.

C: adjusted trial balance Solution:The adjusted trial balance can be used to prepare the financial statements. The post-closing trial balance does not contain temporary or nominal accounts, i.e. income statement and some of the stockholders' equity accounts. The adjusted trial balance can be used to prepare the financial statements. While there are reversing entries, there is not a reversing trial balance. The adjusted trial balance can be used to prepare the financial statements.

The year-end trial balance for Garnet & Gold Corporation appears as follows: Garnet & Gold Corporation Trial Balance December 31 Cash$ 300 Accounts Receivable500 Prepaid Insurance60 Supplies140 Equipment4,000 Accumulated Depreciation, Equipment$ 800 Unearned Revenues300 Common Stock1,000 Retained Earnings1,400 Service Revenue3,000 Salaries and Wages Expense1,000 Rent Expense500 If, at year-end, the unexpired insurance were $20, the company should record an adjusting entry that A: debits Insurance Expense for $20 and credits Cash for $20. B: debits Insurance Expense for $20 and credits Prepaid Insurance for $20. C: debits Insurance Expense for $40 and credits Prepaid Insurance for $40. D: debits Prepaid Insurance for $40 and credits Insurance Expense for $40. E: debits Prepaid Insurance for $20 and credits Insurance Expense for $20.

C: debits Insurance Expense for $40 and credits Prepaid Insurance for $40. The trial balance lists the company's accounts and their balances on a particular date before adjusting entries have been recorded. This company's trial balance shows that the Prepaid Insurance account has a balance of $60. However, unexpired insurance is only $20; the Prepaid Insurance account is overstated and it needs to be adjusted. The adjusting entry reduces Prepaid Insurance and increases Insurance Expense by $40. This results in Prepaid Insurance having an ending balance of $20. Debit the Insurance Expense account by $40 and credit the Prepaid Insurance account by $40.

year end adjusting entries for prepaid expenses A: increase revenues and increase assets B: decrease assets and increase revenues C: decrease assets and increase expenses D: decrease revenues and increase assets E: decrease expenses and increase assets

C: decrease assets and increase expenses

Year-end adjusting entries for prepaid expenses decrease assets and increase revenues. increase revenues and increase assets. decrease assets and increase expenses. decrease revenues and increase assets. decrease expenses and increase assets.

C: decrease assets and increase expenses. Solution:When a company pays before receiving goods or services, it records the decrease in cash and an increase in a different asset (e.g., supplies, prepaid insurance, prepaid rent). At the end of the accounting period, the company adjusts its prepaid expense accounts to reflect that the company has fully or partially consumed them through use or the passage of time (e.g., decrease prepaid insurance for the months of coverage used before the end of the accounting period). Also, the company adjusts its expenses upward by that same amount (e.g., increase insurance expense) to show it was incurred before the end of the period.

year end adjusting entries for unearned revenue A: increases liabilities only B: decreases equity only C: decreases liabilities and increase revenues D: increase liabilities and decrease revenues E: does not change anything

C: decreases liabilities and increase revenues (cash from unearned revenues increases assets and liabilities, so adjusting them does opposite)

if a company fails to adjust its unearned rent revenue account at year end, what effect will this have on that months financial statements? A; assets will be understated and revenues will be understated B: assets will be overstated and revenues will be understand C: liabilities will be overstated and revenues will be understated D: liabilities will be understated and net income will be overstated E: liabilities will be understated and revenues will be understated

C: liabilities will be overstated and revenues will be understated

Expenses incurred but not yet paid or recorded are called accrued expenses. If a company fails to record a year-end adjusting entry for accrued expenses, the company's A: liabilities will be understated and equity will be understated. B: assets will be overstated and its expenses will be understated. C: liabilities will be understated and its expenses will be understated. D: assets will be understated and expenses will be understated. E: expenses will be understated and revenues will be understated.

C: liabilities will be understated and its expenses will be understated. If a company fails to record a year-end adjusting entry for accrued expenses, the company's expenses will be understated. Understating expenses overstates retained earnings and stockholders' equity. Failing to accrue expenses also understates amounts owed understating liabilities.

A corporation purchased a one-year insurance policy on March 1 of the current year for $30,000. The insurance policy will be in effect from March 1 through February 28 of the next year. The company recorded the payment as prepaid Insurance. The company neglects to record the year-end adjusting entry at the end of the current year. As a result, the company's current year net income and assets will be overstated by $5,000. net income and assets will be understated by $5,000. net income and assets will be overstated by $25,000. net income and assets will be understated by $25,000. neither net income nor assets will be overstated or understated.

