Chapter 2
Goliath Corp. has beginning accounts receivable of $2,000. During the year, Goliath sold goods to customers on account for $10,000. During the year, Goliath also sold goods to customers for cash in the amount of $2,000. At the end of the year, the balance in Goliath's accounts receivable is $3,000. What is accrual basis sales for the year? $11,000 $12,000 $14,000 $9,000
$12,000 Reason: $10,000 sales on account + $2,000 cash sales = $12,000 accrual basis sales.
Jason Corp. has beginning accounts receivable of $1,000. During the year, Jason sold goods to customers on account for $3,000. During the year, Jason also sold goods to customers for cash in the amount of $500. At the end of the year, the balance in Jason's accounts receivable is $1,200. What is accrual basis sales for the year? $3,300 $2,300 $3,500 $3,000
$3,500 Reason: $3,000 sales on account + $500 = $3,500 accrual basis sales.
On September 1, Paisley Corp. signed a 2-year interest-bearing note payable for $100,000. The interest rate was 12%, and both principal and interest are paid at maturity. The amount of interest that is accrued on December 31, is $12,000. $3,000. $4,000. $24,000.
$4,000. Reason: $100,000 x 12% x 4/12 = $4,000
On October 1, Hill Corporation signed a 6-month note with principal of $10,000 and interest of $600 due in six months. The stated rate of interest on the note is 12% 6% 3%
12% Reason: $10,000 x 6/12 x I = $600; $5,000 x I = $600; I = 12% $10,000 x 12% x 6/12 = $600 - Interest is an annual rate regardless of the length of the loan so 12% for the year x 6/12.
Prepaid expenses are the cost of ___________ , acquired in one accounting period and _________ in a future period.
Blank 1: assets or asset Blank 2: expensed or expense
The financial statement that summarizes revenues and expenses for a period of time is the _________ ____________
Blank 1: income Blank 2: statement
Paid-in-capital of common stock and ___________ __________ are included in shareholders' equity. (Enter one word per blank.)
Blank 1: retained Blank 2: earnings
On September 1, Newman Company received $1,200 of revenue in advance from customers for work to be performed evenly over the next 12 months. The transaction was recorded in an income statement account. What is the adjusting journal entry required on December 31? Debit revenue $400. Credit revenue $400. Credit revenue $800. Debit revenue $800.
Debit revenue $800. Reason: The question states that the transaction was recorded in an income statement account so you know they are using the alternative approach and record the full amount as income when received. The amount must be adjusted at year end to reflect the appropriate amount of revenue.
Royce Corporation pays for supplies purchased in the previous month. What is the effect on the accounting equation for the payment of the supplies? (Select all that apply.) Increase assets Increase liabilities Increase owners' equity Decrease assets Decrease owners' equity Decrease liabilities
Decrease assets Decrease liabilities
Carradine Company prepares an adjusting journal entry to accrue salaries at year-end. What effect will this entry have on the financial statements? Assets will increase. Revenues will increase. Liabilities will decrease. Expenses will increase.
Expenses will increase.
True or false: Shareholders' equity includes only retained earnings and the accounts associated with retained earnings.
False Reason: Shareholders' equity also includes paid-in capital.
Galaxy Corporation issues 500 shares of $1 par value common stock for $5,000. What is the total effect on owners' equity? Increases $5,000 No effect Increases $4,500 Increases $500
Increases $5,000
_______________ reporting periods are periods when financial statements are produced other than at the end of the fiscal year.
Interim
Which of the following are external events? Paying employee salaries. Using supplies purchased in the previous month. Collecting on a customer account. Borrowing from the bank.
Paying employee salaries. Collecting on a customer account. Borrowing from the bank. Reason: Purchasing supplies is an external event. However, using supplies is an internal event.
Which of the following is an example of an accrued receivable? Receiving cash from clients. Selling goods to customers for cash. Recording interest revenue before it is received.
Recording interest revenue before it is received.
