Chapter 3 T/F

Accrued revenue represents the receipt of cash before the revenue has been earned.

False

Adjusting entries may involve any account, including cash

False

An adjusted trial balance does not list the revenues and expenses of a business.

False

Avalon Event Planning Services, Inc. records deferred expenses and deferred revenues using the alternative treatments. It makes adjusting entries as needed to bring its books to the full accrual basis once a year at the end of the year. On October 1, it paid $3,700 for insurance for a one-year period. At the end of the year, it will make an adjusting entry that debits Insurance Expense for $2,158

False

Deferred revenues are assets because the business has collected the cash before earning the revenue

False

Holland, Inc. purchased manufacturing equipment for $12,600. It has an estimated useful life of seven years and no residual value. The company should record depreciation expense of $100 per month. (Assume that the company uses the straight-line method.)

False

Holland, Inc. purchased manufacturing equipment for $9240. It has an estimated useful life of seven years and no residual value. The company should record depreciation expense of $60 per month. (Assume that the company uses the straight-line method.)

False

In the case of deferred revenue, the adjusting entry at the end of the period includes a debit to Service Revenue. Assume the deferred revenue is initially recorded as a liability.

False

On January 1, 2016, Prepaid Insurance of Maywood, Inc. had a beginning balance of $3,000. Three months of insurance premiums remain in the beginning balance. On February 1, 2016, the company paid an annual insurance premium in the amount of $3,800 for the period beginning April 1. On February 28, 2016, the balance in Prepaid Insurance is $2,000. The deferred expense was initially recorded as an asset.

False

On January 1, Unearned Revenue of Grossman, Inc. had a beginning balance of $1,400. During January, the company earned $700 of the deferred revenue. The company also collected $6,000 from a new customer for services to be performed the following month. At the end of January, the Unearned Revenue account should have a balance of $6,000

False

Prepaid Rent is an expense account that appears on the income statement.

False

The sum of all the depreciation expenses recorded to date for a depreciable asset is called residual value

False

Adjusting entries either credit a revenue account or debit an expense account

True

Deferred expenses are also called prepaid expenses.

True

If a company fails to make an adjusting entry for deferred expense, the assets will be overstated. Assume the deferred expense is initially recorded as an asset

True

In the case of a deferred expense, the adjusting entry required at the end of a period will consist of a credit to the Prepaid Expense account. Assume the deferred expense was initially recorded as an asset

True

In the case of deferred revenue, the adjusting entry at the end of the period includes a credit to Service Revenue. Assume the deferred revenue is initially recorded as a liability

True

In the case of deferred revenue, the cash is received first, and the revenue is earned later.

True

On January 1, Ogden, Inc. had $1,500 of supplies on hand. During January, Ogden purchased $5,500 worth of new supplies. At the end of the month, a count revealed $700 worth of supplies remaining on the shelves. The adjusting entry needed will include a debit to Supplies Expense of $6,300. The supplies were initially recorded as an asset

True

Prepaid Insurance is an asset account that appears on the balance sheet

True

The accounting period used for the annual financial statements is called the fiscal year

True

The depreciation method that allocates an equal amount of depreciation each year is called the straight-line method

True

The worksheet is a useful step in preparing adjusting entries and the unadjusted trial balance

True`

A contra account's normal balance (debit or credit) is the opposite of the normal balance of the related account.

true

The revenue recognition principle is the basis for recording revenues-both when to record revenue and the amount of the revenue recorded

true