Unit 6 Quiz

Soundgarden Company collected $18,200 in May of 2015 for 5 months of service which would take place from October of 2015 through February of 2016. The revenue reported from this transaction during 2015 would be

$18,200 × 3/5 = $10,920

Crue Company had the following transactions during 2015: 1. Sales of $4,800 on account 2. Collected $2,000 for services to be performed in 2016 3. Paid $1,625 cash in salaries 4. Purchased airline tickets for $250 in December for a trip to take place in 2016 What is Crue's 2015 net income using accrual accounting?

$4,800 - $1,625 = $3,175

On January 1, Wang's Tax Inc. received $5,000 in cash for tax preparation services to be rendered equally over the next 4 months, including this month. The full amount was credited to Unearned Service Revenue. Assuming that the revenue is recognized equally over the 4-month period, what balance would be reported on the February 28 balance sheet for Unearned Service Revenue?

Answer - $2,500 Solution: Revenue recognized monthly = $5,000 / 4 = $1,250 per month Because service has been provided for two months (January & February), we can recognize two months worth of revenue = $1,250 * 2 = $2,500 Remaining Unearned Service Revenue = $5,000 - $2500 = $2,500

Sebastian Belle, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will Sebastian make upon receipt of the payments?

Debit Cash and credit Accounts Receivable

True or False? Revenue received before services are performed and expenses paid before being used or consumed are both initially recorded as liabilities.

False: Solution: Revenue received before services are performed are recorded as liabilities (unearned revenue). Expenses paid before being used or consumed are recorded as assets (prepaid expenses).

True or False? A company paid for an insurance premium of $6,000 on January 1. The insurance is for a year. Failing to make adjustments for the month of January would overstate assets and stockholder's equity by $6,000.

False: If a company pays premium for $6,000 a year, it would first record it as prepaid expense. As it receives the service, it will expense it accordingly ($500 per month). Thus, failing to make an adjustment would overstate the asset (prepaid expense) by $500 and stockholder's equity by the same amount.

A company shows a balance in Salaries and Wages Payable of $38,000 at the end of the month. The next payroll amounting to $48,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries?

Salaries and Wages Expense 10,000 Salaries and Wages Payable 38,000 Cash 48,000 $48,000 - $38,000 = $10,000

Stone Roses Candies paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29-31). Employees work 5 days a week and the company pays $1,500 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?

Salaries and Wages Expense 4,500 Salaries and Wages Payable 4,500 $1,500 × 3 = $4,500

Sebadoah is a barber who does his own accounting for his shop. Sebadoah purchased $1,500 of supplies in January and his inventory at the end of January shows $300 of supplies remaining. What adjusting entry should Sebadoah make on January 31?

Supplies Expense 1,200 Supplies 1,200

Unearned revenue is classified as

a liability account

If a resource has been consumed but a bill has not been received at the end of the accounting period, then

an adjusting entry should be made recognizing the expense.

The balance in the Prepaid Rent account before adjustment at the end of the year is $21,000, which represents three months' rent paid on December 1. The adjusting entry required on December 31 is to

debit Rent Expense, $7,000; credit Prepaid Rent, $7,000. $21,000 ÷ 3 = $7,000

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be

debit Unearned Service Revenue and credit Service Revenue.

If a company fails to make an adjusting entry to record supplies expense, then

expense will be understated.

If the adjusting entry for depreciation is not made,

expenses will be understated.