Which statement reports the changes in shareholders' equity during the period that were not a result of transactions by owners. The statement of cash flows The income statement The statement of comprehensive income The balance sheet
The statement of comprehensive income
True or false: The statement of shareholders' equity indicates the changes in the various permanent equity accounts. True False
True Reason: A column for each owners' equity account is shown with the increases and decreases for the period.
True or false: The purpose of the statement of cash flows is to summarize the transactions that caused cash to change during the period.
True Reason: The primary purpose is to show the sources and uses of cash during the period.
Interest expense is classified on the income statement as: a non-operating expense non-operating income an operating expense operating income
a non-operating expense
After preparing closing entries, the last step in the accounting process is to prepare pro forma statements for the next year. a post-closing income statement. a post-closing trial balance. an adjusted trial balance.
a post-closing trial balance.
Which accounts most likely use a subsidiary ledger? common stock accounts receivable short-term assets accounts payable
accounts receivable accounts payable
Expenses incurred in one accounting period and paid for in a future accounting period are ___________ liabilities.
accrued,
A post-closing trial balance is prepared _____________ the closing entries are posted to the ledger accounts.
after
A post-closing trial balance is prepared before financial statements are prepared. after the closing process. before making adjusting entries. after posting a journal entry.
after the closing process.
Recognizing revenue before cash flow is an example of: a prepayment adjusting entry an estimate adjusting entry an accrual adjusting entry
an accrual adjusting entry
A company paying rent in advance for the month of April records: an expense a liability revenue an asset
an asset
Accrual accounting measures: the difference between cash receipts and cash disbursements net income relative to timing of cash movement an entity's accomplishments and resource sacrifices during the period
an entity's accomplishments and resource sacrifices during the period
Accrued receivables involve situations when the revenue is earned in a period ______ the cash receipt. the same as before after
before
Accrued liabilities are costs incurred in an accounting period: after a cash payment before a cash payment at the same time of a cash payment
before a cash payment
Which of the following is an external event? using supplies borrowing from the bank depreciating equipment
borrowing from the bank
The purpose of the statement of cash flows is to summarize the transactions that caused ___________ to change during the period.
cash
Which of the following are permanent accounts? (Select all that apply.) cash revenue cost of goods sold equipment common stock
cash equipment common stock
Prepayments occur when: sales are delayed pending credit approval customers are unable to pay the full amount due when goods are delivered cash flow precedes expense or revenue recognition manufactured goods await quality control inspections
cash flow precedes expense or revenue recognition
A deferred revenue liability appears on the balance sheet for: cash received before revenue is earned revenue earned before cash is collected cash received at the same time revenue is earned
cash received before revenue is earned
The process in which temporary accounts are reduced to zero balances and transferred to retained earnings is the ______ process. zero closing opening adjusting
closing
A credit balance in the income summary account is closed with a __________ entry to retained earnings.
credit
The adjusting journal entry required when deferred revenue is recognized includes a ________ entry to revenue.
credit
The journal entry required to close expenses will require a _________________ entry to each expense account.
credit
The expense accounts are closed to income summary with (Select all that apply.) debit entry to expenses credit entry to expenses credit to income summary debit to income summary
credit entry to expenses debit to income summary
Revenues are $1,000. Expenses are $1,800. The journal entry required to close the income summary account will require a _____ to income summary and a _____ to retained earnings. debit; credit debit; debit credit; credit credit; debit
credit; debit
To close the dividend account, the journal entry would require a(n) ______ entry to the dividend account and a _____ entry to retained earnings. credit; credit credit; debit debit; credit debit; debit
credit; debit
A company debits cash to increase its cash account. A bank ______________ the customer's checking account because the customer account represents a liability on the bank's balance sheet.
credits or credit
Those liabilities that will be satisfied within 1 year or the operating cycle, whichever is longer, are referred to as __________ liabilities.
current or short-term
Closing the sales revenue account requires a __________ to sales revenue.
debit
To close the dividend account, the journal entry would require a ________________ entry to retained earnings.
