McGraw Hill Accounting SmartBook Chapter 3

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance.

At the end of the previous year, a customer owed Days Company $400. On February 1 of the current year, the customer paid $600 total, which included the $400 owed plus $200 owed through February 1st. The journal entry on February 1st is? (Check all that apply.)

Accounts receivable will be credited for $400. Service revenue would be credited for $200. Cash will be debited for $600.

At the end of the previous year, a customer owed Chocolates R US $500. On January 31 of the current year, the customer paid $900 total, which included the $500 owed plus $400 owed for the current month of January. What would be the journal entry on January 31 that reflects this? (Check all that apply.)

Accounts receivable will be credited for $500. Cash will be debited for $900. Service revenue would be credited for $400.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

Adjustments involve increasing both an expense and a liability account. They refer to costs that are incurred in a period, but are both unpaid and unrecorded. They are reported on an income statement. Examples of accrued expenses are wages expense and interest expense.

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following sentence. The required adjusting entry would be to debit the (Unearned revenue/Accounts receivable/Cash/Service revenue) account and (debit/credit) the (Unearned revenue/Accounts receivable/Cash/Service revenue) account.

Blank 1: Accounts receivable Blank 2: credit Blank 3: Service revenue

The expense recognition (matching) principle aims to record (expenses/assets/liabilities) in the same accounting period as the (expenses/revenues/assets) that are earned as a result of those costs. This principle is a major part of the (timing/adjusting/estimating) process.

Blank 1: expenses Blank 2: revenues Blank 3: adjusting

The formula to figure out the profit margin of a company is (Net income/Accounts receivable/Net sales) divided by (Net income/Cash/Net sales).

Blank 1: net income Blank 2: net sales

Accrual basis accounting recognizes (equity/revenues/expenses) when earned and records (revenues/expenses/liabilities) when (incurred/paid) in order to adhere to the matching principle.

Blank 1: revenues Blank 2: expenses Blank 3: incurred

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

Businesses report financial information at regular intervals to ensure timeliness of data. Useful information must reach decision makers frequently. The value of information is often linked to its timeliness.

McDarrel's records $500 of accrued salaries on December 31. Three days later, on January 3, total salaries of $4,000 (including the $500 accrued at year end) are paid. Demonstrate the required journal entry on January 3 by selecting from the choices below. (Check all that apply.)

Cash would be credited for $4,000. Salaries payable will be debited for $500. Salaries expense would be debited for $3,500.

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600.

Sheldon Company had $500 for one day of accrued salaries on December 31 of the prior year. On January 4 of the current year, total salaries for the five-day week are paid. The journal entry to record the payment of salaries on January 4 includes:

Debit to Salaries Payable for $500; Debit to Salaries Expense for $2,000

Which of the following statements describes the expense recognition (matching) principle? (Check all that apply.)

Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses. Matching of expenses with revenues is a major part of the adjusting process.

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

A plant asset can be defined by which of the following statements? (Check all that apply.)

It is reported on the balance sheet. It has a life within the business greater than one year. Its original cost (minus any salvage value) is expensed over its useful life. It is a tangible long-term asset.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.)

Permanent accounts will appear on a post-closing trial balance. Permanent accounts are reported on the balance sheet. Temporary accounts have a balance for one period only. Retained Earnings is a permanent account, but Dividends is a temporary account. Temporary accounts are reported on the income statement.

Which of the following statements correctly define(s) a profit margin? (Check all that apply.)

Profit margin is also called return on sales. Profit margin is a useful measure of a business's operating results. Profit margin is the ratio of a business's net income to its net sales.

$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?

Supplies expense would be debited for $600.

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Supplies would be credited for $300. Supplies expense would be debited for $300.

Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

Which of the statements below is (are) correct regarding the accounting cycle? (Check all that apply.)

The accounting cycle refers to steps followed by a company to prepare its financial statements. The accounting cycle is a series of steps repeated each reporting period. The cycle contains steps for adjusting and closing accounts. The accounting cycle contains 9 (10 with optional reverse) steps.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. The adjusted trial balance is used to prepare financial statements.

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

They are also called deferred revenues. They refer to cash received in advance of performing a service or product. They are a liability. They are reported on a balance sheet.

Which of the following describes accrued revenue? (Check all that apply)

They refer to revenues that are earned in a period, but have not been received and are unrecorded. The adjustment causes an increase in an asset account and an increase in a revenue account. They refer to earnings which have been earned but not yet billed. Accounts receivable is usually increased when accruing revenues.

Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product.

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

Accrual basis accounting is: (Check all that apply.)

an accounting system that best reflects business performance and increases the comparability of financial statements from period to period. an accounting system which is consistent with generally accepted accounting principles. an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred.

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

debit to Insurance expense for $400. credit to Prepaid insurance for $400.

Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply.)

one-month six-month one-year

Accrued _________ are earned in a period that are both unrecorded and not yet received in cash.

revenues

The revenue recognition principle states that revenue:

should be recorded when goods or services are provided to customers at an amount expected to be received