ACC Ch 3 Smartbook

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

Current assets plus long-term assets

Investments in another company's debt expected to be held for five years are reported on a classified balance sheet under this category.

Long-term investments

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by ____ entries.

adjusting

After posting adjusting entries to the general ledger, a company typically prepares:

an adjusted trial balance

Adjusting entries never affect the asset account called ____

cash

Which of these asset accounts would typically appear first on a company's balance sheet? Multiple choice question. -Equipment -Cash -Supplies -Land

cash

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

Deferred revenue is a(n) ______.

liability Reason: When cash is collected in advance of the goods or services being provided the entry is a debit to Cash, an asset, and a credit to Deferred Revenue, a liability.

Zweig Company's adjusting entries include a debit to accounts receivable and a credit to service revenue. This means that Zweig:

provided services for which it did not yet receive payment

The adjusted trial balance typically is used to prepare which financial statements? Multiple select question. -Balance sheet -Statement of stockholders' equity -Statement of cash flows -Income statement

Balance sheet Statement of stockholders' equity Income statement Reason: Statement of cash flows is usually prepared from income statement and balance sheet

On a classified balance sheet, total liabilities represent the sum of ____ and long-term liabilities.

current (or short-term)

The difference between cash-basis and accrual-basis accounting is the ______ of when revenues and expenses are recorded.

timing

If revenues equal $100,000 and expenses equal $120,000, then net income (loss) must equal ______.

$(20,000) Reason: When revenues are less than expenses, then a net loss exists, which is a negative, not positive amount: $100,000-120,000=$(20,000)

On May 1, Cut Above, Inc., collected $3,000 from customers to mow their lawns in June. Under cash-basis accounting, revenues in May will equal:

$3,000

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 Reason: Cash has increased and is recorded with a debit. Deferred Revenue, a liability, has increased and is recorded with a credit.

True or false: Since Retained Earnings is involved in the closing process, it is classified as a temporary account.

False Reason: Although Retained Earnings is involved in the closing process, it is a permanent, not a temporary, account.

On December 1, Emilia Company borrowed $100,000 and signed a promissory note. The principal and interest are due on May 1 of the following year. On December 31, the company accrues interest for the month of December. The company's bookkeeper should debit interest expense and credit

Interest payable

Reason: $145,000+$90,000-$30,000=$205,000

Net income will be too high.

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

Current liabilities are ______. Multiple choice question. -will be used up or turned into cash within 12 months -due within the next year. -will never be repaid -always arise from the purchase of current assets

due within the next year.

All balance sheet accounts are ____ accounts, meaning the balances are carried forward from one period to the next.

permanent

A long-term liability: Multiple choice question. -will be used for many years -is the amount that the company must repay to its stockholders -is not due within the next year

is not due within the next year

Deferred revenue is reported on the balance sheet as a current ____

liability

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

liquidity

With respect to current assets, ____ refers to how quickly an asset can be converted to cash.

liquidity

Assets that provide benefits for more than one year are classified as

long-term

Creative Advertising Company had retained earnings of $100,000 at December 31, 2018. Net income for 2019 was $150,000, and dividends for 2019 were $80,000. What amount of retained earnings should be reported at December 31, 2019?

$170,000 Reason: $100,000+$150,000-$80,000

During the year, Pizza Company, Inc. had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends. Net income equals ______.

$60,000 Reason: $100,000-40,000=$60,000. Dividend payments do not affect net income.

On a classified balance sheet, long-term assets may be reported in these sub-categories: Multiple select question. -Property, plant, and equipment -Inventories -Long-term investments -Intangible assets -Trade receivables

-Property, plant, and equipment -Long-term investments -Intangible assets

Place the asset categories in the order in which they would appear on a classified balance sheet.

1. Current assets 2. Long-term investments 3. Property, plant and equipment 4. intangible assets

In January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in April. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense?

January Reason: The pizza ingredients are expensed in the month the ingredients are used (January), not in the month when the payment is made.

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

***The adjusting entry for an accrued revenue always includes:

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

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

asset

A classified _____ indicates whether or not a company can meet its obligations in the near future. Multiple choice question. income statement balance sheet statement of stockholders' equity

balance sheet

____ typically is the most liquid asset reported on the balance sheet.

cash

Liabilities that will be due within the next year are ____ liabilities.

current (or short-term)

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

expenses

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

Long-term assets are expected to provide benefits for

more than one year

Which of these is a long-term liability? Multiple choice question. -contributed capital -mortgage payable due in 20 years -note payable due in 5 months -accounts payable

mortgage payable due in 20 years

Permanent accounts are found in: Multiple choice question. -only the income statement -only the balance sheet -both the balance sheet and the income statement

only the balance sheet Reason: Permanent accounts include assets, liabilities, and equity accounts which are only found in the balance sheet.