debit
Juergen is preparing the closing journal entries for the year. To close the revenue accounts, Juergen should credit revenue debit revenue credit income summary debit income summary
debit revenue credit income summary
Revenues are $1,000. Expenses are $200. The journal entry required to close the income summary account will require a _____ to income summary and a _____ to retained earnings. debit; debit credit; credit credit; debit debit; credit
debit; credit
A(n) ______ represents the left side of the account, whereas a(n) ______ represents the right side of the account. debit; credit credit; debit increase; decrease decrease; increase
debit; credit Reason: increase; decrease is only true for assets Decrease; increase is only true for liability and equity accounts
The following accounts are closed to income summary with a credit entry (Select all that apply.) sales revenue depreciation expense cost of goods sold salaries expense
depreciation expense cost of goods sold salaries expense
Each economic event, or transaction, affecting the accounting equation has a(n) ________________ effect because resources must always equal claims.
dual or double
inflows and outflows of cash from transactions with creditors and owners are operating activities. investing activities. financing activities.
financing activities.
Which accounts are temporary accounts? (Select all that apply.) retained earnings gain on sale of equipment accumulated depreciation depreciation expense
gain on sale of equipment depreciation expense
The double entry system of accounting means each transaction cannot effect more than one account effects only a single account has a dual effect on the accounting equation
has a dual effect on the accounting equation
The financial statement that summarizes the profit-generating activities of a company during a particular period of time is the balance sheet. statement of stockholders' equity. statement of cash flows. income statement.
income statement.
The financial statement that summarizes the profit-generating activities of a company during a particular period of time is the income statement. statement of cash flows. balance sheet. statement of stockholders' equity.
income statement.
Hargrave Professional Group performs legal services on account. What are the effect of this transaction on the balance sheet equation? increase assets increase liabilities decrease assets
increase assets
The income statement summarizes the: profit-generating activities of a company at a specific date assets and liabilities of a company at a specific date assets and liabilities of a company for a period of time profit-generating activities of a company for a period of time
profit-generating activities of a company for a period of time
Which account should be closed at the end of the period? cash revenues inventory common stock
revenues
The financial statement that reports the changes in a company's cash balance during the period is the: statement of owners' equity statement of cash flows balance sheet income statement
statement of cash flows
A group of subsidiary accounts associated with a particular general ledger control account is called a: subsidiary journal control ledger subsidiary ledger
subsidiary ledger
The purpose of a post-closing trial balance is to verify that closing entries were prepared and posted correctly. adjust the financial statements for the following year. correct errors in the current year financial statements. verify that all asset accounts were properly closed.
verify that closing entries were prepared and posted correctly.
Place the steps at the end of the accounting period in the correct order. Record adjusting entries. Prepare an adjusted trial balance. Prepare an unadjusted trial balance. Prepare financial statements. Close temporary accounts.
1. Prepare an unadjusted trial balance. 2. Record adjusting entries. 3. Prepare an adjusted trial balance. 4. Prepare financial statements. 5. Close temporary accounts.
Prepaid expenses are: expenses paid at the time incurred expensed in a later period than cash was paid expenses incurred before cash is paid
expensed in a later period than cash was paid
Which of the following are temporary accounts? (Select all that apply.) salary expense revenue retained earnings accounts payable
salary expense revenue
Beginning inventory was $50,000. Inventory purchased during the year cost $75,000. Inventory on hand at year-end was $40,000. Cost of goods sold was $85,000 $75,000 $165,000 $65,000 $125,000
$85,000
Mann Corporation signed a note with principal and interest due in 6 months. The stated rate of interest on the note was 8%. If Mann accrues three months of interest at year-end, the formula Mann will use will be: Principal x ________% x 3/12. (Input the number used to compute interest.)
8%
Carradine Company prepares an adjusting journal entry to accrue salaries at year-end. What effect will this entry have on the financial statements? Liabilities will decrease. Revenues will increase. Assets will increase. Expenses will increase.
