ACCTG 230 CH 3
Which of the following is (are) permitted under current U.S. GAAP? Both accrual and cash-basis accounting are permitted Accrual-basis accounting Cash-basis accounting
Accrual-basis accounting
The adjusting entry for prepaid rent requires a(n) _______ to Rent Expense and a(n) ______ to Prepaid Rent.
debit to rent expense, credit to prepaid rent
During the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account be ______
debited
Which of the following would be included (added or subtracted) in the calculation of retained earnings? (Select all that apply.)
dividends declared expenses revenues beginning balance retained earnings
_____ Expense should be recorded to recognize the cost of using long-lived assets, such as equipment, during the accounting period.
Depreciation
The journal entry to close dividends _____ retained earnings.
reduces
Which of the following transactions would normally be recorded as an asset when cash is paid? Rent paid in advance Current month utilities Advance payments from customers Current month salaries
Rent paid in advance
Dividends have _____ on the stockholders' equity of a company. a positive effect a negative effect no effect
a negative effect
Accumulated Depreciation has a normal ________ balance which indicates that it reduces total assets.
credit
The closing entry for expense accounts involves the following journal entry. Debit Retained earnings Credit Expenses
Debit Retained earnings Credit Expenses
Adjusting entries are made at the ______ of the accounting period, while daily transactions are made throughout the accounting period.
end
In the closing process, ______ are zeroed out by crediting each account and ______ are zeroed out by debiting each account.
expenses and dividends; revenues
Which of the following account balances are shown in the adjusted trial balance and the income statement? common stock interest expense accumulated depreciation depreciation expense
interest expense depreciation expense
Long-term productive assets used in the normal course of business are classified as long-term investments intangible assets property, plant, and equipment total operating assets
property, plant, and equipment
Closing entries move the balances from the ______ accounts into the Retained Earnings account. permanent temporary balance sheet
temporary
A prepayment such as "Prepaid Insurance" is originally recorded as a(n) _________ when an insurance policy is purchased and will later be expensed in the period used.
asset
Closing entries move the balances from the ______ accounts into the Retained Earnings account. temporary balance sheet permanent
temporary
Which of the following transactions would normally be recorded as an asset when cash is paid? Current month salaries Rent paid in advance Current month utilities Advance payments from customers
Rent paid in advance
Which of the following statements regarding the statement of cash flows are correct? The financial statement that is typically prepared first It is an optional financial statement Reports cash disbursements The final financial statement that is typically prepared Reports cash receipts
Reports cash disbursements The final financial statement that is typically prepared Reports cash receipts
What is the revenue recognition principle?
Revenue is recorded in the period in which goods and services are provided to customers, not necessarily in the period in which we receive cash
When you earn service revenue in the current period but will not be paid for it until the next period what account would you debit?
accounts receivable
Long-lived assets, such as equipment, are reported at their ______ value in the balance sheet. insurable fair market book future
book
Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.) debit a liability account credit a liability account debit revenue account credit a revenue account
debit a liability account credit a revenue account
During the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account be _____.
debitted
Temporary accounts include ______, ______, and ______. dividends revenues expenses retained earnings cash
dividends revenues expenses
The statement of stockholders' equity includes these amounts: (Select all that apply.) total revenues for the period dividends for the period net income ending balance retained earnings cash
dividends for the period net income ending balance retained earnings
Retained earnings is an example of a ____ account, meaning its balance is carried forward from one period to the next. (One word per blank). permanent temporary balance sheet
permanent
Klein Corporation's retained earnings account showed a balance of $200 at 1/1/18. During the year, the company earned revenues of $5,000 and incurred expenses of $3,000. Dividends declared were $500. The amount of retained earnings reported on the 12/31/18 balance sheet will be $1,700 $2,200 $1,500 $2,000
$1,700 Reason: $200+$5,000-$3,000-$500
On December 30, Superior Strategies, Inc., collected $10,000 in advance from clients relating to consulting engagements to be performed during January of the following year. Under cash-basis accounting, revenues recorded in December will equal: $10,000 $0 $5,000
$10,000
Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should credit retained earnings for: $20,000 $5,400 $14,600
$20,000 Reason: retained earnings is credited for the balance of revenue
On May 1, Cut Above, Inc., collected $3,000 from customers to mow their lawns in June. Under cash-basis accounting, revenues in May will equal: $3,000 $1,500 $0
$3,000
Selected items reported on Gunter Company's balance sheet are as follows: accounts payable: $10,000; notes payable: $15,000; common stock: $50,000; retained earnings: $25,000; equipment: $30,000; accumulated depreciation: (5,000). Total stockholders' equity reported on Gunter Company's balance sheet should be: $75,000 $70,000 $50,000 $90,000
$75,000
At the end of the period total expenses equaled $30,000; total revenue equaled $70,000; Dividends equaled $15,000; Ending Retained Earnings equaled $75,000 what was the beginning of the period Retained Earnings Balance?