C: net income and assets will be overstated by $25,000. Solution:Paying for one-year of insurance in advance of the coverage period results in an increase in prepaid insurance and a decrease in cash. By the end of the year, ten months of the prepaid insurance has expired and the company should record an adjusting entry that decreases the balance of the pre-paid insurance account and increase insurance expense by $25,000 (i.e., $30,000 x 10/12 = $25,000). If the company forgot to record a prepaid insurance adjusting entry, prepaid insurance would be overstated and insurance expense would be understated.

On September 1, a company purchased equipment for $25,000. The equipment's estimated salvage value is $2,500. The machine will be depreciated using straight-line depreciation and a five year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a A: $4,500 debit to Depreciation Expense and a $4,500 credit to Equipment. B: $4,500 debit to Depreciation Expense and a $4,500 credit to Cash. C: $4,500 debit to Depreciation Expense and a $4,500 credit to Accumulated Depreciation. D: $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation. E: $1,500 debit to Depreciation Expense and a $1,500 credit to Equipment.

D: $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation. Straight-line annual depreciation per year = (Cost - Salvage value)/Life = (25,000 - 2,500)/5 = $4,500 per yearThe correct adjusting entry to record depreciation for 4 months (i.e., September 1 through December 31) is $4,500 per year x 4/12 = $1,500.The year-end adjusting entry to record depreciation includes a debit to Depreciation Expense and a credit to Accumulated Depreciation.

The following is information is from a certain corporation's financial records for the current fiscal year. i. Cash received from customers, $230,000 ii. Revenue earned, $255,000i ii. Cash paid for wages, $110,000 iv. Wage expense incurred, $115,000 v. Cash paid during the current year for computers that will be used for 3 years, $30,000 vi. Depreciation expense, $10,000 vii. Proceeds from issuing debt, $30,000 viii. Interest incurred on debt, $3,000i x. Cash paid for supplies, $4,000 x. Supplies expense incurred, $2,000 What is the company's net income for the current year using the accrual basis of accounting? A: $186,000 B: $135,000 C: $130,000 D: $125,000 E: $115,000

D: $125,000 The accrual-basis of accounting recognizes revenues when the performance obligation is satisfied regardless of when the customer pays and it records expenses when they are incurred regardless of when they are paid.Net income using the accrual basis = Revenue earned - expenses incurredNet income using the accrual basis = $255,000 - 115,000 - 10,000 - 3,000 - 2,000 = $125,000

On December 31, a company's prepaid insurance account had a balance of $1,500 before recording adjusting entries. The company determined that $1,200 of the prepaid insurance had expired before year-end. The insurance expense for the year would be $1,900. $900. $300. $1,200. $1,500.

D: 1200 Solution:When a company pays in advance for prepaid insurance, the company increases prepaid insurance and decreases cash. This transaction is an asset exchange. At the end of the accounting period, the company record an adjusting entry to reduce prepaid insurance by the portion used, consumed, or expired during the year and to write-of or expense that portion as insurance expense. The adjusting entry would reduce prepaid insurance and recognize insurance expense of $1,200.

Employees at a certain company are paid on Friday, December 26 for the five days ending on December 27. The next payday is Friday, January 2. Employees work 5 days a week. The weekly payroll amounts to $3,600. The appropriate adjusting journal entry on December 31 would be to credit Salaries and Wages Payable for $3,600. $720. $1,440. $2,160. $1,520.

D: 2160 Solution:Employees work on December 29-31, but they will not be paid until January 2. At the end of December 31, the company owes employees for three days of the five day work week (i.e., $3,600 x 3/5 = $2,160).

a company receives an order from a customer on December 30 and delivers the goods on December 31. They send an invoice on Januarary 2nd saying payment is due no later than January 12th. The company receives the full payment from the customer on January 7th. Following the revenue recognition principle and accrual accounting, what day should the company recognize revenue? Jan 2 Jan 12 Dec 30 Dec 31 Jan 7

D: Dec 31 revenue is under when service is performed under revenue recognition principle

Which of the following would not result in unearned revenue? A: All of these would result in unearned revenue. B: None of these would result in unearned revenue. C: Selling season tickets to fans. D: Performing services on account. E: Collecting rent in advance from tenants.

D: Performing services on account. Unearned revenue results from customers paying a company in advance of the company performing services or providing merchandise to the customer. Unearned revenue is a liability account. Performing services on account indicates that the company earned the revenue before being paid by the customer rather than after earning the revenue.

Which of the following accounts would have a different amount reported on a company's adjusted trial balance than the amount reported on the post-closing trial balance? A: Accounts Receivable B: Cash C: Common Stock D: Retained Earnings E: Notes Payable

D: Retained Earnings A company will report its beginning retained earnings balance on the trial balance and adjusted trial balance. However, the closing entries will increase retained earnings by the company's revenues and decrease it by the company's expenses and dividends resulting in ending retained earnings. The balance sheet reports ending retained earnings.