Expenses will increase
Match each item with its classification on the income statement Interest expense = Depreciation expense =
Non-operating item operating item
Majerek Company accrues salaries at year-end. What is the financial statement effect of this adjusting entry? (Select all that apply.) Retained earnings is decreased. Net income is decreased. Expense is increased. Assets are decreased.
Retained earnings is decreased. Net income is decreased. Expense is increased.
Which of the following are economic events? (Select all that apply.) The payment of employee salaries for the week. A proposal to purchase $1,000 of inventory from supplier. Borrowing $10,000 from the bank.
The payment of employee salaries for the week. Borrowing $10,000 from the bank. Reason: A proposal is only an invitation to purchase the inventory. Therefore, a proposal is not an economic event that affects the financial position of the firm.
True or false: It is acceptable accounting practice to initially record prepaid rent in either a balance sheet or income statement account.
True. Reason: Recording a prepayment in either a balance sheet account or income statement account is acceptable because an adjusting entry is made at year-end.
____________ basis accounting measures the difference between cash receipts and cash disbursements during a reporting period.
cash
Which of the following items are classified as operating items on the income statement? (Select all that apply.) loss due to hurricane loss on sale of long-term investment employee salary expense utility expense
employee salary expense utility expense
Adjusting entries are recorded for (Select all that apply.) post-payments estimates accruals prepayments
estimates accruals prepayments
Prepaid expenses are: expensed in a later period than cash was paid expenses incurred before cash is paid expenses paid at the time incurred
expensed in a later period than cash was paid
An asset ____________ by debit entries, and _________ by credit entries.
increases; decreases
Purchasing supplies on account _________ the supplies account and ________ accounts payable. decreases; decreases increases; decreases increases; increases decreases; increases
increases; increases
The statement of shareholders' equity discloses the changes in the shareholder equity accounts during the period from: (Select all that apply.) investments by owners other comprehensive income assets and liabilities distributions to owners net income property, plant, and equipment
investments by owners other comprehensive income distributions to owners net income
Deferred revenue should be classified as a(n) _____________ on the balance sheet.
liability
An interim reporting period includes: annually monthly quarterly
monthly quarterly
A ______ liability is a liability that will be satisfied in more than 1 year or operating cycle, whichever is longer, in the future. current noncurrent
noncurrent
The general formula used to calculate interest accrued on a note payable is principal times rate times number of months to maturity on the note payable. 12 months. number of months outstanding in the current year/12.
number of months outstanding in the current year/12.
Expenses and revenues that relate directly to the principal revenue-generating activities of the company are classified as __________ items on the income statement.
operating
Inflows and outflows of cash related to transactions that impact net income are financing activities. investing activities. operating activities.
operating activities.
The components of the income statement are usually classified as: (Select all that apply.) investing items financing items non-operating items operating items
operating items non-operating items
The categories on a statement of cash flows are operating, investing, and financing activities. operating and nonoperating items. assets, liabilities, and owners' equity. current and noncurrent items.
operating, investing, and financing activities.
The first step in the closing process is to reduce the balances in the temporary accounts to zero. The second step is to transfer the effects of step 1 to which account? dividends retained earnings common stock cash
retained earnings
Which accounts should be closed at the end of the period? (Select all that apply.) salary expense sales cash dividends
salary expense sales dividends
The statement of comprehensive income reports the changes in shareholders' equity during the period that: were the result of transactions with owners equal the difference between revenues and expenses were not a result of transactions with owners equal the difference between assets and liabilities
were not a result of transactions with owners
On October 1, Year 1, Swift Corporation received $1,200 from customers for services to be performed evenly over the next 12 months. Swift recorded the original transaction in a balance sheet account. The adjusting journal entry on December 31, Year 1, will include which of the following entries? Debit revenue $300. Debit to deferred revenue $300. Credit to revenue $1,200. Credit deferred revenue $1,200.
Debit to deferred revenue $300.
On January 1, Noonan Company purchases equipment for $100,000. The equipment is expected to have a useful life of 5 years and will have no value at the end of that period. Noonan allocates the cost equally over the period of use so the depreciation expense that must be recognized for the year is $20,000. $10,000. $0. $100,000.
