Accounting 111

An optional step in the accounting cycle is to

prepare a worksheet

Which is a required step in the accounting cycle?

prepare an adjusted trial balance

On December 31, 2020, Taft Company's Insurance Expense account before any year-end adjustments had a balance of $3,600, and its Prepaid Insurance account had a balance of $8,600. During the period, $4,200 of the Prepaid Insurance had expired. What would the adjusted balance for Insurance Expense for the year be?

$3,600 + $4,200 = $7,800

Lantis Commercial Cleaning purchased $9,000 worth of supplies on October 2 and recorded the purchase as an asset. On October 31, after performing an inventory of the supplies, only $4,000 of supplies were still on hand. Which of the following adjusting entries should Lantis make on October 31?

$4,000 of supplies were still on hand so that means that $5,000 of supplies have been used ($9,000 - $4,000 = $5,000). The adjusting entry will need to be a debit to Supplies Expense of $5,000 to increase the expense for the supplies used and a credit to Supplies for $5,000 to decrease the asset.

If Klemperer Industries pays weekly salaries of $66,000 on Friday for a five-day week ending on that day, then the adjusting entry necessary at the end of the fiscal period ending on a Wednesday would be which of the following?

$66,000 in weekly salaries multiplied by 3 for Monday through Wednesday and divided by 5 for the days of a full work week equals $39,600 debited to Salaries and Wages Expense and credited to Salaries and Wages Payable.

The Interest Expense account had a balance of $942 on April 30, 2020 prior to adjustments. The adjusting entries included an accrual of $37 for unpaid interest. What balance would be reported for Interest Expense on the adjusted trial balance?

$942 + $37 = $979.

Viewpoint City College sold season tickets for the 2020 football season for $225,000. The Viewpoint team will play a total of nine games during September, October, and November. Assuming all the games are played, which of the following is the Unearned Ticket Revenue balance that will be reported on the December 31 balance sheet?

0

Terraform Real Estate signed a four-month note payable in the amount of $12,000 on June 1. The note requires interest at an annual rate of 10%. Which of the following is the amount of interest to be accrued at the end of June?

1 month of the 10% annual percentage rate on the $12,000 note payable has been accrued.$12,000 x .10 x (1/12) = $100

On November 1, ADP Payroll Services signed a $12,000, six-month note. The note requires ADP to pay 8% interest. Interest and principal are due at the end of six months. The amount of interest to be accrued on December 31 is

2 months of the 8% annual percentage rate on the $12,000 note has been accrued.$12,000 x 8% x 2/12 = $160

Which of the following accounts will appear on a post-closing trial balance?

Accumulated Depreciation - Equipment will appear on the a post-closing trial balance because it is classified as a permanent account and not a temporary account.

In addition to the Depreciation Expense account, what other account would be affected on the adjusted trial balance after the depreciation adjusting entry is posted?

Accumulated Depreciation—Equipment

On October 1, Ajax Delivery Services signed a 3-month note for $60,000 at 7% interest. If the balance of interest expense in the trial balance column was $800, what were the balances of interest expense in the adjusted trial balance and income statement columns of the worksheet on December 31 assuming no previous adjustments for this note were made?

Adjustment for interest expense = $60,000 x 7% x 3/12 = $1,050; Interest expense after adjustment = $800 + $1,050 = $1,850.

Tropa Corporation purchases furniture on January 1, 2019, for $9,600. Tropa expects to use the furniture for three years and the annual depreciation is estimated to be $3,200. What would be the book value of the furniture at December 31, 2020?

Annual depreciation =$9,600/3 = $3,200; Accumulated depreciation = $3,200 x 2 = $6,400; Book value = $9,600 - $6,400 = $3,200

Morgan's company purchased $500 worth of supplies in cash. The entry was recorded incorrectly in the journal entry as a credit to supplies for $5,000 and a debit to Cash for $5,000. Which of the following is true BEFORE the error is corrected?

Because there is a credit to supplies and a debit to cash, the Cash is overstated and Supplies is understated. Credits decrease asset accounts and debits increase asset accounts.

If Precog Investments purchased a 12-month insurance policy on March 31, 2020, for $4,480, then the balance sheet would show which of the following amounts for Prepaid Insurance on December 31, 2020?

By December 31, only 3 months of Prepaid Insurance are left.$4,480 x (3/12) = $1,120

Which of the following is the most efficient way to prepare closing entries?

Credit the Income Summary account for total revenues and debit the Income Summary account for total expenses.