50,000
which financial statement would include a line for net income? A. income statement B. statement of stockholders equity C. Balance Sheet A and B
A and B. income statement + statement of stockholders equity
_____ occur when the cash flow occurs after either the expense is incurred or the revenue is earned
Accruals
What is the expense recognition principle?
Any costs used to help generate revenues are recorded as expenses in the same period as those revenues
Which of the following financial statements typically is prepared last? Statement of stockholders' equity Income statement Statement of cash flows Balance sheet
Statement of cash flows
Which of these asset accounts would typically appear first on a company's balance sheet? Equipment Land Supplies Cash
Cash
Identify the entries needed for the closing process. Credit Dividends Declared and debit Retained Earnings. Debit Dividends Declared and credit Retained Earnings. Debit each revenue, credit each expense, and record the difference in Retained Earnings. Credit each revenue, debit each expense, and record the difference in Retained Earnings.
Credit Dividends Declared and debit Retained Earnings. Debit each revenue, credit each expense, and record the difference in Retained Earnings.
Which of the following expressions correctly calculates "total assets?" Current assets plus long-term assets Cash plus accounts receivable plus equipment Cash plus supplies plus accounts receivable plus prepaid expenses Current assets plus long-term assets minus current liabilities
Current assets plus long-term assets
Which of the following would be reported as "property, plant, and equipment" on a classified balance sheet? (Select all that apply.) Currently used manufacturing facility Land held for future sale Land on which office building is located Tools that are held for resale
Currently used manufacturing facility Land on which office building is located
The closing entry for expense accounts involves the following journal entry. Debit ? Credit?
Debit - retained earnings Credit - expenses
______ 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
n which type of liability does the company fulfill its current obligation to its customers by providing services in the future? Interest payable Deferred revenue Accounts payable Cost of goods sold
Deferred revenue
_____ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)
Depreciation
_____Expense should be recorded to recognize the cost of using long-lived assets, such as equipment, during the accounting period. (Enter one word per blank.)
Depreciation
Investments in another company's debt expected to be held for five years are reported on a classified balance sheet under this category. Current liabilities Long-term investments Stockholders' equity Non-current liabilities
Long-term investments
On a classified balance sheet, long-term assets may be reported in these sub-categories: Trade receivables Long-term investments Inventories Property, plant, and equipment Intangible assets
Long-term investments Property, plant, and equipment Intangible assets
Which of the following statements is true regarding the post-closing trial balance? The post-closing trial balance proves that all entries have been made correctly and accurately during the accounting period. The post-closing trial balance is an internal report prepared as the last step in the accounting cycle. The post-closing trial balance is a report prepared before the adjustments and the financial statements to prove that debits
The post-closing trial balance is an internal report prepared as the last step in the accounting cycle.
What are the effects on the accounting equation when dividends are declared and paid? Total assets increase and total stockholders' equity increases. Total assets decrease and total stockholders' equity decreases. Total assets decrease and total stockholders' equity increases. Total assets increase and total stockholders' equity de
Total assets decrease and total stockholders' equity decreases.