$20,000. Reason: $100,000/5 years = $20,000 per year.
The type of system that integrates the information of departments and functions of a company into a single computer system is called a(n)
Enterprise Resource Planning (ERP) system.
True or false: Retained earnings equals net income plus distributions to shareholders.
False Reason: Retained earnings equals net income less distributions to shareholders.
Which of the following are examples of prepayments? Purchasing supplies that will be used later Revenue collected when it is earned Expense paid when it is incurred
Purchasing supplies that will be used later
True or false: In banking, a customer account is credited when cash is deposited because the customer account represents a liability to the bank.
True Reason: The customer account is a liability for the bank because the bank must return the customer's money upon demand.
Accumulated depreciation is (Select all that apply.) a contra asset account a stockholder's equity account a balance sheet account an expense account
a contra asset account a balance sheet account
Elements of the accounting equation are represented by ___________ which are contained in the general ledger.
accounts
Adjusting journal entries are necessary for three situations: deferrals, _________, and estimates.
accruals or prepayments
The balance sheet account that depreciation is recorded to is: plant and equipment accumulated depreciation depreciation expense
accumulated depreciation
A deferred revenue liability appears on the balance sheet for: revenue earned before cash is collected cash received before revenue is earned cash received at the same time revenue is earned
cash received before revenue is earned
The general ledger accounts serve as _______________
control
The adjusting journal entry required when deferred revenue is recognized includes a __________ entry to revenue.
credit
The normal balance in a contra asset account is either debit or credit credit debit
credit
The normal balance of the contra asset accumulated depreciation account is a(n) _____________.
credit
An alternative approach to recording unearned revenue would be to ______ when cash is collected from a customer in advance of providing goods and services. debit rent payable debit sales revenue credit rent expense credit sales revenue
credit sales revenue
On November 1, Year 1, Thomasson paid rent on its building for 2 years in the amount of $12,000. When the transaction was initially recorded, the full $12,000 was recorded as an expense using an alternative approach to record the prepayment. The adjusting journal entry on December 31, Year 1 requires a credit to rent expense $11,000. debit to rent expense $200. credit to prepaid rent $11,000. debit to prepaid rent $1,000.
credit to rent expense $11,000.
The adjusting journal entry required when deferred revenue is recognized includes a _________ entry to a liability.
debit
In a double-entry accounting system, the ______________ represents the left side of the account.
debit or debits
Salaries paid to employees _________________ owners' equity for the expense incurred.
decrease, debit, reduce, decreases, or lower
The accounts receivable control account is found in the ______ ledger, whereas individual customer accounts are located in the ______ ledger. permanent; temporary general; subsidiary subsidiary; general temporary; permanent
general; subsidiary
Bigelow Company purchases supplies on account. What are the effects on the balance sheet equation? (Select all that apply.) decrease liabilities increase owners' equity decrease owners' equity increase assets increase liabilities decrease assets
increase assets increase liabilities
Ace Cleaning Services performs cleaning services for $2,000 cash. What are the effects on the balance sheet equation for Ace Cleaning Services? (Select all that apply.) increase accounts receivable decrease cash decrease owners' equity decrease accounts receivable increase cash increase owners' equity
increase cash increase owners' equity
Pluto Corporation borrows $20,000 from the bank. What are the balance sheet effects of this transaction? (Select all that apply.) decrease owners' equity increase liabilities increase assets
increase liabilities increase assets
When an adjusting entry is made to record depreciation expense, the effect on the balance sheet is to increase retained earnings. increase total liabilities. reduce total assets.
reduce total assets.
An event that has a dual effect on the accounting equation is referred to as a(n) transaction. investment. direct effect. indirect effect.
transaction.
