ACCT Ch. 4 Questions
Total stockholders' equity Net income Ending retained earnings
Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following items on the statement of stockholders' equity to be overstated?
Current assets will be overstated. Retained earnings will be overstated. Supplies will be overstated.
Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following on the balance sheet?
liabilities will be understated stockholders' equity will be overstated
Miss Take, the accountant, forgot to record the interest owed at the end of the accounting period. As a result of this error, ______.
Unearned Revenue A liability Deferred Revenue
Amounts collected in advance of being earned are recorded as _______.
cost - accumulated depreciation
An asset's book value or carrying value is its ______.
balance sheet as a liability
Unearned revenue appears on the ______.
Total assets will decrease and total stockholders' equity will decrease.
What are the effects on the accounting equation from the adjustment for depreciation?
Total assets will increase and total stockholders' equity will increase.
What are the effects on the financial condition of the business from the adjustment for revenues earned, but not yet collected, during the accounting period?
Depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company.
What is the purpose of the depreciation adjustment for long-lived assets?
balance sheet and statement of cash flows
What statements is cash listed on
Balance Sheet
Which financial statement reports the amount of supplies on hand at the end of the accounting period?
Income Statement
Which financial statement reports the amount of supplies used during the accounting period?
Adjusting for depreciation on equipment Adjusting for amounts used that were paid in advance
Which of the following adjusting entries will decrease assets and stockholders' equity?
equipment buildings
Which of the following depreciate over time and require an adjusting entry at the end of the accounting period?
The original cost in the Equipment account will not change during the adjustment process.
Which of the following statements is correct regarding a noncurrent asset such as equipment?
Interest is classified as an expense since it is a cost of borrowing.
Which of the following statements is correct regarding the adjustment to record interest accrued on a note payable?
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?
Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes. Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results. Adjustments ensure that the revenues earned and expenses incurred during the period are reflected in the income statement.
Why are the adjustments important to the preparation of the financial statements?
update the accounts to their proper balances and are needed in order to measure the period's net income or loss
Adjusting entries ______.
end
Adjusting entries are made at the ? of the accounting period, while daily transactions are made throughout the accounting period. (Enter one word per blank.)
accrual; deferral
Adjusting entries include ? adjustments for revenues earned but not yet collected and expenses incurred but not yet paid. They also include ? adjustments for revenues earned that were collected in advance and expenses incurred that were previously recorded as assets.
asset
Adjustments ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.
Deferred Revenue Unearned Revenue A liability
Amounts collected in advance of being earned are recorded as _______.
Interest Expense should be increased, because the cost of interest relates to the current period.
As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period?
liquidity; due dates
Assets are listed in order of ______ and liabilities are in order of ______ on the balance sheet
decrease
Balance sheet accounts, such as Supplies or Prepaid rent, ?(increase/decrease) as a result of deferral adjustments.
net income
Both the income statement and the statement of stockholders' equity
200;200;600
Bristol, Inc. paid $800 for a 4-month insurance policy on August 1 of the current year. On August 31, Bristol, Inc. made an adjusting entry to account for the insurance that expired during the month of August. The adjusting entry contained a debit to Insurance Expense in the amount of $? and a credit to Prepaid Insurance in the amount of $?. The remaining balance in the Prepaid Insurance account after the adjustment was $?
10
Burrows, Inc. borrowed $1,000 on a 12%, 1-year note payable. The amount of interest incurred in one month equals $?
the same amount for both notes
Burrows, Inc. borrowed $1,000 on a 3-month note payable and $1,000 on a 6-month note payable both at 12% annually. The amount of interest incurred in one month will be ______.
50
Burrows, Inc. borrowed $10,000 on a 6-month note payable at 6% annually. The amount of interest incurred in one month equals $?
will be reported as a revenue or an expense in a later period
Deferring a revenue or expense account in accounting means that the amount ______.
credit
During the closing process, the closing entries to individual expense accounts will be recorded with a ______ to reduce the account balance to zero.
debited
During the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account be
jounral
Entries are first recorded in the general ? and then summarized in the ledger.
3400
For the current year ended, Textable, Inc.'s multi-step income statement reports gross profit of $80,000, operating income of $60,000 and a pretax income of $10,000. Textable's income tax rate is 34%. Income Tax Expense for the year equals $
Accrual adjustments can increase liabilities and increase expenses.