Reporting revenues when goods or services are provided and expenses in the period they are incurred to generate related revenues is referred to as _______ -basis accounting
accrual
After posting adjusting entries to the general ledger, a company typically prepares: a post-closing trial balance an adjusted trial balance the financial statements an unadjusted trial balance
an adjusted trial balance
Deferred revenue appears on the ______. balance sheet as an asset income statement statement of retained earnings balance sheet as a liability
balance sheet as a liability
Assets, liabilities and stockholders' equity are reported on the_____ ______ , while revenue and expense are reported on the ____ ______
balance sheet, income statement
The retained earnings balance shown in an adjusted trial balance is the account's _______ balance.
beginning
The entries that transfer the balances of all temporary accounts to retained earnings are referred to as adjusting entries external entries post-closing entries closing entries
closing entries
The entries that transfer the balances of all temporary accounts to retained earnings are referred to as closing entries post-closing entries external entries adjusting entrie
closing entries
Which of the following items would be reported as intangible assets on a classified balance sheet? (Select all that apply.) equipment copyrights patents accounts receivable trademarks
copyrights patents trademarks
After the adjusting entries have been completed, the balance in the Rent Expense account represents the: amount of the future benefit remaining in the account cost of rent for the accounting period amount of rent owed at the end of the accounting period
cost of rent for the accounting period
If an asset account such as Equipment has a normal debit balance, the associated contra account should have a normal ______ balance. (Enter one word per blank.)
credit
A closing entry may include a ______. debit to Deferred Revenue debit to Prepaid Insurance credit to Interest Revenue credit to Wages Expense
credit to Wages Expense
During the year, Smite Company declared and paid dividends in the amount of $50,000. As part of the closing process, Smite should debit retained earnings and credit dividends debit dividends and credit retained earnings no journal entry is necessary as dividends have already been recognized
debit retained earnings and credit dividends
A closing entry includes a ______. credit to Accounts Receivable debit to Sales Revenue credit to Cash debit to Interest Expense
debit to Sales Revenue
The closing entry for dividends involves a debit to Retained Earnings and a credit to Dividends Declared. The debit to Retained Earnings causes a(n) _______ in the balance of the account.
decrease
The two major categories reported in the income statement are: assets expenses equity revenue
expense revenue
The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account. asset; expense liability; revenue revenue; liability expense; asset
expense; asset
in the closing process, ______ are zeroed out by crediting each account and ______ are zeroed out by debiting each account. revenues; expenses and dividends dividends; revenues and expenses expenses and dividends; revenues assets; liabilities
expenses and dividends; revenues
A classified balance sheet ______. shows only current assets and current liabilities groups asset and liabilities into current and long-term categories shows changes in assets, liabilities, revenues and expenses contains confidential information
groups asset and liabilities into current and long-term categories
An advantage of a classified balance sheet is that it is easy to see ______. if liabilities are greater than stockholders' equity if the company will be profitable in the long term how much the company owes its stockholders if current assets are large enough to pa
if current assets are large enough to pay current liabilities
The adjusted trial balance provides account balances reported in which financial statements?
income statement statement of stockholders' equity balance sheet
Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should debit net income. service revenue. insurance expense.
service revenue.
A company may properly classify an asset that provides benefits for 15 months as a current asset if the company's operating cycle is longer than one year. the company's operating cycle is shorter than one year. the asset's useful life cannot be separated into time segments. the asset value is very large.
the company's operating cycle is longer than one year.
Temporary accounts are found in: both the balance sheet and the income statement only the balance sheet none of the financial statements the income statement
the income statement
A primary purpose of adjusting entries is to record events that will occur at the beginning of the next period. have occurred but that have not yet been recorded. have been recorded incorrectly.
have occurred but that have not yet been recorded.
Under the accrual basis of accounting, costs used to generate revenue are recorded as expenses in the same period as related revenue. in the period incurred. in the period cash is paid.
in the same period as related revenue.
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 False
true Reason: The reduction to the asset account is taken through the Accumulated Depreciation account rather than directly through the long-lived asset account. The long-lived asset account is not affected and, therefore, keeps its original balance until it is sold or discarded.