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

recording of adjusting entries

The journal entry to close dividends _____ retained earnings. Multiple choice question. increases reduces has no impact on

reduces

Which of the following are results of closing entries? (Select all that apply.) -Temporary accounts are updated for current year income less dividends -Balances in temporary accounts are zero -Retained earnings has a zero balance -Balances in permanent accounts are zero -Retained earnings includes current year income less dividends

-Balances in temporary accounts are zero; -Retained earnings includes current year income less dividends

Which of the following statements is true? Multiple choice question. -The income statement reports the financial position of a company at a point in time. -The balance sheet reports financial activities only for the current accounting period. -Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

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

Long-lived assets are reported in the balance sheet at _____ value, which is equal to its original cost less _____.

book; accumulated depreciation

The information reported in the statement of cash flows is organized by these activities: Multiple select question. accounting investing financing business operating

investing financing operating

On a classified balance sheet, the sum of current and long-term liabilities refers to ____ liabilities

total

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should debit retained earnings for:

$14,600 Reason: retained earnings is debited for the sum of expenses

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should credit retained earnings for:

$20,000 Reason: retained earnings is credited for the balance of revenue

Selected items reported on Gunter Company's balance sheet are as follows: accounts payable: $10,000; notes payable: $15,000; common stock: $50,000; retained earnings: $25,000; equipment: $30,000; accumulated depreciation: (5,000). Total stockholders' equity reported on Gunter Company's balance sheet should be:

$75,000 Reason: $50,000 (common stock)+$25,000 (retained earnings)

List these liability accounts in the order in which they would appear on a company's balance sheet. -Note payable (due in 5 years) -Note payable (due in 5 months) -Mortgage payable (due in 25 years)

1. Note payable (due in 5 months) 2. Note payable (due in 5 years) 3. Mortgage payable (due in 25 years)

Place the steps in the adjustment process at the end of the accounting period in the correct order.

1. Using the unadjusted trial balance, determine the accounts requiring adjustment. 2. Record the adjusting entries in the journal. 3. Post the adjusting journal entries to the T-accounts. 4. Prepare an adjusted trial balance to check the equity of the debits and credits.

Show the order in which these asset accounts would appear on a company's balance sheet. -Equipment -Accounts receivable -Cash

1. cash 2. Accounts Receivable 3. equipment

X Company began the month with $500 in retained earnings. During the month, X Company had revenues of $800, expenses of $600 and dividends of $50. Retained earnings at the end of the month equals $____.

650

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

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

What are current assets? Multiple choice question.

Assets that provide benefits within the next year.

Which of the following entries records the adjustment for revenue earned, but not yet collected?

Debit Accounts receivable and credit Sales revenue.

***As part of the closing process, dividends are closed to retained earnings. In the closing entry, correctly match the accounts with the appropriate debit/credit.

Debit Retained Earnings; Credit Dividends

In which type of liability does the company fulfill its current obligation to its customers by providing services in the future? Multiple choice question. Accounts payable Interest payable Cost of goods sold Deferred revenue

Deferred revenue

Which of the following current liabilities does not involve the future payment of cash? Multiple choice question. Salaries payable Deferred revenue Interest payable Accounts payable

Deferred revenue

***True or false: The adjusted trial balance presents the ending balance of retained earnings.

False Reason: The amount shown is the beginning of period balance because revenues, expenses, and dividends were not yet closed to retained earnings.

Investments in another company's stock expected to be held for five years are reported on a classified balance sheet under this category.

Long-term investments

Which activities are part of the operating cycle? Multiple select question. -Paying cash to suppliers -Selling goods and services -Collecting cash from customers -Issuing new shares -Buying property, plant, and equipment

Paying cash to suppliers; Selling goods and services; Collecting cash from customers; Reason: Issuing new shares is a financing activity. Buying property, plant, and equipment is an investing activity.

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

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

What are the effects on the accounting equation from an adjusting entry for revenues earned, but not yet collected, during the accounting period?

Total assets will increase and total stockholders' equity will increase. Reason: The value of the revenue earned, but not recorded or collected during the current period, should be added to Accounts Receivable and added to the revenue account. The increase in revenues results in an increase to stockholders' equity.