What adjusting entry must Janet make if she has performed $6,000 of CPA services for a client but has not billed the client as of the end of the accounting period?

Debit Accounts Receivable and credit Service Revenue.

The December 31 adjusted trial balance for Hot Web Designs showed design fees earned of $56,900 and website maintenance fees of $24,900 earned during the year. What is the journal entry to close revenue?

Debit Design Fees Earned $56,900 and Website Maintenance Fees $24,900; credit Income Summary $81,800.

Ozark Cabin Resorts rents vacation cabins to tourists. Customers pay at the time they book their reservations. In 2020, Ozark Cabin Resorts had a beginning balance of $8,300 in its Unearned Service Revenue account. During 2020, customers made advance deposits of $50,000, and Service Revenue earned during 2020 was $48,000. The December 31 balance in the Unearned Service Revenue was

December 31 balance, Unearned Service Revenue = $8,300 + $50,000 - $48,000 = $10,300

Betty's Books purchased $3,500 of supplies on June 2. An inventory count on June 30 reveals that $1,200 are still on hand. If Betty's fails to make an adjusting entry for $2,300 of supplies used, what will be the result?

Expenses will be understated by $2,300 and net income will be overstated by $2,300.

If Penderecki Company issued a one-year, 5%, $200,000 note on June 30, 2020, then interest expense for the year ended December 31, 2020, would be which of the following?

Interest expense will be 6 months of the 5% annual percentage rate on the $200,000 note.$200,000 x .05 x (6/12) = $5,000

Farraday Company collected $9,600 in June 2020 for five months of service, which would take place from November 2020 through March 2021. The revenue reported on the income statement for 2020 would be which of the following?

In 2020, Farraday Company will have fulfilled their service obligation for two of the five months collected, so an adjusting entry will need to be made for $3,480.$9,600 x (2/5) = $3,840

If Slatnick Company collects $27,900 in June 2020 for five months of service, which would take place from November 2020 through March 2021, then the revenue reported from this transaction during 2020 would be which of the following?

In 2020, Slatnick Company will have fulfilled their service obligation for two of the five months collected, so an adjusting entry will need to be made for $11,160.$27,900 x (2/5) = $11,160

Jace collected $520 in advance of a construction job he was working on. He erroneously debited Cash for $250 and credited Accounts Receivable for $250. What is the correcting entry?

In order to correct the entry, there should be three correcting entries made. First, a correcting entry to the Cash account for a debit of $270 to account for the balance of the cash collected, or $520 - $250= $270. Next, Accounts Receivable should be debited for the equal amount to reverse the erroneous credit entry of $250. Lastly, a credit should be applied to Unearned Service Revenue for the full $520 to represent the future work to be performed.

If the unadjusted trial balance shows Supplies $2,700 and Supplies Expense $0 and $1,200 of supplies are on hand at the end of the period, which of the following should be the adjusting entry?

In order to determine the adjusting entry, Supplies Expense should be subtracted from the total Supplies amount.$2,700 - $1,200 = $1,500The entry should include a debit to Supplies Expense for $1,500 and a credit to Supplies for $1,500.

Why is it important to post transactions from the journal to the ledger in a timely manner?

It ensures that the ledger remains up-to-date.

Janice is the sole owner of Janice's Bakery. Last accounting period, Janice withdrew $800 in cash for personal use. How should this withdrawal be recorded?

It should be debited to the equity account Owner's Drawings and credited to the asset account Cash.

Kate's horses have received vet care, but the vet will not send a bill until the end of next month. Sue sells hay, and has yet to bill one of her customers for 100 bales that have been delivered. What can be inferred here?

Kate has an accrued expense because she has incurred an obligation to pay for the vet care received; and Sue has an accrued revenue because she provided the vet care but no cash has been received. So both Kate's expenses and Sue's revenues are understated.

Markus Co. incurred $9,240 in expenses, earned $14,070 in revenues, spent $5,000 on equipment, borrowed $2,080, and received $1,000 in additional owner investment. What was the company's net income?

Net Income = Revenues - Expenses$14,070 - $9,240 = $4,830.

On August 1, Morris Agency prepaid $12,000 for six months' rent. On December 31, the balance of rent expense in the adjusted trial balance column was $10,000. The rent expense account had a $0 beginning balance. The amount recorded in the adjustments columns included a

On December 31, only 1 month of prepaid rent remained $12,000/6 = $2,000. Therefore, the adjustment to Prepaid Rent was = $12,000 - $2,000 = $10,000.