How do accrual adjustments affect liabilities and expenses?
Deferral adjustments decrease assets and increase expenses.
How do deferral adjustments for prepaid expenses—such as rent—that were initially recorded as assets affect assets and expenses?
Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.
How does the timing of adjusting entries differ from the accounting for daily transactions?
amounts earned from its investments but not yet collected
If a company debits Interest Receivable and credits Interest Revenue, it must be recording ______.
Retained Earnings on the statement of stockholders' equity will be overstated Total stockholders' equity on the balance sheet will be overstated
If there is an error in recording an adjusting entry on the income statement causing Net Income to overstated, then ______.
Retained Earnings on the statement of stockholders' equity will be overstated Total stockholders' equity on the balance sheet will be overstated
If there is an error in recording an adjusting entry on the income statement causing Net Income to overstated, then ______.
$1,000 of revenue should be recorded in June.
In May, Sea the World Cruises, Inc. collected $1,000 cash from a customer for services to be performed in June. Which of the following is true assuming accrual accounting?
the liability recorded when cash was received is decreased by the adjustment for the revenue being earned
In a deferral adjustment for revenues collected in advance that are now earned, ______.
asset that represents the right to collect interest
Interest Receivable is a(n) ______.
Concepts that need work
Interpret the effects on the accounting equation of the adjustment for interest accrued but not paid during the accounting period Calculate the amount of interest expense Infer Unearned Revenue is the remaining obligation after adjusting
assets and stockholders equity to be overstated
Miss Hap, the bookkeeper, forgot to record the depreciation for the year. This error will cause ______.
Net income and ending retained earnings will be overstated
Miss Step, the bookkeeper, forgot to record the adjusting entry for some accrued expenses during the period. This will cause which of the following items on the statement of stockholders' equity to be in error?
carrying
Noncurrent assets, such as equipment, are reported at their ______ value on the balance sheet.
3200
On December 1, ABC Apartment Company received $4,800 in advance from a tenant for 3 months' rent, December through February. It credited Unearned Rent Revenue for the full amount. After the adjusting entry is recorded, the Unearned revenue balance at December 31 equals $
39500
On January 1, Squid Roe, Inc. had a supplies balance of $1,500. During the year, it purchased $40,000 of supplies on credit, of which $30,000 was paid. At the end of the year, it had $2,000 of supplies on hand. The amount of Supplies Expense for the year end December 31 equals $
On July 31, an adjusting entry should be recorded that debits Unearned Revenue and credits Service Revenue for $1,000.
On July 1, Squid Roe, Inc., collected cash in advance from a customer in July for services to be performed in July, August and September and recorded a debit to Cash and credit to Unearned Revenue for $3,000. Which of the following is the proper treatment of this event assuming monthly financial statements are prepared?
400
On May 1, Buy & Large, Inc. had a supplies balance of $100. During May, it purchased $500 of supplies on credit. At the end of May, there were $200 of supplies on hand. The amount of Supplies Expense for the month of May equals
net book value
Property and equipment, net is reported on the balance sheet at the ______.
Assets increase and stockholders equity increases
Show the effect of the adjusting entry for interest earned on a note receivable.
400;400;800
Sterling Company paid $1,200 for 3 months of rent on April 1 of the current year. On April 30, Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry contained a debit to Rent Expense in the amount of $? and a credit to Prepaid Rent in the amount of $?. The remaining balance in the Prepaid Rent account after the adjustment was $?
Balance Sheet
Supplies Unearned revenue Accrued expenses payable are all found on the
subtracting the supplies on hand from the beginning supplies plus supplies purchased during the period
Supplies Expense can be calculated by ______.
decrease; increased
Supplies should be ______ and Supplies Expense should be ______ for supplies used during the period.
credit to Investment Income debit to Interest Receivable
The adjusting entry for interest earned on a note receivable includes a ______.
credit; debit
The adjusting entry for supplies used during the period requires a (debit or credit) to Supplies and a (debit or credit) to Supplies expense.
the expense accounts and crediting the related payable accounts
The adjusting entry to record accrued expenses requires debiting ______.
debit to Depreciation Expense credit to Accumulated Depreciation
The adjusting entry to record depreciation on equipment includes a ______.