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. Reason: The adjustment for use of the asset is entered in the Accumulated Depreciation account rather than directly into the Equipment account. So, the Equipment account will not change. Depreciation, however, does cause the carrying value to decrease during the adjustment process.

Utility costs that relate to current year's operations but are not paid until the following year require:

a credit to Utilities Payable; a debit to Utilities Expense

Dividends have _____ on the stockholders' equity of a company.

a negative effect

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

an increase

At the beginning of the accounting period, the balances of temporary accounts Multiple choice question. -are zero -reflect the prior period ending balance -depend on whether the company was profitable during the prior period

are zero

A classified balance sheet shows subtotals for current ____ and current ____.

assets; liabilities

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as Multiple choice question. adjusting entries closing entries external entries post-closing entries

closing entries

During the closing process, the closing entries to individual expense accounts will be recorded with a ______ journal entry in order to reduce the account balance to zero. Multiple choice question. debit credit

credit Reason: Since expenses increase with debit entries and therefore, maintain normal debit balances, the accounts must be credited to reduce the balance to zero.

Beverly Company incurred interest on its bank loan; interest is due and will be paid at the beginning of next year. On December 31, Beverly Company should

debit interest expense and credit interest payable

During the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account be ____ .

debited (or decreased)

The Accounts Receivable account should be ____by an adjusting entry at the end of the period for any revenues that have been earned but not yet collected or recorded.

debited (or increased)

***The closing entry for dividends involves a debit to Retained Earnings and a credit to Dividends Declared. The debit to Retained Earnings causes a(n) ____ in the balance of the account.

decrease

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) ______ in the asset account and a(n) ______ in the expense account.

decrease; increase Reason: The asset value is decreasing as the benefit of the prepayment is being used. Consequently, the expense account is increasing by the value of the benefit used.

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

end

The _________ represents the cumulative total of net income less dividends over the life of the company. Multiple choice question. -net income for the current period -ending balance of retained earnings -ending balance of cash -unadjusted trial balance amount of retained earnings -change in the cash balance during the year

ending balance of retained earnings

The statement of stockholders' equity includes these amounts: (Select all that apply.) -cash -ending balance retained earnings -dividends for the period -net income -total revenues for the period

ending balance retained earnings dividends for the period net income

On December 31, Mueller Inc., makes an adjusting entry to accrue salaries expense. As a result of this entry, Mueller's:

equity will decrease; liabilities will increase

Munster Inc. debits Deferred Revenue and credits Service Revenue. As a result of this adjusting entry, Munster's:

equity will increase; liabilities will decrease

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

expense REASON: The debit is to Expense because the expense is incurred. The credit is to a liability because the expense has not yet been paid, i.e., is owed. No adjusting entries involve cash.

***An advantage of a classified balance sheet is that it is easy to see ______. Multiple choice question. -how much the company owes its stockholders -if liabilities are greater than stockholders' equity -if current assets are large enough to pay current liabilities -if the company will be profitable in the long term

if current assets are large enough to pay current liabilities

During the year, a company had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends. These items caused retained earnings to: Multiple choice question. increase by $60,000 decrease by $3,000 increase by $57,000 decrease by $60,000 increase by $3,000 increase by $63,000

increase by $57,000 Reason: Revenues increase while expenses and dividends decrease retained earnings. $100,000-40,000-3,000=$57,000

Patents, copyrights, franchises, and trademarks are examples of ____ assets.

intangible

Which of the following items would be reported as intangible assets on a classified balance sheet? (Select all that apply.) Multiple select question. -accounts receivable -equipment -patents -copyrights -trademarks

patents copyrights trademarks

Retained earnings is an example of a ____ account, meaning its balance is carried forward from one period to the next. temporary permanent balance sheet

permanent

Preparing a(n) ____-____ trial balance is the last step in the accounting cycle and occurs after all accounts have been updated with closing journal entries.

post-closing

Long-term productive assets used in the normal course of business are classified as -intangible assets -long-term investments -total operating assets -property, plant, and equipment

property, plant, and equipment

Stockholders' equity consists of two main components, common stock and ______.

retained earnings

Temporary accounts include ______, ______, and ______. Multiple select question. retained earnings revenues cash dividends expenses

revenues dividends expenses

Under cash-basis accounting, (Select all that apply.)

revenues are recorded when cash is received. expenses are recorded when cash is paid.