On January 1, a corporation paid $100,000 cash for equipment that will be used in its business operations for four years. The equipment has no salvage value. The corporation uses straight-line depreciation. It records depreciation expense of $100,000 for the current calendar year ending December 31. Which accounting principle has been violated? A: The cash basis principle B: No principle has been violated C: The cost principle D: The expense recognition principle E: The allocation principle

D: The expense recognition principle recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands, is commonly called accrual basis accounting. Expenses are incurred when they contribute to the production of revenue. For example, depreciation expense is incurred when a company's depreciable property is used in its operations. A $100,000 depreciable asset with a useful life should be depreciated by $25,000 each year for four years. The timing of expense recognition is called the expense recognition principle; it is also called the matching principle (i.e., expenses are matched to revenues).

adjusting entries are recorded to ensure that A: balance sheet and income statement accounts have correct balances at the end of an accounting period B: revenues are recorded in the period in which the performance obligation is satisfied C: expense are recognized in the period in which they are incurred D: all of these are correct E: accrual basis accounting rules are followed

D: all of these are correct

A company received a check for $30,000 on June 1. This amount represents a 6-month advance payment of rent on a building it rents to a client. The company records the amount as unearned rent revenue. Before preparing financial statements on July 31, the company should make the following adjusting entry: A: debit Rent Revenue for $10,000 and credit Unearned Rent Revenue for $10,000. B: debit Cash for $30,000 and credit Rent Revenue for $30,000. C: debit Unearned Rent Revenue for $30,000 and credit Rent Revenue for $30,000. D: debit Unearned Rent Revenue for $10,000 and credit Rent Revenue for $10,000. E: debit Cash for $10,000 for credit Rent Revenue for $10,000.

D: debit Unearned Rent Revenue for $10,000 and credit Rent Revenue for $10,000. One month of 6 months of rent has been earned by the end of December. The monthly rent earned is the total rent divided by the number of months = $30,000/6 months = $5,000 per month.The adjusting entry to record two month's rent (i.e., June and July) being earned:Debit: Unearned Rent for $10,000Credit: Rent Revenue for $10,000

which principle dictates that efforts (ie expenses) be matched with results (ie revenues)? A: periodically principle B: historical cost principle C: revenue recognition principle D: expense recognition principle E: monetary unit assumption

D: expense recognition principle part of accrual accounting, expenses and revenue in same period revenue recognition principle is cash basis accounting where expenses and revenue match w cash actually transferred

Companies prepare various types of trial balances. Which trial balance lists all of a company's permanent and temporary accounts? The post-closing trial balance The pre-disclosure trial balance All of these list the same number of accounts. The adjusted trial balance The trial balance prepared before recording adjusting entries

D: the adjusted trial balance Solution:Companies prepare three trial balances: (i) trial balance (i.e., before recording adjusting entries), (ii) the adjusted trial balance (i.e., which is prepared after recording adjusting entries), and (iii) the post-closing trial balance (i.e., which is prepared after recording closing entries). The adjusted trial balance shows the balances of all accounts, including those adjusted at the end of the accounting period. The post-closing trial balance lists only permanent accounts (i.e., balance sheet accounts) because the temporary accounts (e.g., income statement accounts) will have been closed to zero in preparation for the next year.There is no "pre-disclosure trial balance."

Based on the following adjusted trial balance: Garnet & Gold Corporation Adjusted Trial Balance As of December 31 Cash $ 800 Accounts Receivable 200 Inventory 3,000 Building 30,000 Accumulated Depreciation $ 2,000 Notes Payable 1,000 Common Stock 21,000 Retained Earnings 6,000 Dividends 2,000 Revenues 8,000 Selling and Administrative Expense 1,000 Insurance Expense 1,000 Determine the amount that will be reported as retained earnings on the post-closing trial balance. $9,000 $6,000 $14,000 $2,000 $10,000

E: $10,000 Solution:Permanent accounts (i.e., assets, liabilities, and equities) are not closed. Temporary accounts (i.e., revenues, expenses, and dividends) are closed to retained earnings (i.e., an Income Summary account can be used as an intermediate step). Closing revenues increases retained earnings. Closing dividends and expenses decreases retained earnings. Post-closing: Ending retained earnings = beginning retained earnings + revenues - expenses - dividends = $6,000 + 8,000 - 1,000 - 1,000 - 2,000 = $10,000

A company has the following adjusted trial balance: Cash 800 Accounts receivable500 Prepaid rent100 Equipment6,000 Accumulated depreciation-Equipment 2,200 Accounts payable 400 Unearned service revenue 500 Common stock 1,400 Retained earnings 1,600 Service revenue 3,000 Interest revenue 50 Salaries and wages expense950 Depreciation expense500 Rent expense 300 Total9,1509,150 After closing entries have been journalized and posted, the post-closing trial balance total for the credit column will be A: $2,900. B: $9,150. C: $10,900. D: $10,450. E: $7,400.