Debit interest expense Credit Interest payable
The adjusting entry to record interest owed on notes payable includes ______.
Expense; Payable
The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest " a credit to "Interest
Income statement Statement of stockholders' equity Balance sheet
The adjusting entry to record revenues earned, but not yet billed (accrued revenues), affects which of the following financial statements?
debit; credit
The adjusting entry to record the amount of prepaid insurance used during the period requires a to Insurance Expense and a to Prepaid Expenses.
assets and stockholders equity to decrease
The effect on the accounting equation of the adjusting entry to record the amount of prepaid expenses used during the period causes ______. (Select all that apply.)
is where transactions are first recorded does not provide account balances is where the effects of each transaction is recorded chronologically
The general journal, also known as the journal, ______.
depreciation expense
The income statement
credit to Service Revenue debit to Accounts Receivable
The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a ______.
debit to Account Receivable and credit to Service Revenue
The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a ______.
debit; credit
The post-closing trial balance checks that total ?unavailable correctequal total ? unavailable correct at the end of the period.
dividends
The statement of stockholders' equity
FAlse
True or false: Adjustments ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.
True
True or false: Supplies is an asset account because it contains the value of supplies that have not been used, but still remain an economic resource for the company.
True
True or false: The adjusting entry to record depreciation does not directly reduce the noncurrent asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.
true
True or false: The adjusting entry to record depreciation does not directly reduce the noncurrent asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.
False
True or false: The term "defer" means "in advance."
False
True or false: To calculate a company's income tax obligation, the income after tax is multiplied by the company's tax rate.
False
True or false: Wages Receivable is the account used to record wages owed to employees for work performed during the current period.
False
True or false: When referring to supplies, the term "on hand" refers to supplies that have been used up during the accounting period.
Cash; Unearned Revenue
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 ______.
debit to Unearned Revenue and credit to Revenue
When a company provides services previously recorded as unearned revenue, it records a ______,
Accumulated Depreciation and Depreciation Expense
When recording an adjustment for the use of equipment during the current accounting period, which two accounts are affected?
called Accounts Receivable is increased since cash will be received in the future
When recording revenue earned during the period but not yet collected, an asset ______.
In the period the supplies are used, regardless of when they were purchased
When should supplies be recorded as an expense?
Debit Rent Expense
Which action will be taken in the adjusting entry to record rent expense that has expired during the month? (Assume that the rent was paid in advance and previously recorded as an asset.)
Taxes incurred but not yet paid to the government as of the end of the accounting period Wages incurred but not yet paid to employees as of the end of the accounting period
Which of the following transactions constitute an accrual adjustment involving an expense account?
Decrease to Supplies and increase to Supplies Expense Decrease to Prepaid Insurance and increase to Insurance Expense
Which of the following types of transactions represent deferral adjustments that are recorded to adjust for amounts expired or used during the period?
As the revenue is earned, it is removed from the Unearned Revenue account and transferred into a revenue account.
Why is the Unearned Revenue account reduced during the adjustment process?
Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.
Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account?
interest; expense
is defined as the "cost of borrowing money." Since the account represents a cost incurred on borrowed money, it is classified as a(n) account under stockholders' equity.
deferred; accrued; accrued; deferred
1. ? revenues result in Unearned Revenue when cash is collected in advance of being earned. 2. ? revenues result in Accounts Receivable when revenue is earned prior to collection. 3. ? expense result in a liability when an expense is incurred prior to being paid. 4. ? expense result in an asset when cash is paid in advance. (Enter one word per blank.)
Depreciation
? Expense should be recorded to recognize the use of and benefit received from long-lived assets, such as equipment, during the accounting period.
accrued; deferred
? adjustments are used when cash has not been exchanged in a prior transaction, and ? adjustments are used when cash has been exchanged in a prior transaction.
accrued
? adjustments involve adjusting entries where the revenue has been earned or the expense has been incurred, and the cash will be collected or paid in the future.
Depreciation
? is the process of allocating the cost of buildings, vehicles, and equipment to expense over time as they are used.