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 -the company was profitable during the current period -we prepared and posted adjusting entries correctly

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

***After the adjusting entries have been completed, the balance in the "Salaries Expense" account represents:

total salaries, paid and unpaid, that have been incurred during the accounting period Reason: The amount of salaries paid would be in Salaries Expense, but the expense account will also contain salaries incurred during the period that will be paid in a future accounting period. Salaries should be expensed in the period they are incurred whether or not they have been paid.

Quartz Instruments had retained earnings of $145,000 at December 31, 2018. Net income for 2019 was $90,000, and dividends for 2019 were $30,000. What amount of retained earnings should be reported at December 31, 2019?

$205,000 Reason: $145,000+$90,000-$30,000=$205,000

Which of the following would be included (added or subtracted) in the calculation of retained earnings? (Select all that apply.) -cash paid for expenses incurred -expenses -beginning balance retained earnings -cash received from sales -revenues -dividends declared

-expenses -beginning balance retained earnings -revenues -dividends declared

Which of the following are reported as stockholders' equity on a classified balance sheet? Multiple select question. Common stock Dividends Retained earnings Notes payable

Common stock Retained earnings

Which of the following would be reported as "property, plant, and equipment" on a classified balance sheet? (Select all that apply.) Multiple select question. -Tools that are held for resale -Currently used manufacturing facility -Land held for future sale -Land on which office building is located

Currently used manufacturing facility; Land on which office building is located

***The closing entry for expense accounts involves the following journal entry.

Debit Retained Earnings Credit Expenses

Which of the following transactions do not require an adjusting journal entry for Mueller Corporation on December 31? -Utilities incurred during December are paid in January of the following year -Service provided during December on account -During December, Mueller Corporation sold stock to shareholders -On December 21, Mueller Corporation declared and paid dividends.

During December, Mueller Corporation sold stock to shareholders; On December 21, Mueller Corporation declared and paid dividends.

True or false: The adjusted trial balance presents the ending balance of retained earnings.

False Reason: The amount shown is the beginning of period balance because revenues, expenses, and dividends were not yet closed to retained earnings.

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 Reason: Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account.

***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 of the following would typically be the first long-term asset category reported on a classified balance sheet? Multiple choice question. -Current assets -Long-term investments -Property, plant and equipment -Intangible assets

Long-term investments

If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and a credit to Sales Revenue, how will this error affect net income for the current period?

Net income will be too high. Reason: Net income will be too high because the credit should have been to Deferred Revenue, a liability, and not to Sales Revenue which makes net income too high.

Which of these liability accounts would appear first on a company's balance sheet? Multiple choice question. Note payable (due in 5 months) Note payable (due in 5 years) Mortgage payable (due in 25 years) The order doesn't matter

Note payable (due in 5 months)

Which of the following statements regarding the statement of cash flows are correct? Multiple select question. Reports cash receipts It is an optional financial statement Reports cash disbursements The financial statement that is typically prepared first The final financial statement that is typically prepared

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

Which of the following are commonly classified as current liabilities? Multiple select question. -Salaries payable -Accumulated depreciation -Notes payable due in 15 months -Deferred revenue -Accounts payable

Salaries payable Deferred revenue Accounts payable Reason: Accumulated depreciation is a contra asset. Notes payable due in 15 months is a long-term liability

Which of the following transactions do NOT require an adjusting journal entry for Mueller Corporation on December 31? (Select all that apply.) Multiple select question. -Shipping expense for December is paid in cash -Utilities incurred during December are paid in January of the following year -Service provided during December on account -Service is provided during December for cash

Shipping expense for December is paid in cash; Service is provided during December for cash

As of December 31, $400 of revenues related to goods or services provided during the period were not collected nor recorded. What adjusting entry is necessary at the end of the period?

The Accounts Receivable account should be increased by $400 and the Service Revenue account should be increased by $400.

What are the effects on the accounting equation when dividends are declared and paid?

Total assets decrease and total stockholders' equity decreases. Reason: Cash is paid resulting in a decrease to total assets. Dividends reduce retained earnings resulting in a decrease to stockholders' equity.

True or false: After the closing entries have been posted, the new balance in the Retained Earnings account will equal the Retained Earnings reported in the balance sheet.

True Reason: The beginning balance of Retained earnings has been increased by net income and decreased by dividends. This calculation summarizes the effects of the closing entries on the retained earnings account.

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as

accrual-basis accounting.