E: $7,400. The difference between (i) the adjusted trial balance and (ii) the post-closing trial balance is the effect of the closing entries. Closing entries transfer end-of-period balances from the revenue accounts, expense accounts, and dividend account to the retained earnings account. The closing process reduces revenue accounts to zero and increases retained earnings, and this merely reduces the credit balance in revenue accounts and increases the credit balance in retained earnings (i.e., the total debits balance and total credit balance do not change when revenue is closed). In contrast, the closing process reduces expense and dividend accounts to zero (i.e., which reduces the total debits) and decreases retained earnings lowing the credit balance in retained earnings. So, closing expenses and dividends lowers both the total debit balance and the total credit balance. Total credits in the post-closing trial balance = the total credits of the adjusted trial balance - expenses and dividends (if any).Total credits in the post-closing trial balance = 9,150 - 950 - 500 - 300 = 7,400

Closing entries must be journalized and posted. Which of the following accounts will not be closed each year-end? A: All of these accounts will be closed each year-end B: Salaries and Wages Expense C: Interest Expense D: Service Revenue E: Prepaid Rent

E: Prepaid Rent Closing entries transfer the balances from temporary accounts, such as revenues, expenses, and dividends, to the retained earnings account. Revenues are closed by debiting each revenue account. Expenses are closed by crediting each expense account. Some companies close revenues and expenses to an income summary account and then close the income summary account to retained earnings. Dividends are closed directly to the retained earnings account. Closing revenues increases retained earnings. Closing expenses and dividends decreases retained earnings. After closing them, revenues, expenses, and dividends have zero balances.

A company's closing entries can be described as follows: The first closing entry closes revenues and credits the Income Summary account for $11,125. The second closing entry closes expenses and debits the Income Summary account for $5,775. The third closing entry closes the Income Summary account. Prior to the fourth closing entry, the Dividends account has a $1,125 balance. The fourth closing entry closes the Dividends account. What was the company's net change in Retained Earnings for the current period? A: Retained Earnings decreased by $5,350 during this period. B: Retained Earnings increased by $5,350 during this period. C: Retained Earnings decreased by $4,225 during this period. D: Retained earnings does not change during this period. E: Retained Earnings increased by $4,225 during this period.

E: Retained Earnings increased by $4,225 during this period. Retained Earnings is increased by revenues, $11,125, and decreased by expenses and dividends, $5,775 and $1,125, so the increase in Retained Earnings is $4,225.

A company owes wages of $40,000 at the end of the month. The next payroll amounting to $60,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries? A: Salaries and Wages Expense........................ 60,000 Cash..................................................... 60,000 B: Salaries and Wages Payable........................ 20,000 Salaries and Wages Expense....................... 40,000 Cash.................................................... 60,000 C: Salaries and Wages Expense........................ 60,000 Salaries and Wages Payable................ 60,000 D: Salaries and Wages Expense ....................... 20,000 Cash.................................................... 20,000 E: Salaries and Wages Payable ....................... 40,000 Salaries and Wages Expense....................... 20,000 Cash..................................................... 60,000

E: Salaries and Wages Payable ....................... 40,000 Salaries and Wages Expense....................... 20,000 Cash..................................................... 60,000 At year-end, the corporation will record an adjusting entry debiting salaries and wages expense of $40,000 and salaries and wages payable of $40,000. In the next month, it will pay $60,000 in cash while reducing the salaries and wages payable by $40,000 and increasing salaries and wages expense of $20,000.

Which of the following is not a typical example of a prepaid expense? A: All of these are examples of prepaids B: Rent C: Supplies D: Insurance E: Wages

E: Wages Wages are not paid to employees until after employees perform work for the employer. In other words, wages are not prepaid. In contrast, companies pay for supplies, rent, and insurance before using or consuming them. Supplies are purchased before acquiring them and using them. Insurance is paid for before insurance coverage is received. Rent is paid at the beginning of the period.

in its first year, a company performed services for a customer and billed the customer $12,000 . in the second year the customer pays the company for the services rendered in the first year. in the first year, the company incurred and paid $4,000 of wage expense. if the company uses the accrual basis of accounting, then it will report A: revenue of $12,000 and expense of $4,000 in the second year B: revenue of 12,000 in the second year and expense of $4,000 in the first year C: revenue of 12,000 in the first year and expense of 4000 in the second year D: no revenue and no expenses in either year E: revenue of 12000 and expense of 4000 in the first year

E: revenue of 12000 and expense of 4000 in the first year

On December first a corporation had 200 on its supplies account. During the month they spent $950 more and used $750 worth of total supplies. If not adjusting entry is made then:

stockholder equity overstated by 700