CH 3 Smartbook

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate the December 31 adjusting entry by choosing the correct statement below.

Debit Unearned revenues for $400.

A plant asset can be defined by which of the following statements? (Check all that apply.)

It is a tangible long-term asset. Its original cost (minus any salvage value) is expensed over its useful life. It has a life within the business greater than one year or the current operating cycle, whichever is longer. It is reported on the balance sheet.

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

Prepaid rent Supplies Prepaid insurance

Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product.

Which of the following accounts is considered a prepaid expense?

Supplies

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Supplies would be credited for $300. Supplies expense would be debited for $300.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

They refer to cash received in advance of performing a service or product. They are a liability. They are reported on a balance sheet. They are also called deferred revenues.

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

credit to Prepaid insurance for $400. debit to Insurance expense for $400.

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) ______________ account and (debit/credit) the Interest _____________ (expense/payable/receivable) account.

Blank 1: expense or expenses Blank 2: credit or credits Blank 3: payable

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

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

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

Adjustments involve increasing both an expense and a liability account. Examples of accrued expenses are wages expense and interest expense. They refer to costs that are incurred in a period, but are both unpaid and unrecorded. They are reported on an income statement.

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries ______________ (expense/payable) account and __________ (debit/credit) the Salaries ______________ (expense/payable/unearned) account.

Blank 1: expense or expenses Blank 2: credit Blank 3: payable

$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 expense would be debited for $600.

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.