The ____ trial balance shows a list of all accounts and their balances after we have updated account balances for adjusting entries.

adjusted

The income statement, statement of stockholders' equity, and balance sheet typically are prepared utilizing information shown in the -general ledger. -general journal. -adjusted trial balance. -unadjusted trial balance. -post-closing trial balance.

adjusted trial balance

An adjusted trial balance shows all accounts and their balances _____ the accounts have been updated for for adjusting entries.

after

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

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

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

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

asset

The adjusted trial balance should be prepared ______ the financial statements are prepared in order to prove the ______ of the debits and credits.

before; equality Reason: The trial balance is prepared before the financial statements to prove that total debits equal total credits. A post-closing trial balance is prepared to show that all temporary accounts, revenues, expenses and dividends, were properly zeroed out.

***The retained earnings balance shown in an adjusted trial balance is the account's ____ balance

beginning

Long-lived assets, such as equipment, are reported at their ______ value in the balance sheet.

book

Which of the following accounts will never be affected by an adjusting entry? Multiple choice question. -Deferred revenue -Interest payable -Supplies -Cash -Service revenue

cash

****A closing entry may include a ______. Multiple choice question. credit to Wages Expense debit to Prepaid Insurance debit to Deferred Revenue credit to Interest Revenue

credit to Wages Expense Reason: -Prepaid insurance is an asset. Assets are not closed at the end of the period. -Deferred Revenue is a liability. Liabilities are not closed at the end of the period. -Interest Revenues are closed with a debit entry since they normally carry a credit balance.

At the end of December, Berber Company receives a utility bill for $920 associated with its December operations. Berber will pay the bill on January 5. On December 31, Berber should

debit Utilities Expense and credit Utilities Payable

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

expense; asset

***The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest ____" and a credit to "Interest ____"

expense; payable

The adjusting entry to record salaries owed to employees at the end of the accounting period includes a debit to "Salaries ____ " and a credit to "Salaries ____"

expense; payable

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred. Multiple choice question.

expenses

Under the accrual basis of accounting, costs used to generate revenue are recorded as expenses

in the same period as related revenue.

Revenues and expenses are reported in the:

income statement

The adjusted trial balance provides account balances reported in which financial statements?

income statement statement of stockholders' equity balance sheet

The adjusted trial balance provides account balances reported in which financial statements?

income statement; statement of stockholders' equity; balance sheet

During the year, a company had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends. The net of these items caused total stockholders' equity to ______.

increase by $57,000 Reason: Revenues increase, while expenses and dividends decrease stockholders' equity.

Property, plant, and equipment and intangible assets are typically classified as _____ assets.

long-term

Transactions that do not involve revenues or expenses and transactions that result in revenues and expenses being recorded at the same time as the cash flows

never require adjusting entries.

The information reported in the statement of cash flows is organized by these activities: Multiple select question. operating accounting investing financing business

operating investing financing

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

As of December 31, the end of the accounting period, $700 of salaries to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, which two of the following will occur?

salaries payable will increase by $700; salaries expense will increase by $700

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should debit Multiple choice question. -insurance expense. -net income. -service revenue.

service revenue.

The ending balance of retained earnings represents ______. Multiple choice question. -the cumulative total of net income less dividends over the life of the company. -amounts given to the company by stockholders in exchange for stock during the current year. -amounts given to the company by its stockholders in exchange for stock over the life of the company. -amounts earned and kept by the company during the current year.

the cumulative total of net income less dividends over the life of the company.

Temporary accounts are found in: Multiple choice question. -both the balance sheet and the income statement -only the balance sheet -the income statement -none of the financial statements

the income statement

Cash typically is the first current asset reported on the balance sheet because it is:

the most liquid asset

____ is the price earned from selling goods or services to customers.

Revenue

Deferred revenue appears on the ______.

balance sheet as a liability

The primary components of net income are:

revenues; expenses

Klein Corporation's retained earnings account showed a balance of $200 at 1/1/18. During the year, the company earned revenues of $5,000 and incurred expenses of $3,000. Dividends declared were $500. The amount of retained earnings reported on the 12/31/18 balance sheet will be

$1,700 Reason: $200+$5,000-$3,000-$500

On December 30, Superior Strategies, Inc., collected $10,000 in advance from clients relating to consulting engagements to be performed during January of the following year. Under cash-basis accounting, revenues recorded in December will equal:

$10,000

Burrow, Inc. borrowed $20,000 with an annual rate of 6%, the note and interest are due at the end of two years. By the end of the first month, the interest incurred equals $___

$100 Reason: Amount of not payable x annual interest rate x fraction of the year = interest incurred $20,000 x 6% x 1/12months = $100

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should credit retained earnings for:

$20,000 Reason: retained earnings is credited for the balance of revenue

identify the entries needed for the closing process. Multiple select question. -Credit each revenue, debit each expense, and record the difference in Retained Earnings. -Credit Dividends Declared and debit Retained Earnings. -Debit each revenue, credit each expense, and record the difference in Retained Earnings. -Debit Dividends Declared and credit Retained Earnings.

