MGT 011A Learnsmart Chapter 3

At year-end, Zagnut Company is beginning its closing process. Use the following account balances to demonstrate the closing of its expense accounts. -Service Fees: $10,000 credit -Consulting Revenue: $2,000 credit -Supplies Expense: $700 debit -Insurance Expense: $900 debit -Dividends: $120 debit

-A debit to Income Summary for $1,600 -Credit Insurance Expense for $900 -Credit to Supplies Expense for $700

A classified balance sheet has several categories for assets and liabilites including:

-Plant assets -Noncurrent (long-term) liabilites -Long-term investments -Current assets

The following categories are on a classified balance sheet. List them in the order that they would appear.

1. Current assets 2. Long-term investments 3. Plant assets 4. Intangible assets 5. Current liabilities 6. Long-term liabilities

Which of the statements below describe(s) a permanent account? (Check all that apply.)

A permanent account's balance is carried forward to the next accounting period. A permanent account is reported on the balance sheet.

Demonstrate your knowledge of preparing an adjusted trial balance by selecting the correct statement below.

An adjusted trial balance is prepared after adjustments are posted, so new accounts may need to be added.

A post-closing trial balance is a list of ______________(permanent/temporary) accounts and their balances from the ______________(journal/ledger) ___________(after/before) all _________________(adjusting/closing) entries have been journalized and posted.

Blank 1: permanent Blank 2: ledger Blank 3: after Blank 4: closing

Current items can be described as those expected to come due within one ____________(month/year) and are listed in the order of how ___________________(quickly/slowly) they could be converted to or paid in cash.

Blank 1: year Blank 2: quickly

What is the book value of an asset?

Book value is the original cost of an asset minus its accumulated depreciation.

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

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

Define the Income Summary account.

It is a temporary account used during the closing process to summarize revenues and expenses.

Identify which of the accounts below would be classified as a plant asset account. (Check all that apply.)

Land currently being used Building Equipment Machinery

What is the purpose of the Accumulated Depreciation account?

The account allows both the original cost of plant assets and the total depreciation taken to be shown simultaneously.

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

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

Describe the final step in the adjusting process

The final step is to create an adjusting journal entry to get from step 1 to step 2

Which of the following lists contains only temporary accounts?

Wages Expense; Income Summary; Dividends

An adjusting journal entry is made at the(beginning/middle/end) of an accounting period.

end

List the order in which financial statements are prepared.

income Statement of retained earnings balance sheet statement of cash flows

Which of the following accounts is considered a prepaid expense?

supplies

Current assets are:

Cash and other resources that are expected to be sold, collected, or used within one year

Illustrate your understanding of how to use the adjusted trial balance to prepare the balance sheet by completing the following sentence. In order to prepare a balance sheet using the account balances on an adjusted trial balance, all of the(expenses/assets) and their debit balances are transferred to the balance sheet as well as all of the(liabilities/revenues) and their(debit/credit) balances

assets liabilities credit

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December:

debit accounts receivable credit services revenue

Which of the following statements describes the expense recognition (matching) principle?

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

$21,000 of equipment is purchased on December 1. It is estimated that it will have a life of 5 years and zero salvage value. Calculate depreciation expense as of December 31 of the first year using the straight-line method.

350

A company had the following selected balances: -Service Revenue: $4,000 credit -Rental Revenue: $2,000 credit -Wages Expense: $500 debit -Utilities Expense: $100 debit -Dividends: $80 debit The first closing journal entry would include which of the following?

A credit to Income Summary for $6,000

A company had the following selected balances:-Service Revenue: $4,000 credit-Rental Revenue: $2,000 credit-Wages Expense: $500 debit-Utilities Expense: $100 debit-Dividends: $80 debitThe first closing journal entry would include which of the following?

A credit to Income Summary for $6,000

Illustrate your understanding of how to use the adjusted trial balance to prepare an income statement by completing the following sentence. In order to prepare an income statement using the account balances on an adjusted trial balance, all of the(revenues/liabilities) and their credit balances are transferred to the income statement as well as all of the(expenses/assets) and their(debit/credit) balances.

revenues expenses debit

Identify the accounts below that would be classifies as long-term liabilities on a classified balance sheet. (check all that apply)

textbook: (due longer than one year) mortgage payable bonds payable (due in 5 years)

Choose the statement(s) below which is (are) true regarding adjusting journal entries. (Check all that apply.)

Cash is never affected. A balance sheet account is always affected. An income statement account is always affected.

Able Company owes interest on a note for a loan. The note is dated December 1 and is due on February 1. On December 31, interest expense should be accrued for the following period:

December 1 to December 31

What is depreciation?

Depreciation is an accounting process by which a company allocates an asset's cost throughout its useful life.

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Service revenue would be credited for $700. Unearned revenue would be debited for $700.

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. (check all that apply)

accounts payable notes payable (due in three months) taxes payable unearned rent

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

an accounting system that uses the matching principle to determine when to recognize revenues and expenses. 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.