In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting? $500 of revenue should be recorded in May and $500 in June. $1,000 of revenue should be recorded in June. $1,000 of revenue should be recorded in May.
$1,000 of revenue should be recorded in May. Reason: Revenue should be recorded when we provide goods or services regardless of whether the cash has been collected. Thus $1,000 of revenue should be recorded in May.
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 ______. $23,000 $22,000 $0 $12,000
$22,000 Reason: Prepaid rent started with $24,000 on November 1. After 2 months of use (November 1 through December 31), Prepaid rent only has 22 months left with a balance of $22,000 (or $24,000/24 months times 22 months).
After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______. amount that is owed for rent amount of the prepayment that has expired during the period amount of the prepayment that remains towards future rental periods
amount of the prepayment that remains towards future rental periods
A prepayment such as "Prepaid Insurance" is originally recorded as a(n) ____ when an insurance policy is purchased and will later be expensed in the period used.
asset
Supplies that are not used immediately are recorded as a(n) ______ when purchased. asset revenue liability expense
asset
Prepaid insurance is a(n) ______. asset in the balance sheet liability in the balance sheet expense in the balance sheet expense in the income stateme
asset in the balance sheet
As the balance in the Accumulated Depreciation increases, total assets _____ because Accumulated Depreciation is a(n) _____ account.
decrease, contra
Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period. increased; decreased decreased; increased increased; increased decreased; decreased
decreased; increased
_____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. (Enter only one word.)
deferred
Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when: the related revenue are recognized incurred, regardless of when it is paid paid
paid
After the adjusting entries have been completed, the adjusted balance in the Salaries Payable account represents wages earned by employees, but not yet ________ by the company.
paid
_______ arise when a company pays cash (or has an obligation to pay cash) to acquire an asset that is not used until a later period. There is a timing difference - cash is paid now and then later the expense is recognized. examples: purchase of buildings, equipment, or supplies or the payment of rent in advance. these payments are recorded as assets at the time purchase. In the period these assets are used, an adjusting entry is needed to (1) decrease the asset's balance to its remaining (unused) amount and (2) recognize an expense for the cost of asset used.
prepaid expenses
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 _____. deferred revenue; liabilities deferred revenue; assets prepaid expenses; assets prepaid expenses; expenses
prepaid expenses; assets
After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents: the amount of revenues for which goods or services were provided during the current period. the amount of revenues for which goods or services were provided during the current period, but not collected during the period. the amount of the sales or services still owed to the customer.
the amount of the sales or services still owed to the customer.
After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______. amount of the prepayment that has expired during the period amount of the prepayment that remains towards future rental periods amount that is owed for rent
amount of the prepayment that remains towards future rental periods
After the adjusting entries have been completed, the adjusted balance in the Supplies account represents: the cost of supplies used during the accounting period the cost of supplies purchased during the accounting period the cost of supplies purchased but not yet paid for at the end of the accounting period the cost of supplies remaining at the end of the accounting period
the cost of supplies remaining at the end of the accounting period
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 and increases the balance of the long-lived asset in the balance sheet.
False Reason: A contra-account is a negative account. It carries the opposite balance of the account with which it is paired. Consequently, Accumulated Depreciation reduces the long-lived asset when portrayed in the balance sheet.
Which of the following situations matches a journal entry that debits Deferred Revenue and credits Service Revenue? Goods or services, for which cash was collected in advance, were provided during the current period. Cash was collected for goods or services provided during the current period. Cash was collected for goods or services to be provided next perio
Goods or services, for which cash was collected in advance, were provided during the current period.
What are the effects on the accounting equation from the adjustment for salaries incurred but not yet paid during the accounting period? Total liabilities will decrease and total stockholders' equity will increase. Total liabilities will decrease and total stockholders' equity will decrease. Total liabilities will increase and total stockholders' equity will increase. Total liabilities will increase and total stockholders' equity will decrease.
Total liabilities will increase and total stockholders' equity will decrease.
