Chapter 3 SmartBook

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

At the beginning of the accounting period, the balances of temporary accounts

are zero

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)

asset

Prepaid expenses should be ______ by the cost of the asset used during the accounting period.

decreased

The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____.

depreciation expense; accumulated depreciation

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following? (Select all that apply.)

prepaid expense liability

is the price earned from selling goods or services to customers. (Enter one word per blank)

revenue

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

Which of the following would be referred to as "accruals?" (Select all that apply.)

Goods and services provided, not yet collected Expenses incurred, not yet paid

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 will not change.

A long-term liability:

is not due within the next year

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary

When recording an adjustment for the cost of using equipment during the current accounting period, which two accounts are affected?

Accumulated Depreciation and Depreciation 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; Deferred Revenue

Which of the following expressions correctly calculates "total assets?"

Current assets plus long-term assets

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?

December 31

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

Which activities are part of the operating cycle?

Selling goods and services

Which of the following financial statements typically is prepared last?

Statement of cash flows

The adjusting entry for an accrued revenue always includes: (Select all that apply.)

a credit to a revenue account a debit to an asset account

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

_________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned.

accrual

A prepayment that is originally recorded as an asset will be ______.

allocated to future accounting periods based on the cost of the asset used during the period

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

Deferred revenue appears on the ______.

balance sheet as a liability

Reporting revenues only when cash is received and expenses only when cash is paid is called the ___________ basis of accounting.

cash

The process of allocating the cost of an asset to expense over the useful life of the asset is called

depreciation

Revenues and expenses are reported in the:

income statement

With respect to current assets, ___________ refers to how quickly an asset can be converted to cash. (Enter only one word.)

liquidity

The statement of stockholders' equity includes these amounts: (Select all that apply.)

net income ending balance retained earnings dividends for the period

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

The adjusting entry for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.

supplies expense; supplies

After the adjusting entries have been completed, the adjusted balance in the Supplies account represents:

the cost of supplies remaining at the end of the accounting period

The sum of current and long-term assets reported on the balance sheet is referred to as .

total assets

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 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.

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

Supplies that are not used immediately are recorded as a(n) ______ when purchased.

asset

The post-closing trial balance checks that total ________ equal total ______ at the end of the period. (Enter only one word per blank.)

credit, debit

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.

decreased; increased

Assets that will be used up or converted to cash within the next year are _______ assets.

current

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 ______.

$22,000

Temporary

revenues, expenses, dividends

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer.

Adjusting entries:

update the accounts to their proper balances. are needed before financial statement preparation.

On a classified balance sheet, total liabilities represent the sum of _________ and long-term liabilities. (Enter only one word.)

current

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

expense

Prepaid rent appears in the ______.

balance sheet because it is an asset

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period.

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

Which of these is a long-term liability?

mortgage payable due in 20 years

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.

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is a cost of borrowing.

Which activities are part of the operating cycle?

Selling goods and services Collecting cash from customers Paying cash to suppliers

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

Service revenue for $1,800

Which of the following statements regarding the statement of cash flows are correct?

The final financial statement that is typically prepared Reports cash receipts Reports cash disbursements

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

Adjusting entries are made at the _____________ of the accounting period, while daily transactions are made throughout the accounting period.

end

True or false: A contra-asset account, such as Accumulated Depreciation, will have a normal debit balance.

false

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______.

amount of the prepayment that remains towards future rental periods

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.

an asset is increased since cash will be collected at a later date

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?

Statement of stockholders' equity

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 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.

Which of the following statements is correct regarding a long-lived asset such as a building?

The original cost in the building account will not change when an adjusting entry is recorded for depreciation.

What are the effects on the accounting equation when an adjusting entry is made for goods or services provided during the accounting period related to an amount previously received in advance from a customer?

Total liabilities will decrease and total stockholders' equity will increase.

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 increase and total stockholders' equity will decrease.

The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account.

an increase

An adjusting entry is necessary to record interest expense at year-end because the interest:

has already been incurred

Sabrina Company recorded an adjusting entry for salaries owed to employees at the end of the year. As a result of this entry, Sabrina Company's: (Select all that apply.)

liabilities increase equity decreases

An asset that can quickly be turned into cash has the characteristic of

liquidity

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?

$35,910 Reason: (($53,520/24 months) x 7 months remaining)+(($34,800/24 months) x 14 months remaining). Note that the question is asking for the Prepaid rent on the balance sheet on December 31, 2020 and not the expense on the income statement.

________ 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

__________ 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

A classified balance sheet shows subtotals for current

assets and liabilities

Permanent

assets, liabilities, equity

Accumulated Depreciation has a normal _______ balance which indicates that it reduces total assets.

credit

Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.)

debit a liability account credit a revenue account

An adjusting entry for accrued expenses involves: (Select all that apply.)

debit to an expense credit to a liability

Deferred revenue is reported on the balance sheet as a current ________.

liability

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period.

owed

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

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

The post-closing trial balance helps to verify that: (Select all that apply.)

the accounts are ready for next period's transactions we prepared and posted closing entries correctly

Revenue in the income statement for the year ended December 31, 2018 equals the ______.

amount earned by selling goods or services to customers during 2018

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

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.

The adjusting entry for prepaid rent requires a(n) _________ to Rent Expense and a(n) __________ to Prepaid Rent.

debit, credit

True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

false

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense; asset

The information reported in the statement of cash flows is organized by these activities:

operating financing investing

What are current assets?

Assets that provide benefits within the next year.

__________ Expense should be recorded to recognize the cost of using long-lived assets, such as equipment, during the accounting period

depreciation

_____ are recorded in the period that goods and services are provided to customers and _____ are recorded in the period that costs are incurred while providing those goods and services

revenues expenses

Depreciation is an allocation of the ________ of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)

cost

After the adjusting entries have been completed, the balance in the Rent Expense account represents the:

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

credit balance

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?

debit to Deferred Revenue credit to Revenue

As the balance in the Accumulated Depreciation increases, total assets _________ because Accumulated Depreciation is a(n) ________ account.

decreases, contra or credit

Munster Inc. debits Deferred Revenue and credits Service Revenue. As a result of this adjusting entry, Munster's: (Select all that apply.)

equity will increase liabilities will decrease

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) ______ in the period the benefit expires

expense

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 Insurance Expense credit to Prepaid Insurance