A(n) _______________ , event is any event that directly affects the financial position of the company.
economic
The effect on the accounting equation from using supplies which had been previously recorded as an asset is: assets increase and liabilities increase assets increase and owners' equity decrease assets decrease and owners' equity decrease assets decrease and liabilities increase
assets decrease and owners' equity decrease
Revenue of $1,000 was collected in advance from customers for goods and was recorded as sales revenue. At year end, $600 of the revenue collected in advance is earned. The adjusting entry includes a: credit to deferred revenue of $400 debit to revenue of $400 debit to revenue of $600 credit to deferred revenue $600 credit to revenue of $400 debit to deferred revenue of $400
credit to deferred revenue of $400 debit to revenue of $400. Reason: The company used the alternative approach and initially recorded the unearned revenue as revenue. At year end, the adjustment is made to reflect the correct amount of revenue. The $400 debit to revenue removes the unearned portion.
On January 1, Poodle Company purchases equipment for $120,000. The equipment is expected to have a useful life of 4 years and will have no value a the end of that period. Poodle allocates the cost equally over the period of use so the depreciation expense that must be recognized for the year is $5,000. $30,000. $120,000. $25,000.
$30,000. Reason: $120,000/4 years = $30,000 per year depreciation expense.
Which of the following represents the accounting equation? Owners' Equity - Liabilities = Assets Assets + Liabilities = Owners' Equity Assets = Liabilities + Owners' Equity Assets = Liabilities - Owners' Equity
Assets = Liabilities + Owners' Equity
Which of the following steps occurs only at the end of the year? Obtain information about external transactions from source documents Record adjusting entries and post to the general ledger accounts Close the temporary accounts to retained earnings Prepare the financial statements
Close the temporary accounts to retained earnings
On October 1, Company B records 1 year of prepaid rent in an income statement account then adjusts for the unexpired prepaid rent at the end of the period. Which of the following statements is true for Company B's financial statements at December 31 year-end? Company B's assets will be lower than if the original entry were recorded in a balance sheet account. Company B would have more expense than if the original entry were recorded in a balance sheet account. Company B's assets and expense should be the same regardless of which account was used to record the original transaction.
Company B's assets and expense should be the same regardless of which account was used to record the original transaction.
An individual invests $10,000 to open a new business. What is the effect on assets? No effect on assets Increase in total assets Decrease in total assets
Increase in total assets
The accounting equation is: Assets = ________ + Owners' Equity.
Liabilities or liability
Which of the following items is prepared at the end of the accounting period immediately before the financial statements are prepared? post-closing trial balance adjusted trial balance unadjusted trial balance
adjusted trial balance
Accruals involve transactions where the cash outflow or inflow takes place in a period ______ expense or revenue recognition. before the same as after
after
At the end of the accounting period, before the adjusting entries are recorded: an adjusted trial balance is prepared an unadjusted trial balance is prepared a closing balance is prepared
an unadjusted trial balance is prepared
The effect on the accounting equation from using supplies which had been previously recorded as an asset is: assets decrease and liabilities increase assets decrease and owners' equity decrease assets increase and owners' equity decrease assets increase and liabilities increase
assets decrease and owners' equity decrease
Prepaid expenses are costs of assets acquired in an accounting period: after they will be expensed before they will be expensed at the same time they will be expensed
before they will be expensed
On May 1, Year 1, Garcia Company paid $1,200 for 12 months of rent and recorded the transaction in an income statement account. The adjusting journal entry required on December 31, Year 1, will require a debit to prepaid rent $400. credit rent expense $800. credit prepaid rent $400. debit rent expense $800. debit rent expense $400 credit rent expense $400
debit to prepaid rent $400. credit rent expense $400 Reason: Because Garcia recorded the amount in an income statement account, you know they are using the alternative approach and record the full $1,200 expense when paying on May 1st. The appropriate rent expense amount at the end of the year is $800 for the months May-Dec so they do an adjusting entry to reduce the rent expense. Debit prepaid rent and credit rent expense for the $400 that will be recorded in the following year.
