CH 3

On January 1, Fashion Forward Magazine received $15,000 from subscribers for the annual subscriptions that it recorded in Unearned Subscription Revenue. The issues of the magazine are mailed to subscribers quarterly. What amount of subscription revenue should the magazine recognize on March 31 when the first issue is sent in March?

$3750

The revenue recognition principle requires that revenue be recorded:

when the goods or services are provided to customers

Which of the following is classified as a plant asset?

office equipment

Interim financial statements

cover less than one year, usually spanning one-, three-, or six-month periods.

Which of the following statements is true?

A post-closing trial balance should include only permanent accounts.

An unclassified balance sheet:

broadly groups assets, liabilities, and equity

An adjusting entry that increases an asset and increases a revenue is known as a(n):

accrued revenue

Which of the following statements is incorrect?

Financial statements should be prepared directly from information in the unadjusted trial balance.

Prepaid expenses reflect transactions when cash is paid:

Before the related expense is recognized.

Place the steps in the four-step closing process in the correct order:

1. Close the revenue accounts 2. Close the expense accounts 3. Close the income summary accounts 4. Close the dividends accounts

An adjusted trial balance includes which of the following accounts:

all accounts and their balances

The company's adjusted trial balance as follows includes the following accounts balances: Cash, $15,000; Equipment, $85,000; Accumulated Depreciation, $25,000; Accounts Payable, $10,000; Retained earnings, $59,000; Dividends, $2,000; Fees Earned, $56,000; Depreciation Expense, $25,000; and Salaries Expense, $23,000. All accounts have normal balances. Prepare the first closing entry by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns. Note: FIRST CLOSING ENTRY. I was stuck in this problem for over thirty minutes because of failure to read the entire question.

Fees earned 56000 Income summary 56000

Closing the temporary accounts at the end of each accounting period does all of the following except:

Has no effect on the retained earnings account.

Before the adjusting entry for a deferral of an expense, the expenses will be _____ and the assets will be _____.

understated; overstated

On April 1, Otisco, Inc. paid Garcia Publishing Company $1,548 for 36-month subscriptions to several different magazines. Otisco debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Otisco, Inc. after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made?

$387

The main purpose of adjusting entries is to:

record internal transactions and events

On April 1, Otisco, Inc. paid Garcia Publishing Company $1,548 for 36-month subscriptions to several different magazines. Otisco debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Otisco, Inc. after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made?

$1,161 Let us first find out how much of the prepaid subscriptions has been used up during the reporting year. $1548 is for 36 months. So the monthly rate of subscription charges will be 1548/36 = 43. During the reporting year, subscription charges are paid only for 9 months( from April to December) So the amount to be debited to subscription charges = 43 * 9 = 387. Subscription charges will be debited with $ 387 and prepaid subscriptions account will be credited with the same amount. The remaining amount, 1548-387=1161, will remain in prepaid subscriptions account as a debit balance.

The accounting cycle consists of 10 steps. Identify the order.

1. Analyze transactions 2. Journalize 3. Post 4. Prepare unadjusted trial balance 5. Adjust 6. Prepare adjusted trial balance 7. Prepare financial statements 8. Close 9. Prepare post-closing trial balance 10. Reverse (Optional)

Place the steps in the three-step adjusting process in the correct order:

1. Determine what the current account balance equals 2. Determine what the current account balance should equal 3. Record an adjusting entry to get from step 1 to step 2

The following is a partial list of account names that appear on the company's adjusted trial balance. Classify the following list of accounts into the correct financial statement column using the drop-down list.

Accounts Receivable: Asset Unearned Revenue: Liability Accounts Payable: Liability

The following is a partial list of account names that appear on the company's adjusted trial balance. Classify the following accounts into the correct financial statement column using the drop-down list.

Consulting revenue: Revenue Rent expense: Expense Dividends: Dividends

On December 31, Jacoby Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:

Debit Rent Expense $2,000; credit Prepaid Rent $2,000.

On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 of the current year to April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. Assuming adjustments are only made at year-end, the adjusting entry on December 31 would be:

A debit to Unearned Fees and a credit to Fees Earned for $1,000.

On December 31, Carmack Company received a $215 utility bill for December that it will not pay until January 15. The adjusting entry needed on December 31 to accrue this expense is:

Debit Utilities Expense $215; credit Accounts Payable $215.

Adjusting entries affect:

One or more balance sheet accounts and one or more income statement accounts

All of the following are true regarding prepaid expenses except:

The adjusting entry for prepaid expenses increases expenses and decreases liabilities.

On November 1, the company rented space to another tenant. A check in the amount of $9,000, representing three months' rent in advance, was received from the tenant on that date. The payment was recorded with a credit to the Unearned Rent Revenue account. Complete the necessary December 31 adjusting journal entry by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns.