The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____. accumulated depreciation; depreciation expense equipment; accumulated depreciation equipment; depreciation expense depreciation expense; accumulated depreciati
depreciation expense; accumulated depreciation
The process of allocating the cost of an asset to expense over the useful life of the asset is called asset valuation. book value. contra accounting. depreciation.
depreciation.
The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____. depreciation expense; accumulated depreciation equipment; depreciation expense accumulated depreciation; depreciation expense equipment; accumulated depreciation
depreciation expense; accumulated depreciation
The adjusting entry for a deferred revenue includes a debit to a(n) _______account and a credit to a(n) _____account. (Enter only one word per blank.)
liability, revenue
Cash-basis accounting ______. (Select all that apply.) provides a better measure of net income than accrual-based accounting records revenues when collected and expenses when paid is generally not accepted in preparing financial statements records revenue in the period earned and expenses in the period in
records revenues when collected and expenses when paid is generally not accepted in preparing financial statements
Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records ______. (Select all that apply.) revenues in the period when the revenue is earned, even though the cash has not yet been collected expenses only in the period when cash is paid revenues only in the period when cash is collected revenues in the period when the cash was collected, even if the service was performed in a prior period expenses in the period incurred, even though cash has not yet been paid
revenues in the period when the revenue is earned, even though the cash has not yet been collected + expenses in the period incurred, even though cash has not yet been paid
Under accrual-basis accounting, which of the following result in an expense being recorded in May? (Select all that apply.) The company pays cash in June for salaries earned in May. The company pays cash in April for supplies used in May. The company pays cash in May for salaries earned in April. The company pays cash in May for supplies used in June.
The company pays cash in June for salaries earned in May. + The company pays cash in April for supplies used in May. Reason: The question is asking about expense being recorded in MAY. Under accrual accounting, expenses are recorded in the period when related revenue is generated. Supplies used in May will generate revenue in May.
________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned. (Enter only one word.)
accruals
A prepayment that is originally recorded as an asset will be ______. allocated to future accounting periods equally over the periods receiving the benefit transferred to a liability account at the end of the accounting period allocated to future accounting periods based on the cost of the asset used during the period expensed in total at the end of the accounting period
allocated to future accounting periods based on the cost of the asset used during the period
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 decrease to Supplies and a decrease to Supplies Expense increase to Supplies and an increase to Supplies Expense
decrease to Supplies and an increase to Supplies Expense
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? (Select all that apply.) Taggert will debit Prepaid Insurance for $1,500 on Dec. 31. Taggert will debit Insurance Expense for $300 on Dec. 31. Taggert will debit Insurance Expense for $1,800 on Dec. 1. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. 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. Taggert will credit Prepaid Insurance for $300 on Dec. 31.
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? (Select all that apply.) Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. Taggert will credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Insurance Expense for $300 on Dec. 31. Taggert will debit Insurance Expense for $1,800 on Dec. 1. Taggert will debit Prepaid Insurance for $1,500 on Dec. 31.
Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. Taggert will credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Insurance Expense for $300 on Dec. 31.
After posting adjusting entries to the general ledger, a company typically prepares: an adjusted trial balance the financial statements a post-closing trial balance an unadjusted trial balance
an adjusted trial balance
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) revenue asset liability expense
asset
Which of the following statements most accurately describes the purposes of the closing entries? To bring the balances in the revenue and expense accounts up to date and to transfer net income and dividends into retained earnings To establish zero balances in the balance sheet accounts and to transfer net income and dividends into retained earnings To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings To bring the balances in the asset and liability accounts up to date and to transfer net income and dividends into retained earnings
To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings
Which of the following statements most accurately describes the purposes of the closing entries? To establish zero balances in the balance sheet accounts and to transfer net income and dividends into retained earnings To bring the balances in the asset and liability accounts up to date and to transfer net income and dividends into retained earnings To bring the balances in the revenue and expense accounts up to date and to transfer net income and dividends into retained earnings
To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings
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 Reason: The reduction to the asset account is taken through the Accumulated Depreciation account rather than directly through the long-lived asset account. The long-lived asset account is not affected and, therefore, keeps its original balance until it is sold or discarded.
