AIPB, Mastering Adjusting Entries, Accrued Expenses (Liabilities)

If a company forgets to accrue utilities expense at year end, how does it affect net income? A. Net income will be overstated B. Net income will be understated C. Net Income will be unnaffected

A. Net Income will be overstated ** When a company does not record an expense, expenses are understated (too low) on the income statement, and net income is overstated (too high).

What kind of account is taxes payable? A. Asset B. Liability C. Revenue D. Expense

B. Liability

A company failed to accrue employee salary expense. What effect does this have on net income and liabilities, respectively? A. Overstates net income but does not affect liabilities B. Overstates net income and understates liabilities C. Understates net income and overstates liabilities D. Understates net income but does no affect liabilities

B. Overstates net income and understates liabilities ** Net income is overstated because total expenses are understated. Liabilities are also understated because the appropriate liability account was not increased.

If a company fails to record an adjusting entry for property taxes, then net income will be: A. Unaffected B. Understated C. Overstated D. Understated or overstated depending on the amount

C. Overstated ** Because not all expenses are on the books, net income will be overstated

Make the following adjusting journal entry: Accrue sales commissions of $18,000

Commissions Expense 18,000 Commissions Payable 18,000

Record the adjusting entries and any transaction entries on December 31 for the following: Of the $1,000 in commission payable on December 31, only $400 was paid

Commissions Expense 400 Cash 400 Commissions Expense 600 Commissions Payable 600

An adjusting entry to accrue as expense (increases/decreases) net income.

Decreases

An expense is accrued by debiting a(n) __________________ account and crediting a(n) ______________________ account.

Expense, Payable (liability)

An accrued expense is paid when incurred, True/False?

False. Accrued means that the expense was incurred before it was paid.

An accrued expense is one that has been ____________ but not ______________.

Incurred, Paid

Your company borrows $50,000 on a 6-month, 12% note on October 1. Year end is November 30. Record the accrued interest at November 30.

Interest Expense 1,000 Interest Payable 1,000 ** 2 months interest expense ($50,000 x 12% x 2/12)

On December 1, 20X3, WyCo, a calendar year company, borrows $30,000 on a 6-Month, 8% note payable. The interest is payable at the maturity date. Of the amount borrowed, $6,000 will be used to pay WyCo's 20X3 income tax when it files a return in 20X4. Another portion of the loan will go to pay part of WyCo's weekly payroll of $12,000 for the last week of the year. WyCo uses a 5-day workweek and payday is Friday. What adjusting entries does WyCo record on Tuesday, December 31, 20X3?

Interest Expense 200 Interest Payable 200 Income Tax Expense 6000 Income Tax Payable 6000 Salaries Expense 4800 Salaries Payable 4800

Make the following adjusting journal entries: Accrue interest expense of $3,000

Interest Expense 3,000 Interest Payable 3,000

Make the following adjusting journal entry: Accrue interest expense of $8,000

Interest Expense 8,000 Interest Payable 8,000

An expense recorded as incurred but not paid is presented as a(n) _____________________ on the balance sheet.

Liability (payable)

Make the following adjusting journal entries: Accrue property tax expense of $1,200

Property Taxes Expense 1,200 Property Taxes Payable 1,200

Record the adjusting entries and any transaction entries on December 31 for the following: Rent for December of $2,300 will be paid on January 2.

Rent Expense 2,300 Rent Payable 2,300

Your company has a 6-day workweek and payday is Saturday. Weekly salaries are $12,000, and your company contributes to each employee's pension by contributing 3% of salaries to the Pension Fund account. Make the adjusting entries when the accounting period ends on a Tuesday.

Salaries Expense $4,000 Salaries Payable $4,000 ** $12,000/week divided by 6 days = $2,000/day, Monday & Tuesday = $2000 Pension Expense 120 Pension Payable 120 ** $4,000 accrued salaries expense x 3% contribution = $120.00

Make the following adjusting journal entries: Accrue salaries expense of $10,000

Salaries Expense 10,000 Salaries Payable 10,000

Make the following adjusting journal entry: Accrue salaries expense of $42,000

Salaries Expense 42,000 Salaries Payable 42,000

Your company has a 5-day workweek and pays employees on Friday. The weekly gross payroll is $100,000, and the year ends on Thursday. Record the adjusting journal entry at year end.

Salaries Expense 80,000 Salaries Payable 80,000 ** Company must accrue salaries for 4/5 workdays (80%)

An accrued expense is one that is incurred but not yet paid, True or False?

True

With an accrued expense, payment follows recognition of the expense, True or False?

True

An adjustment entry to accrue interest expense does not involve a cash payment, True/False?

True. ** The entry debits an expense account and credits a liability account. No cash is involved.

Accrued taxes appear on the balance sheet as a liability, True/False?

True. When taxes accrue, a liability account (taxes Payable) is credited, increasing liabilities on the balance sheet

Make the following adjusting journal entry: Accrue utility expense of $2,500

Utilities Expense 2,500 Utilities Payable 2,500

Record the adjusting entries and any transaction entries on December 31 for the following: On December 31, 20X1, FaCo incurs wage expense of $8,000 for December 29-31 that has not been either recorded or paid

Wages Expense 8,000 Wages Payable 8,000

Your payroll for the last week of the year (your company uses 5-day workweek) is $40,000 and December 31 falls on a Thursday. Record the adjusting journal entry at year end:

Wages/Salaries Expense 32,000 Wages.Salaries Payable 32,000 ** $40,000 payroll x 4/5 of the week = $32,000