On June 1, Blue Moon Nursery prepaid six months of rent, $5,400. The June 30 adjusting entry includes a

On June 30, six months of rent will have been used up. So the adjusting entry will include a debit to:Rent Expense = $5,400/6 = $900.

Where are prepaid expenses shown?

On the balance sheet as assets

Hadler Real Estate received a check from a client on June 1 for a $24,000, 6-month advance payment of rent on a building the client rents from Hadler. Hadler credited Unearned Rent Revenue for the full $24,000. Financial statements will be prepared on June 30. Hadler Real Estate should make which of the following adjusting entries on June 30?

One month of rent has been used up. Hadler Real Estate will need to debit Unearned Rent Revenue, $4,000 to account for one month's rent used and credit Rent Revenue, $4,000 to account for the rent revenue that was received for the month.$24,000/6 = $4,000

The adjusted trial balance shows total assets are $28,700, net income is $3,670, and liabilities are $11,420, what is owner's equity this month?

Owner's Equity = Assets - Liabilities$28,700 - $11,420 = $17,280.

On January 1, Swift Equipment Rentals prepaid two insurance policies: a one-year auto insurance policy for $1,800 and a three-year fire insurance policy for $3,600. Assuming that no previous adjusting entries have been made, the adjusting entry on March 31 includes a

Policy 1 = $1,800/12 months x 3 = $450; Policy 2 = $3,600/36 months x 3 = $300; Total insurance expense = $450 + $300 = $750

Spirit Air received payment for ticket reservations made by passengers in advance. At the beginning of 2020, the Unearned Service Revenue account had a balance of $20,500. During 2020, the company collected $576,200 in advance payments. At the end of 2020, all but $35,000 in fees had been earned. What was the amount of revenues earned during 2020?

Revenue earned in 2020 = $20,500 + $576,200 - $35,000 = $561,700

Newstime magazine, a monthly publication, sold 300 annual subscriptions for $50 each during 2020. Half of the subscriptions were sold at the beginning of the year, and the rest were sold July 1. Assuming that no adjustments were previously made, the amount of the adjusting entry to recognize revenue on December 31, 2020 is

Revenue earned on subscriptions sold Jan. 1 = 150 x $50 = $7,500Revenue earned on subscriptions sold July 1 = 150 x $50 = $7,500 x (6/12) = $3,750Total revenue earned in 2020 = $7,500 + $3,750 = $11,250

Walden Company purchases a one-year insurance policy in January 2020 for $48,000, which will be in effect from March 2020 through February 2021. If the company neglects to make the proper year-end adjustment for the expired insurance, which of the following would be the consequence?

Since 10 months of the insurance was expired or used up, an adjusting entry will need to be made to decrease the asset. If not, both net income and assets will be overstated by $40,000.$48,000 x (10/12) = $40,000

Your company's chart of accounts contains five groups of numbers -100s, 200s, 300s, 400s, and 500s. Assuming the company follows typical practices, which group of numbers is most likely associated with asset accounts?

The 100s

When Johnson & Sons purchased supplies worth $840 on credit on March 1, it incorrectly recorded a debit to Supplies and a credit to Accounts Payable for $84. On March 31, the error was discovered. The journal entry to correct the error is

The amount that should have been recorded in the accounts was $840 instead of $84. Therefore, both accounts are understated by $840 - $84 = $756. The correcting entry should add $756 to each account.

Which of the following describes the balance in the Owner's Capital account in the ledger after closing entries are posted?

The balance should equal the amount of the Owner's Capital reported on the balance sheet.

Which of the following describes the balance of the Income Summary account just before it is closed?

The balance should equal the net income or loss on the income statement.

Jon paid Morton Company $350 for services to be performed in the future. The bookkeeper for Morton Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger. What should the bookkeeper do to correct this entry?

The correcting entry should be recorded as a debit to Accounts Receivable $350 and a credit Unearned Service Revenue $350 to indicate payment prior to services being performed.

Carlton's Construction Company received a $480 check on September 23 for services to be performed at a future date. The bookkeeper for Carlton's company incorrectly debited Cash for $480 and credited Accounts Receivable for $480. The amounts have been posted to the ledger. What should the bookkeeper do to correct this entry?

The correcting entry should consist of a debit to Accounts Receivable for $480 to reverse the erroneous credit and a credit Unearned Service Revenue $480 to indicate payment received for services not performed yet.

On April 20, Karl's Company received $9,600 to provide services to be completed by May 31 and the $9,600 was credited to Unearned Service Revenue. On April 30, Karl's has completed one-third of the service. Which of the following adjusting entries must Karl's make to avoid understating its April revenues and net income?

