Accounting 1- SMC- Chapter 3 Homework Questions

Adjusting journal entries affect

(Never) cash An income statement account A balance sheet

Example of plant asset

Buildings, equipment, vehicles, fixtures

$1000 of cash was received in advance for performing services. By the end of the period, $300 had not yet been earned. (Unearned Rev. was increased at the time of the initial cash receipt). What is the adjusting journal entry?

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

A contra account is an account that is linked to another _______. It has an ________ balance and is _______ to/ from the other account's balance

account opposite subtracted

The steps in the adjusting process

1. Determine what the current account balance is 2. Determine what the correct account balance should be 3. Record an adjusting entry

A business has a 5000 from a bank at 16% annual interest. Calculate the amount of interest to accrue if the loan has been outstanding for 90 days.

200

$21000 of equipment is purchased on December 1. It is estimated that it will have a life of 5 years and zero salvage value. Calculate the first month;s depreciation expense as of December 31 using the straight-line method.

350

Explain what a contra account is by choosing the statement(s) below the correctly describe(s) a contra account.

A contra account is linked with another account Accumulated Depreciation is an example of a contra account A contra account has an opposite normal balance than its linked account A contra account would be subtracted from another account

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. The required adjusting entry would be to debit the ___________ account and _____ the ____ account

Accounts receivable Credit Service revenue

Facts about unearned rev

Cash received in advance of a performing a service or product Also called deferred rev Reported on a balance sheet They are a liability

Company provided services to customers but not yet billed them. The customers owe 2000 to company. How do you record this?

Debit accounts receivable and credit services revenue

The correct adjusting entry to recognize depreciation expense on a building

Debit depreciation expense; Credit accumulate depreciation

The company obtained funds from a bank and owes interest at the end of the month

Debit interest expense and credit interest payable

A company borrowed $4000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit interest expense for $30

Accrued account

Earnings which have been earned but not yet billed The adjustment causes an increase in an asset account and an increase in a rev account They refer to revs that earned in a period, but not yet received and are unrecorded Accounts rec is usually increased when accruing revs

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the next pay period. To require adjusting entry would debit the salaries (expense/payable) account and (dr/cr) the salaries (payable/unearned/expense).

Expense Credit Payable

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the ___ account and ___ the ______ account

Interest receivable Credit Interest Rev

Definition of an adjusting journal entry

Is made at the end of an accounting period to reflect a transaction or event that is not yet recorded

Salaries payable account facts

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

$500 of supplies were purchased at the beginning of the period. By the end of the period, only $100 remains. The adjustment to show the $400 of supplies used would have the following effect(s). Check all that apply.

It would reduce assets, so total assets would be lower It would increase expenses, so net income would be reduced

Definition of a plant asset

Long term tangible asset used to produce and sell product or services

Which of the following statements describes the expense recognition principle?

Matching of expenses 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

Profit margin of a company

Net income/ net sales

Book value of an asset:

Original cost of an asset- its accum deprec

What is needed in order to figure interest expense?

Principle amount owed, Annual interest rate and fraction of the year since last payment date

Revenue recognition principle

Rev should be recorded when earned

Cash basis accounting recognized _____ when cash is received and records _____ when cash is paid

Revenues Expenses

Accrual basis accounting recognizes ___ when earned and records ______ when incurred ___ in order to adhere to the matching principle

Revenues Expenses Incurred

Company records 500 of accrued salaries on Dec 31. Three days later, on Jan 3, total salaries of 4000 (including the 500 accrued at year end) are paid.

Salries expense debited for 3500 Cash credited for 4000 Salaries pay would be debited for 500

Which of the following is a prepaid expense?

Supplies Not: Accounts payable Wages expense Utility expense

Difference between an adjusted trial balance and an unadjusted trial balance?

The adjusted trial balance is used to prepare financial statements 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

Transactions that may require adjustments

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

A depreciation adjustment would include a debit to _______ and ________ to _______

depreciation expense credit accumulated depreciation

For the current year, a business has earned (but not recorded or received) $200 of interest from investment. The requiring adjusting entry would be to debit the _____ account and ______ the _________ account.

interest receivable credit interest revenue

Unearned rev

refers to cash received in advance of providing a service or product

Facts about depreciation account

Accumulated depre accumulates the total deprec take on an asset since it purchase Accumulated deprec is a contra account The accumulated depreciation account allows the orignial cost of the asset to remain in the plant asset account Accumulated repreciation is subtracted from its plant asset on the balance sheet

$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 _______ to be reduced and _______ to be increased, so net income would decline

Assets Expenses

At the end of the previous year, a customer owed Company 500. On Jan 31 of the current year, the customer paid 900, which included 500 owed plus 400 owed for the current month. What would be the journal entry on Jan 31

Cash will be debited 900 Accounts receivable will be credited for 500 Service rev would be credited 400

Definition of depreciation

Depreciation is the process of allocating the costs of long-term assets over their expected useful life

A plant asset can be defined by which of the following statements?

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

Examples of prepaid expense or prepaid asset account

Supplies Prepaid rent Prepaid insurance

$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 would be debited for $600

Adjusted trial balance facts

An adjusted trial balance has on debit column and one credit column Accounts are generally listed in the same order as listed in the chart of accounts The debit and credit column totals must balance An adjusted trial balance is prepared after adjustment have been posted New accounts many need to be added because of the adjusting process

For the current year, Bubbles Office Supply has earned $600 of interest on investments. As of December 31, none of this interest has been received or recorded. Half of adjusting entry:

Debit interest receivable for $600

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Adjusting entry:

Debit salaries expense of $500

A 12-month insurance policy was purchased on Dec. 1 for $4800 and the Prepaid Insurance account was initially increased for the payment. The required adjusting journal entry on December 31 is:

Debit to insurance expense for $400 Credit to prepaid insurance for $400

What is true about depreciation

Depreciation is recognized at the end of an accounting period Depreciation is the process of allocating the cost of an asset to the period of the asset benefits Depreciation is recorded through an adjusting entry Depreciation is the original cost of an asset minus any residual value and this amount is expensed over its useful life