-Credit Dividends Declared and debit Retained Earnings.; -Debit each revenue, credit each expense, and record the difference in Retained Earnings.

Which of the following are characteristics of all balance sheet accounts? Multiple select question. Balances can never be equal to zero Accounts are referred to as permanent Balances are closed to retained earnings Accounts are referred to as temporary Balances are carried forward from period to period

Accounts are referred to as permanent Balances are carried forward from period to period

Which of the following are commonly classified as current liabilities? Multiple select question. Accumulated depreciation Accounts payable Notes payable due in 15 months Salaries payable Deferred revenue

Accounts payable Salaries payable Deferred revenue

True or false: Total assets must always be equal to total liabilities less stockholders' equity

False Reason: Total assets must always be equal to total liabilities plus stockholders' equity

_____ 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

Which of the following line items appear in an income statement? Multiple select question. -Sales Revenue -Salaries Expense -Supplies -Cash

Sales Revenue; Salaries Expense

Which activities are part of the operating cycle? Multiple choice question. -Buying property, plant and equipment -Issuing new shares -Selling goods and services

Selling goods and services

Which of the following statements is true regarding the post-closing trial balance? Multiple choice question. -The post-closing trial balance proves that all entries have been made correctly and accurately during the accounting period. -The post-closing trial balance is a report prepared before the adjustments and the financial statements to prove that debits equal credits. -The post-closing trial balance is an internal report prepared as the last step in the accounting cycle.

The post-closing trial balance is an internal report prepared as the last step in the accounting cycle.

Which of the following statements is true regarding the post-closing trial balance? Multiple choice question. -The post-closing trial balance proves that all entries have been made correctly and accurately during the accounting period. -The post-closing trial balance is an internal report prepared as the last step in the accounting cycle. -The post-closing trial balance is a report prepared before the adjustments and the financial statements to prove that debits equal credits.

The post-closing trial balance is an internal report prepared as the last step in the accounting cycle.

Which of the following statements most accurately describes the purposes of the closing entries? Multiple choice question. -To bring the balances in the asset and liability accounts up to date and to transfer net income and dividends into retained earnings. -To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings. -To bring the balances in the revenue and expense accounts up to date and to transfer net income and dividends into retained earnings. -To establish zero balances in the balance sheet accounts and to transfer net income and dividends into retained earnings.

To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings

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

Norbert Company debits Accounts Receivable and credits Service Revenue. As a result of this adjusting entry, Norbert Company's:

assets increase; equity increases

A classified _____ indicates whether or not a company can meet its obligations in the near future. -statement of stockholders' equity -income statement -balance sheet

balance sheet

Assets, liabilities and stockholders' equity are reported on the ____ ____, while revenue and expense are reported on the ____ ____ .

balance sheet; income statement

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

current (or short-term)

Interest payable, salaries payable, and accounts payable are common examples of items classified as Multiple choice question. current assets. long-term assets. current liabilities. stockholders' equity. long-term liabilities.

current liabilities.

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

debit (inc) ; credit (dec)

Peter Inc. earned interest on its bank deposit. The interest will be received at the beginning of next year. On December 31, Peter should

debit interest receivable and credit interest revenue

During the year, Smite Company declared and paid dividends in the amount of $50,000. As part of the closing process, Smite should Multiple choice question. -no journal entry is necessary as dividends have already been recognized -debit dividends and credit retained earnings -debit retained earnings and credit dividends

debit retained earnings and credit dividends

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

decreased

The two major categories reported in the income statement are:

expense; revenue

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as ____ expense.

interest

***Which of the following transactions requires an adjusting entry for accrued revenue? Multiple choice question. -Interest owed, but not yet paid, on a note payable -Revenue earned during the period from an amount that was previously recorded as a liability when the cash was received -Salaries incurred, but not yet paid to employees, at the end of the accounting period -Interest earned, but not yet collected, on a note receivable

interest earned, but not yet collected, on a note receivable

Which of the following account balances are shown in the adjusted trial balance and the income statement? Multiple select question. -interest expense -common stock -accumulated depreciation -depreciation expense

interest expense; depreciation expense

Besides sales or service revenue, which of the following is another common example of a transaction that is recorded as an accrued revenue.