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 deferred revenue; assets deferred revenue; liabilities prepaid expenses; expenses
prepaid expenses; assets
In May, Sea the World Cruises, Inc. collected $1,000 cash in advance from a customer for services to be performed in June. Which of the following is true assuming accrual accounting? $500 of revenue should be recorded in May and $500 in June. $1,000 of revenue should be recorded in May. $1,000 of revenue should be recorded in June.
$1,000 of revenue should be recorded in June. Reason: Revenue should be recorded when services are performed, regardless of when the cash is collected. The entry in May was a debit to Cash and credit to Deferred Revenue. The entry in June was a debit to Deferred Revenue and credit to Revenue.
On December 30, Superior Strategies, Inc., collected $10,000 in advance from clients relating to consulting engagements to be performed during January of the following year. Under cash-basis accounting, revenues recorded in December will equal: $10,000 $5,000 $0
$10,000
Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should credit retained earnings for: $5,400 $14,600 $20,000
$20,000 Reason: retained earnings is credited for the balance of revenue
Place the steps in the adjustment process at the end of the accounting period in the correct order. Using the unadjusted trial balance, determine the accounts requiring adjustment. Prepare an adjusted trial balance to check the equality of the debits and credits. Post the adjusting journal entries to the T-accounts. record the adjusting entries in the journal.
1. Using the unadjusted trial balance, determine the accounts requiring adjustment. 2. Record the adjusting entries in the journal. 3. Post the adjusting journal entries to the T-accounts. 4. Prepare an adjusted trial balance to check the equality of the debits and credits.
Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.) 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. A company pays a utility bill for charges incurred in the previous month. A company records interest expense that has accrued, but will not be paid unti
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.
Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.) A company pays a utility bill for charges incurred in the previous month. A company pays for 4 months of advertising in the Wall Street Journal on November 1. A company records interest expense that has accrued, but will not be paid until next year. 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. A company pays a 6-month insurance premium at the beginning of October.
When recording an adjustment for the cost of using equipment during the current accounting period, which two accounts are affected? Equipment and Depreciation Expense Accumulated Depreciation and Equipment Service Revenue and Equipment Accumulated Depreciation and Depreciation Expense
Accumulated Depreciation and Depreciation Expense
When recording an adjustment for the cost of using equipment during the current accounting period, which two accounts are affected? Service Revenue and Equipment Accumulated Depreciation and Depreciation Expense Equipment and Depreciation Expense Accumulated Depreciation and Equipment
Accumulated Depreciation and Depreciation Expense
How do adjusting entries for accrued expenses affect liabilities and expenses? Adjusting entries for accrued expenses can increase liabilities and decrease expenses. Adjusting entries for accrued expenses can increase liabilities and increase expenses. Adjusting entries for accrued expenses can decrease liabilities and increase expenses. Adjusting entries for accrued expenses can decrease liabilities and decrease expenses.
Adjusting entries for accrued expenses can increase liabilities and increase expenses.
Which of the following statements describes the effect that adjusting entries may have on liabilities? Adjusting entries do not have any effect on liabilities, since cash is not included in the adjusting entries. Adjusting entries reduce liabilities for the amount of any accrued and unpaid expenses at the end of the period. Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.
Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.
In May, Sea the World Cruises, Inc. collected $1,000 cash in advance from a customer for services to be performed in June. Which of the following is true assuming accrual accounting? A. $500 of revenue should be recorded in May and $500 in June. B. $1,000 of revenue should be recorded in June. C.$1,000 of revenue should be recorded in May.
B. $1,000 of revenue should be recorded in June. Reason: Revenue should be recorded when services are performed, regardless of when the cash is collected. The entry in May was a debit to Cash and credit to Deferred Revenue. The entry in June was a debit to Deferred Revenue and credit to Revenue.
Under the accrual basis of accounting, costs used to generate revenue are recorded as expenses: A. in the period cash is paid. B. in the same period as related revenue. C.in the period incurred.