$200 of supplies were purchased at the beginning of the period and recorded as an asset. During the period, $90 of supplies were used. The adjustment to show the supplies used up would cause (assets/liabilities/expenses) to be reduced and (expenses/liabilities/revenues) to be increased, so net income would decline.

assets expenses

Review and complete the following statement regarding the Income Summary account. The Income Summary account is(debited/credited) for the sum of all revenue accounts and is(debited/credited) for the sum of all expense accounts and its balance will be transferred to the(Retained Earnings/Cash) account.

credited debited retained earnings

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.

Demonstrate your knowledge of a depreciation adjusting entry by completing the following sentence. A depreciation adjustment would include a debit to(depreciation expense/accumulated depreciation/building) and(debit/credit) to(depreciation expense/accumulated depreciation/building).

depreciation expense credit accumulated depreciation

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable)account and (debit/credit)the Interest(expense/payable/receivable) account.

expense credit payable

What is an intangible asset? (Check all that apply.)

long-term resources that benefit business operations, but lack physical form. the value of intangible assets comes from the privileges or rights granted to or held by the owner.

A business has a $5,000 loan from a bank at 16% annual interest. Calculate the amount of interest to accrue if the loan has been outstanding for 90 days. Use a 360 day year.

$200

The entries to close the revenue and expense accounts for Jefferson Company are shown below. The next closing entry in the closing process would include?? -Service Fees: $10,000 debit -Income Summary: $10,000 credit -Income Summary: $2,900 debit -Wages Expense: $2,900 credit

-A debit to Income Summary for $7,100 -A credit to the Retained Earnings account for $7,100

The formula for figuring interest expense is:

Amount owed x interest rate x fraction of the year since last payment

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600.

A company had the following selected balances:-Service Revenue: $4,000 credit-Rental Revenue: $2,000 credit-Wages Expense: $500 debit-Utilities Expense: $100 debit-Dividends: $80 debit Demonstrate the last closing journal entry to close the Dividends account by selecting the correct answer below.

Debit Retained Earnings $80; Credit Dividends $80

Which of the following describe the Salaries payable account? (Check all that apply.)

It reports amounts owed to employees. It is reported on the balance sheet. It is increased with a credit. It is a liability account.

Some of the steps in the accounting cycle are listed below. Place them in the correct order of use.

Journalize transactions into the journal Journalize and post the adjustments prepare the adjusted trial balance prepare the financial statements journalize and post closing entries prepare post-closing trial balance

What defines a long-term investment? (Check all that apply.)

Notes receivable and stock and bond investments are assets that are expected to be held for more than one year. Long-term investments are sometimes referred to as noncurrent investments

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

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

An adjusted trial balance is:

a list of accounts and balances after adjusting entries have been recorded and posted

Explain a contra account by filling in the following blanks. A contra account is an account that is linked with another(report/account/statement). It has a(n)(similar/opposite) balance and is(added/subtracted) to/from the other account's balance.

account opposite subtracted

The closing process takes place at the(end/beginning) of an accounting period, after the(adjusted/unadjusted) trial balance is prepared and(after/before) the financial statements are prepared.

end adjusted after

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries(expense/payable) account and(debit/credit) the Salaries(expense/payable/unearned) account.

expense credit payable

Cash basis accounting recognizes(equity/revenues/expenses) when cash is received and records(revenues/expenses/liabilities) when cash is paid.

revenues expenses

Complete the following statement. The purpose of the closing process is to reset(temporary/permanent) account balances to zero and to transfer the changes in all of these accounts to the Retained,(Earnings/Summary/Withdrawal) account.

temporary earnings

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

-Temporary accounts are reported on the income statement. -Retained Earnings is a permanent account, but Dividends is a temporary account. -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.

Determine which of the following transactions may require adjustments. (Check all that apply.)

Six months of rent were paid in advance. a 24-month insurance policy was prepaid Equipment was purchased in the middle of the year. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. Supplies were purchased at the beginning of the year, but not all were used.

Which of the accounts below would be classified as long-term or fixed assets? (Check all that apply.)

Building Vehicles Equipment Land

$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.

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.

Accounts receivable credit Service revenue

Define an adjusting journal entry

An adjusting journal entry is made at the end of an accounting period to reflect a transaction or event that is not yet recorded.

Demonstrate your knowledge of preparing a post-closing trial balance by selecting the accounts below that would be included on it (Check all that apply(

Liability Accounts Permanent Accounts Asset Accounts

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

prepare an unadjusted trail balance journalize prepare an adjusted trail balance prepare financial statements

Illustrate your understanding of how to use the adjusted trial balance to prepare a statement of retained earnings by completing the following sentence. In order to prepare the statement of retained earnings, the balance of the(Retained earnings / Cash) account balance as well as any debit balance in the(Dividends / Supplies) account is transferred from the adjusted trial balance and is used along with the reported net income (loss) from the Income statement.

retained earnings dividends

Closing means to transfer account balances from(asset/liability/permanent/temporary) accounts so that they will start with a(contra/larger/zero) balance at the beginning of the next period.

temporary zero