interest revenue

Which of the following accounts should be classified as stockholders' equity? Multiple select question. -retained earnings -deferred revenue -common stock -net income

retained earnings; common stock

Which of the following account balances are shown in the adjusted trial balance and reported in the income statement? -supplies inventory -prepaid rent -service revenue -supplies expense

service revenue; supplies expense

Closing entries move the balances from the ______ accounts into the Retained Earnings account. Multiple choice question. permanent balance sheet temporary

temporary

***After the adjusting entries have been completed, the adjusted balance in the Interest Expense account represents:

total interest that has been paid or accrued during the period

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

Expenses incurred, not yet paid; Goods and services provided, not yet collected NOT: Cash paid prior to expenses being incurred NOT: Cash collected prior to goods or services being provided

How do temporary accounts differ from permanent accounts? Multiple choice question. -Only permanent accounts are transferred to Retained Earnings during the closing process. -Only permanent accounts are found on the financial statements. -Only temporary accounts are used in the adjustments at the end of the accounting period. -Only temporary accounts are cleared out at the end of the accounting period.

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

Which of the following relationships is correct?

Total assets = total liabilities plus stockholders' equity

A closing entry includes a ______. Multiple choice question. -credit to Cash -debit to Interest Expense -debit to Sales Revenue -credit to Accounts Receivable

debit to Sales Revenue

The closing entry for dividends involves a debit to Retained Earnings and a credit to Dividends Declared. The debit to Retained Earnings causes a(n) ____ in the balance of the account.

decrease (or reduction)

In the closing process, ______ are zeroed out by crediting each account and ______ are zeroed out by debiting each account. Multiple choice question. -dividends; revenues and expenses -assets; liabilities -expenses and dividends; revenues -revenues; expenses and dividends

expenses and dividends; revenues Reason: revenues are closed using a debit and expenses are closed using a credit

Identify all transactions that do not require adjusting entries. Multiple select question. -transactions that result in revenues or expenses being recorded at the same time as the cash flow -transactions that involve revenue or expense activities -transactions that involve depreciation -transactions that result in revenues or expenses being recorded in a different period as the cash flow -transactions that do not involve revenue or expense activities

transactions that result in revenues or expenses being recorded at the same time as the cash flow; transactions that do not involve revenue or expense activities

In May, Sea the World Cruises, Inc. collected $1,000 cash in advance from a customer for services to be performed in June. Which of the following is true assuming accrual accounting?

$1,000 of revenue should be recorded in June. Reason: Revenue should be recorded when services are performed, not when cash is collected.The entry in May was debit to cash and credit to Deferred Revenue. The entry in June was a debit to Deferred Revenue and a credit to Revenue.

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 Reason: Prepaid Rent started with $24,000 on November 1. After 2 months of use (November 1 through December 31), Prepaid Rent only has 22 months left with a balance of $22,000 (or $24,000/24 months times 22 months).

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 a 6-month insurance premium at the beginning of October. A company pays for 4 months of advertising in the Wall Street Journal on November 1. NOT: A company pays a utility bill for charges incurred in the previous month. (This is an example of a daily transaction. There will be no need to adjust any of the accounts at the end of the period.) NOT: A company records interest expense that has accrued, but will not be paid until next year. (This is an example of an accrual transaction. No prepayment has been made.)

Which of the following pre-payments requires an adjusting entry at the end of the year?

ANSWER: On November 1, the company pays rent for the next six months. NOT: On December 31, the company pays next year's fire insurance. NOT: On December 20, the company pays its liability insurance; coverage starts January 1.

______ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.

Depreciation

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 Reason: A contra-account is a negative account. It carries the opposite balance of the account with which it is paired. Consequently, Accumulated Depreciation reduces the long-lived asset when portrayed in the balance sheet.

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 Reason: Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account.

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

False Reason: While Accumulated Depreciation is listed in the asset section, it is a contra or negative asset. Therefore, it will have a normal credit balance since the true assets have a debit balance.

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 Prepaid Insurance for $1,800 on Dec. 1.; Taggert will debit Insurance Expense for $300 on Dec. 31.; Taggert will credit Prepaid Insurance for $300 on Dec. 31.

Under accrual-basis accounting, which of the following result in an expense being recorded in May? (Select all that apply.)