B. in the same period as related revenue.
Which of the following are results of closing entries? (Select all that apply.) Balances in permanent accounts are zero Balances in temporary accounts are zero Retained earnings has a zero balance Temporary accounts are updated for current year income less dividends Retained earnings includes current year income less dividends
Balances in temporary accounts are zero Retained earnings includes current year income less dividends
Which type of adjusting entry would be made because you have used up a resource in the current period to help generate revenue earned in the current period that you will not pay for until the next period? A. Pre-paid Expense B. Deferred Revenues C. Accrued Expense D. Accrued Revenue
C. Accrued Expense
When Pizza Company sells three $100 gift cards at the beginning of the month, it should record a $300 debit to ______ and a $300 credit to ______. Cash; Service Revenue Cash; Deferred Revenue Accounts Receivable; Revenue Deferred Revenue; Cash
Cash; Deferred Revenue
If a company provided $10,000 of services in the current period that were paid for in the previous period what would be the journal entry? A. Debit Cash $10,000 Credit Service Revenue $10,000 B. Debit Accounts Payable $10,000 Credit Service Revenue $10,000 C. Debit Deferred Revenue $10,000 Credit Accounts Receivable $10,000 D. Debit Deferred Revenue $10,000 Credit Service Revenue $10,000
D. Debit Deferred Revenue $10,000 Credit Service Revenue $10,000
True or false: Salaries Receivable is the account used to record salaries owed to employees for work performed during the current period. True False
False Reason: The word "Receivable" denotes an asset and indicates that cash will be received in the future. Salaries owed to employees represent a liability because cash will need to be paid to employees in the future. The correct account is Salaries Payable.
True or false: A contra-asset account, such as Accumulated Depreciation, will have a normal debit balance. True False
False Reason: While Accumulated Depreciation is listed in the asset section, it is a contra or negative asset. Therefore, it will have a normal credit balance since the true assets have a debit balance.
Which of the following would be referred to as "accruals?" (Select all that apply.) Cash collected prior to goods or services being provided Cash paid prior to expenses being incurred Goods and services provided, not yet collected Expenses incurred, not yet paid
Goods and services provided, not yet collected Expenses incurred, not yet paid
When should supplies be recorded as an expense? In the period the supplies are purchased, regardless of when cash is paid In the period cash is paid for the supplies, regardless of when the supplies were received
In the period the supplies are used, regardless of when they were purchased Reason: Supplies are recorded as an asset when purchased and later expensed as they are used up.
Which of the following statements is true? Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts. The balance sheet reports financial activities only for the current accounting period. The income statement reports the financial position of a company at a point in time.
Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.
In January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in April. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense? March January April February
January Reason: The pizza ingredients are expensed in the month the ingredients are used (January), not in the month when the payment is made.
If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and a credit to Sales Revenue, how will this error affect net income for the current period? Net income will be too low. Net income will be too high. Net income will not be affected by this error. Net income will be too high in the following period
Net income will be too high. Reason: Net income will be too high because the credit should have been to Deferred Revenue, a liability, and not to Sales Revenue which makes net income too high.
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. On December 31, the company pays next year's fire insurance. On December 20, the company pays its liability insurance; coverage starts
On November 1, the company pays rent for the next six months.
How do temporary accounts differ from permanent accounts? Only temporary accounts are used in the adjustments at the end of the accounting period. Only permanent accounts are transferred to Retained Earnings during the closing process. Only temporary accounts are cleared out at the end of the accounting period. Only permanent accounts are found on the financial statements.
Only temporary accounts are cleared out at the end of the accounting period.
On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show: (Select all that apply.) Prepaid rent of $22,000 Rent expense of $24,000 Prepaid rent of $24,000 Rent expense of $2,000 Rent expense of $1,000
Prepaid rent of $22,000 Rent expense of $2,000 Reason: On November 1, 2018, the entry is a debit to Prepaid Rent and a credit to Cash. At the end of the year, the adjusting entry is a debit to Rent Expense of $2,000 and credit to Prepaid Rent of $2,000 (=$24,000/24 months* 2 months). The ending balance in Prepaid Rent will equal $22,000 (=$24,000 paid in advance - $2,000 of rent used during November and December). The $22,000 Prepaid Rent balance represents the amount of rent paid in advance that has not yet been used.