Deferred
? revenues and expenses result because the cash changed hands prior to the revenue being earned or the expense being incurred.
debit to Sales Revenue
A closing entry includes a ______.
credit to Wages Expense
A closing entry may include a ______.
expenses the amount used during the period
A deferral adjusting entry that adjusts assets (such as Prepaid Insurance) ______.
on hand at the end of the accounting period
After the adjustments have been completed, the Supplies account on the balance sheet represents the cost of supplies ______.
Interest receivable
Chip & Dale, Inc. makes an adjusting entry at the end of the accounting period on investments it owns. As a result, it will show which account on its balance sheet?
postpone
In accrual accounting, to defer means to ? recording the other side of the cash transaction as a revenue or expense. Instead the other side of the cash entry is recorded as liability or prepaid.
stockholders' equity will be overstated liabilities will be understated
Miss Take, the accountant, forgot to record the interest owed at the end of the accounting period. As a result of this error, ______. (Select all that apply.)
Stockholders' equity is understated. Assets are understated.
Miss Take, the bookkeeper, forgot to record the adjusting entry for revenues earned during the period, but not yet collected. What is the effect of this error on the accounting equation?
amounts not yet collected from customers
On the balance sheet, accounts receivable represents ______.
1. Prepare an unadjusted trail balance to determine if debits equal credits 2. Record the adjusting entries in the journal 3. Post the adjusting journal entries to the ledger 4. Prepare the financial statements 5. Record the closing entries in the journal 6. Post the closing entries to the ledger
Place the steps in the adjustment process at the end of the accounting period in the correct order.
balance sheet as an asset
Prepaid expenses appear on the ______.
an asset and represents rent paid for in advance
Prepaid rent is ______.
debit; credit
The adjusting entry to record the amount of revenue earned that had been collected in advance requires a(n) (debit/credit) to Unearned Revenue and a(n) (debit/credit) to Sales Revenue
Total liabilities will decrease and total stockholders' equity will increase.
What are the effects on the accounting equation from the adjustment for revenue earned during the accounting period that had previously been recorded as a liability?
Total liabilities will increase and total stockholders' equity will decrease.
What are the effects on the accounting equation from the adjustment for wages incurred, but not yet paid, during the accounting period?
revenue
Accrual adjustments to record amounts earned but not yet collected include a debit to an asset account and a credit to a(n) ? accountRe
credit; decreases
Accumulated Depreciation has a normal ? balance which indicates that it ? Total Assets.
balance sheet
Accumulated depreciation is listed on the
deferred revenue
Adjusted for amounts earned that were collected in advance
deferred revenues
Adjusted for amounts earned that were collected in advance
accrued revenue
Adjusted for amounts earned, but not yet collected
accrued revenues
Adjusted for amounts earned, but not yet collected
accrued expense
Adjusted for amounts incurred, but not yet paid
accrued expenses
Adjusted for amounts incurred, but not yet paid
deferred expense
Adjusted for amounts used that were paid for in advance
deferred expenses
Adjusted for amounts used that were paid for in advance
Supplies expense on the income statement reports the amount of supplies used during the accounting period. Supplies on the balance sheet reports the amount of supplies on hand at the end of the accounting period.
After adjusting entries have been recorded, select which statements are true regarding supplies.
paid
After the adjustments have been completed, the adjusted balance in the "Accrued Expenses Payable" or "Wages Payable" account represents amounts incurred, but not yet ? by the company.
the sales or services still owed to the customer
After the adjustments have been recorded, Unearned Revenue on the balance sheet reports the amount of ______.
cost minus accumulated depreciation
An asset's book value or carrying value is its ______.
Sales Revenue needs to be increased by the amount of gift cards redeemed during the month. Unearned Revenue needs to be decreased by the amount of gift cards redeemed during the month.
As of December 31, the unadjusted balance in Unearned Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 worth of gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period?
Interest Recievable
Chip & Dale, Inc. makes an adjusting entry at the end of the accounting period on investments it owns. As a result, it will show which account on its balance sheet?
debit Wage Expense Credit Wage Payable
The adjusting entry to record the amounts owed for wages incurred during the period includes a ______.
decrease to Supplies and an increase to Supplies Expense
The adjusting entry to record the supplies used during the period will result in a(n) ______.
Supplies Expense; Supplies
The adjustment for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.
increase
The adjustment for supplies used during the period will result in a(n) ______ to the Supplies Expense account.
Total liabilities will increase and total stockholders' equity will decrease.
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?