The company pays cash in April for supplies used in May.; The company pays cash in June for salaries earned in May. Reason: Under accrual accounting, expenses are recorded in the period when related revenue is generated. Supplies used in May will generate revenue in May.

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. Reason: The adjustment for use of the asset is entered in the Accumulated Depreciation account rather than directly into the building account. So, the building account will not change. Depreciation, however, does cause the carrying value to decrease during the adjustment process.

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.

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

Reporting revenues when goods or services are provided and expenses in the period they are incurred to generate related revenues is referred to as ____-basis accounting.

accrual

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 rent appears in the ______.

balance sheet because it is an asset

Depreciation is an allocation of the _____ of buildings, vehicles, and equipment to expense over time as they are used.

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 balance

credit

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

credit (or contra)

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

credit (or contra)

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

has already been incurred

Cash-basis accounting ______. (Select all that apply.)

records revenues when collected and expenses when paid is generally not accepted in preparing financial statements NOT: records revenue in the period earned and expenses in the period incurred NOT: provides a better measure of net income than accrual-based accounting

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 Deferred Revenue account represents:

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

In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting?

$1,000 of revenue should be recorded in May. Reason: Revenue should recorded when we provide goods or services regardless of whether the cash has been collected.

Burrow, Inc. borrowed $20,000 with an annual rate of 6%, the note and interest are due at the end of two years. Calculate the interest for a three-month period.

$300 Reason: Amount of not payable x annual interest rate x fraction of the year = interest incurred $20,000 x 6% x 3/12months = $300 $20,000 x 0.06 x 3/12 = $300

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.

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. Reason: The revenue related to goods or services provided during the current period from an amount that was received in advance is transferred out of the Deferred Revenue account and into the revenue account. Thus, liabilities decrease and revenues increase. The increase in revenues results in an increase to stockholders' equity.

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. Reason: The amount of salaries incurred but not paid during the current period should be recorded as Salaries Payable and should also increase the Salaries Expense account. An increase in an expense account results in a decrease to stockholders' equity.

The adjusting entry for supplies used requires a ______ to Supplies and a______ to Supplies Expense.

credit; debit

Andy records an adjusting entry for deferred revenue. Andy should:

debit a liability account; credit a revenue account

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

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

An adjusting entry for accrued expenses involves:

debit to an expense; credit to a liability

Which of the following is (are) permitted under current U.S. GAAP?

Accrual-basis accounting (NOT cash-basis accounting)

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

Rent paid in advance NOT: Current month utilities; Advance payments from customers; Current month salaries

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

decreased; increased

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

depreciation expense; accumulated depreciation

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:

liabilities increase; equity decreases

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

***What are the effects on the accounting equation from the adjusting entry for interest expense accrued, but not paid, at the end of the accounting period?

Total liabilities will increase and total stockholders' equity will decrease. Reason: The amount of interest accrued, but not paid, during the current period should be recorded as Interest Payable and should also increase the Interest Expense account. An increase in an expense account results in a decrease to stockholders' equity.

Which of the following situations matches a journal entry that debits Deferred Revenue and credits Service Revenue? Multiple choice question.

Goods or services, for which cash was collected in advance, were provided during the current period.

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

accrual

Which of the following situations matches a journal entry that debits Deferred Revenue and credits Service Revenue? -Cash was collected for goods or services provided during the current period. -Cash was collected for goods or services to be provided next period. -Goods or services, for which cash was collected in advance, were provided during the current period.

Goods or services, for which cash was collected in advance, were provided during the current period.

_________-basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.

accrual

After the adjusting entries have been completed, the adjusted balance in the Salaries Payable account represents wages earned by employees, but not yet ____ to the company

paid

True or false: The adjusting entry to record interest owed for the period will cause the balance in the Note Payable account to increase.

False Reason: Accrued interest increases the Interest Payable account. The amount does not affect the Note Payable account. Only principal payments on the note will affect the balance in the Note Payable account.

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

asset NOT: expense (Reason: Expenses represent the economic benefits used during the period. Assets represent the economic benefits that remain at the end of the period.)

Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records ______. (Select all that apply.)

expenses in the period incurred, even though cash has not yet been paid; revenues in the period when the revenue is earned, even though the cash has not yet been collected

***After the adjusting entries have been completed, the adjusted balance in the Interest Payable account represents:

interest that has accrued, but has not been paid, at the end of the period

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

There is a cause-and-effect relationship between revenues and expenses that dictates:

when costs are recognized as expenses in the income statement