The performance of prepaid services decreases the liability Unearned Revenue and increases revenue. Therefore, the adjustment must decrease the liability account Unearned Service Revenue and increase the Service Revenue account, both amounts equal to the value of the services rendered ($9,600 / 3 = $3,200).

Polly's Painting received $1,800 on August 18 for painting services to be completed by September 30. At that time, $1,800 was credited to Unearned Service Revenue. On August 31, Polly's has competed half of the painting. If Polly's fails to make an adjusting entry in August for $900, what will be the result?

The performance of prepaid services decreases the liability Unearned Service Revenue and increases revenue. Therefore, without the adjustment, revenues and net income will be understated, both amounts equal to the value of the services rendered ($900).

Which of the following will occur if the Income Summary account has a credit balance after the revenue and expense accounts are closed?

There will be a credit to the Owner's Capital account.

If employees at Celine Corporation are paid $90,000 cash every Friday for working Monday through Friday, and the calendar year accounting period ends on Tuesday, December 31, then how much salaries and wages expense should be recorded on January 3?

There will be three days of wages at the end of the week that will not have been paid to the employees yet. If they make $90,000 a week for 5 days, that will be $54,000 to be recorded.$90,000 x (3/5) = $54,000

Jason's company received a $650 check from a customer for his outstanding balance. The transaction was recorded incorrectly as a debit to Cash $560 and a credit to Service Revenue $560. What is the correcting entry?

To correct the cash payment entry, a debit of $90 ($650 - $560 = $90) to Cash will need to be made. Then to reverse the erroneous Service Revenue entry, a debit of $560 will need to be made. Finally, to record the correct entry, a credit to Accounts Receivable of $650 will need to be made.

Marsal Co. purchased supplies from the Milton Company on account for $440. This happened on March 8. Marsal industries incorrectly debited Equipment for $400 and credited Accounts Payable for $400. The entries have been posted to the ledger. What should the correcting entry be?

To determine the correcting entry, you should find the difference between the correct amount that should have been recorded to Accounts Payable and the incorrect entry that was made. Because the purchase was actually for $440 and recorded as $400, then $440 - $400 = $40. This results in a $40 adjusting entry credit to be entered against the Accounts Payable account.Since Equipment was debited incorrectly instead of Supplies, an adjusting entry credit of the same amount, $400, needs to be recorded.A correct entry to Supplies needs to be recorded as well for the full purchase price of $440.

What is the purpose of the post-closing trial balance?

To prove the equality of the balance sheet account balances that are carried forward into the next accounting period.

What process is involved in depreciation?

What process is involved in depreciation?

accounts receivable is classfied as

a current asset

A reversing entry is the exact opposite of a(n)

adjusting entry

goodwill is classified as

an intangible asset

Reversing entries are made

at the beginning of the next accounting period

Owner's capital is disclosed on which financial statement?

balance sheet

The owner's equity in a corporation includes

common stock and retained earnings

The entry to close the revenue accounts is

debit each revenue account, credit total revenues to Income Summary.

On October 1, Valley Orchards signed a $35,000, 7%, 120-day note. The adjusting entry to accrue interest expense on October 31 is

entry showing a debit to the interest expense account of 204.17 dollars, a credit to the interest payable account of 204.17 dollars, and a note reading "To accrue interest expense"

Which of the following does the adjusting entry for accrued expenses affect?

expenses and liabilities

Which financial statement accounts are listed last on the adjusted trial balance?

income statement accounts

Assuming no mistakes have been made, which of the following sets of worksheet columns is most likely to have unequal debits and credits?

income statement columns

The ability to pay obligations when due is known as

liquidity

The number of accounts appearing in the trial balance will normally be

more than the number of accounts in the post-closing trial balance.

Where are prepaid expenses shown?

on the balance sheet as assets

The account that is closed directly to Owner's Capital is

owner's drawings

What is the term for expenses paid in cash and recorded as assets before they are used or consumed?

prepaid expenses

The step likely to be performed most frequently in the accounting cycle is to

prepare a trial balance

Temporary accounts are those that

relate only to a given accounting period

A company's income statement contains information about its

revenue accounts and expense accounts

Unlike adjusting entries, correcting entries

reverse the erroneous transaction so that a new entry can be made.

The reference column of a ledger account indicates

the journal page from which the transaction was recorded.

When are correcting entries made?

whenever an error is discovered