Unearned rent revenue 6000 Rent revenue 6000 9000*(2/3)=6000

On Saturday, December 31, the company's owner provided ten hours of service to a customer. The company bills $100 per hour for services provided on weekends. Payment has not yet been received. The owner did not stop in the office on Saturday; as such, on December 31, the services were unbilled and unrecorded. Complete the necessary December 31 journal entry by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns.

Accounts receivable 1000 Services revenue 1000 100*10=1000

Aurora Corporation operated without insurance coverage for the first month of operations. Then, on February 1, the company paid the $4,800 premium on a two-year insurance policy with benefits beginning on that date. The company uses the accrual basis. How much insurance expense will be reported on the company's income statement for their first year ended December 31?

$2,200

On July 1 Olive Co. paid $7,500 cash for management services to be performed over a two-year period. Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Olive should record:

A debit to a prepaid expense and a credit to Cash for $7,500.

Assume that the Accumulated Depreciation account has an unadjusted normal balance of $120,000. The company's list of adjusting entries includes one that debits Depreciation Expense and credits the Accumulated Depreciation account for $20,000. The adjusted balance in the Accumulated Depreciation account is a:

credit balance of $140,000

Cash $12,000 Land 30,000 Long-term investments 15,000 Merchandise inventory 6,000 Notes receivable (due in 30 days) 1,000 Notes receivable (due in 5 years) 5,000 Prepaid insurance 1,500 Short-term investments 10,000 Supplies 250 Total assets $ 80,750 The company's unclassified balance sheet reported the assets listed in the above table. The total current assets that would be reported on a classified balance sheet prepared for the company are:

$30,750

On January 1, the company purchased equipment that cost $10,000. The equipment is expected to be worth about (or has a salvage value of) $1,000 at the end of its useful life in five years. The company uses straight-line depreciation. It has not recorded any adjustments relating to this equipment during the current year. Complete the necessary December 31 journal entry by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns.

Depreciation expense 1800 Accumulated depreciation 1800 10000-1000=9000 9000/5=1800

On May 1, a two-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?

$6,000

The company's adjusted trial balance as follows includes the following accounts balances: Cash, $15,000; Equipment, $85,000; Accumulated Depreciation, $25,000; Accounts Payable, $10,000; Retained earnings, $59,000; Dividends, $2,000; Fees Earned, $56,000; Depreciation Expense, $25,000; and Salaries Expense, $23,000. All accounts have normal balances. Prepare the third closing entry by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns.

Income summary 8000 Retained Earnings 8000 Revenue-expenses=retained earnings fees earned- (depreciation expense+salaries expense)= retained earnings 56000-(25000+23000)=8000

The primary difference between the accrual basis and the cash basis of accounting is:

The accrual basis records revenues when services or products are delivered and records expenses when incurred. The cash basis records revenues when cash is received and records expenses when cash is paid.

Palmer Company is at the end of its annual accounting period. The accountant has journalized and posted all external transactions and all adjusting entries, has prepared an adjusted trial balance, and completed the financial statements. The next step in the accounting cycle is:

close temporary accounts

Annual reporting periods can cover

all of the above: a calendar year. A 52-week period. 12 consecutive months.

A company purchased new furniture at a cost of $16,000 on January 1. The furniture is estimated to have a useful life of 6 years and a $1,000 salvage value. The company uses the straight-line method of depreciation. What is the book value of the furniture on December 31 of the first year?

$13,500

Aurora Corporation operated without insurance coverage for the first month of operations. Then, on February 1, the company paid the $4,800 premium on a two-year insurance policy with benefits beginning on that date. The company uses the cash basis. How much insurance expense will be reported on the company's income statement for their first year ended December 31?

$4,800

On April 1, Garcia Publishing Company received $1,548 from Otisco, Inc. for 36-month subscriptions to several different magazines. The subscriptions started immediately. What is the amount of revenue that should be recorded by Garcia Publishing Company for the second year of the subscription assuming the company uses a calendar-year reporting period?

$516

Identify the accounts that would appear on the post-closing trial balance.

Cash- included Dividends- not included Depreciation Expense- not included Retained Earnings- included Income Summary- not included

The company employs a single employee who works all five weekdays and is paid on the following Monday. The employee works the entire week ending on Friday, December 30. The employee earns $800 per day. Complete the necessary December 31 journal entry by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns.

Salaries expense 4000 Salaries payable 4000 800*5=4000

On December 1, Milton Company borrowed $300,000, at 8% annual interest, from the Tennessee National Bank. Interest is paid when the loan matures one year from the issue date. What is the adjusting entry for accruing interest that Milton would need to make on December 31, the calendar year-end?

debit Interest Expense, $2,000; credit Interest Payable, $2,000.

The correct adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31 is:

debit Salary Expense, $9,000; credit Salaries Payable, $9,000