Which activities are part of the operating cycle? Issuing new shares Buying property, plant and equipment Selling goods and services
Selling goods and services
Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings? Income statement Retained earnings statement Statement of stockholders' equity Comprehensive income statement Balance sheet
Statement of stockholders' equity
True or false: After the closing entries have been posted, the new balance in the Retained Earnings account will equal the Retained Earnings reported in the balance sheet.
True Reason: The beginning balance of Retained earnings has been increased by net income and decreased by dividends. This calculation summarizes the effects of the closing entries on the retained earnings account.
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 could increase or decrease. When adjusting entries are recorded, the original cost in the Equipment account will increase. When adjusting entries are recorded, the original cost in the Equipment account will not change. When adjusting entries are recorded, the original cost in the Equipment account will decrease.
When adjusting entries are recorded, the original cost in the Equipment account will not change. Reason: The adjustment for use of the asset is entered in the Accumulated Depreciation account rather than directly into the Equipment account. So, the Equipment account will not change.
Consistent with the _________-basis of accounting, we record revenue when we provide goods and services to customers, and we record expenses in the period that costs are used to provide those goods and services.
accrual
Prepaid rent appears in the ______. balance sheet because it is an asset income statement because it is an expense balance sheet because it is a stockholders' equity account income statement because it is an asset
balance sheet because it is an asset
Long-lived assets are reported in the balance sheet at _____ value, which is equal to its original cost less _____. book; accumulated depreciation fair; depreciation expense fair; accumulated depreciation book; depreciation expense
book; accumulated depreciation
After the adjusting entries have been completed, the balance in the Rent Expense account represents the: cost of rent for the accounting period amount of the future benefit remaining in the account amount of rent owed at the end of the accounting period
cost of rent for the accounting period
During the closing process, the closing entries to individual expense accounts will be recorded with a ______ journal entry in order to reduce the account balance to zero. debit credit
credit Reason: Since expenses increase with debit entries and therefore, maintain normal debit balances, the accounts must be credited to reduce the balance to zero.
On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes: (Select all that apply.) debit to Cash credit to Cash debit to Prepaid Insurance credit to Prepaid Insurance
credit to Prepaid Insurance debit to Insurance Expense
The adjusting entry for supplies used requires a ______ to Supplies and a _____ to Supplies Expense.
credit; debit
When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following? credit to Accounts Receivable debit to Deferred Revenue credit to Cash debit to Cash credit to Deferred Revenue
debit to Deferred Revenue credit to Revenue
When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following? credit to Deferred Revenue debit to Deferred Revenue credit to Accounts Receivable credit to Revenue debit to Cash
debit to Deferred Revenue credit to Revenue
The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account. liability; revenue expense; asset asset; expense revenue; liability
expense; asset
Consistent with accrual-basis accounting, expenses should be recognized in the period when the related revenue is generated when a binding agreement is signed when cash is paid by the customer
in the period when the related revenue is generated
After the adjusting entries have been completed, the ending balance in the Supplies account represents the cost of supplies ______. used during the accounting period purchased, but not yet paid for, at the end of the accounting period remaining at the end of the accounting period purchased during the accounting period
remaining at the end of the accounting period
what would you find on a post closing trial balance? a. dividends b. retained earnings c. rent expense d. service revenue
retained earnings
Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should debit insurance expense. service revenue. net income.
service revenue.
The ending balance of retained earnings represents ______. amounts given to the company by stockholders in exchange for stock during the current year. amounts given to the company by its stockholders in exchange for stock over the life of the company. amounts earned and kept by the company during the current year. the cumulative total of net income less dividends over the life of the company.
the cumulative total of net income less dividends over the life of the company.
There is a cause-and-effect relationship between revenues and expenses that dictates: when revenues are recognized in the income statement when costs are recognized as expenses in the income statement the ordering of assets and liabilities in the balance sheet where in the income statement expenses should be presented
when costs are recognized as expenses in the income statement