Supplies expense is ______ and supplies is ______ for the amount of supplies used during the period that were originally recorded as an asset when purchased. debited, credited credited, debited debited, debited credited, credited
debited, credited
A trial balance proves: all transactions have been posted correctly debits balances equal credit balances all transactions have been recorded correctly
debits balances equal credit balances
An adjusting entry to record depreciation expense for the period will ______ total assets. decrease not change increase
decrease
The payment of an account for supplies purchased in the previous month will ______ the cash account. increase decrease have no effect on
decrease
The use of office supplies purchased on account in the previous month will have what effects on the balance sheet equation? (Select all that apply.) increase assets decrease assets decrease retained earnings decrease liabilities
decrease assets decrease retained earnings
Londa Corporation pays employees $3,000 for the month. What is the effect on the balance sheet equation? (Select all that apply.) decrease liabilities increase owners' equity increase liabilities decrease owners' equity increase assets decrease assets
decrease owners' equity decrease assets
The use of office supplies purchased on account in the previous month will have what effects on the balance sheet equation? (Select all that apply.) decrease retained earnings decrease assets increase assets decrease liabilities
decrease retained earnings decrease assets
In a double-entry accounting system, each transaction has a _______________ effect on the accounting equation.
dual or double
Adjusting journal entries are necessary for three situations: deferrals, accruals, and _____________.
estimates or prepayments
Adjusting journal entries are needed to record (Select all that apply.) cash that has been paid for expenses cash that has been collected from customers expense incurred, but not yet paid revenue earned, but not yet received
expense incurred, but not yet paid revenue earned, but not yet received
Deferred revenue is a(n): asset on the balance sheet expense on the income statement liability on the balance sheet revenue on the income statement
liability on the balance sheet
Which of the following make up shareholders' equity of a corporation? (Select all that apply.) long-term liabilities retained earnings property and equipment current assets paid-in capital
retained earnings paid-in capital
Which accounts require a credit to increase the account? (Select all that apply.) equipment inventory revenue common stock
revenue common stock
Which of the following is an internal event? use of supplies repayment of a note payable payment of salaries payment of rent expense
use of supplies
Adjusting entries are recorded: after the financial statements have been prepared at the beginning of an accounting period when the financial statements are prepared after closing entries have been prepared
when the financial statements are prepared
The type of information included in an account includes the account number. columns for increases and decreases. the sum of daily transactions. the account title.
the account number. columns for increases and decreases. the account title. Reason: Each transaction is posted to the account separately.
Adjusting entries help a company accurately measure (Select all that apply.) the company's financial performance. the cash received and paid during the year. revenues and expenses for the period.
the company's financial performance. revenues and expenses for the period.
On September 1, Year 1, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December Year 1? $24,000 $12,000 $3,000 $4,000
$4,000 Reason: $24,000/24 months = $1,000 per month x 4 months = $4,000 revenue recognized.
On June 1, Year 1 Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the December 31 income statement for Year 1? $12,000 $5,000 $7,000 $6,000
$7,000 Reason: $24,000/24 months = $1,000 per month x 7 months = $7,000 revenue.
Which of the following is the correct formula to calculate cost of goods sold? Ending inventory + purchases - beginning inventory Beginning inventory - purchases + ending inventory Beginning inventory + purchases - ending inventory Beginning inventory + ending inventory - purchases
Beginning inventory + purchases - ending inventory
When rent is paid in advance for 2 years, it is appropriately recorded as a(n) _____________ , whereas when rent is paid and used during one month, it is appropriately recorded as a(n) ___________.
Blank 1: asset Blank 2: expense
An account is maintained for each financial statement element, whereas a(n) ___________ _______________ contains all of the accounts of the entity. (Enter only one word per blank.)
Blank 1: general Blank 2: ledger
A prepayment may be recorded in prepaid rent, a balance sheet account. The alternative method to record the prepayment is to debit the _________________ _________________ account.
Blank 1: rent Blank 2: expense
Which of the following is an internal economic event? Collecting on accounts receivable Issuing stock Borrowing from a bank Depreciating equipment
Depreciating equipment
True or false: Permanent accounts are closed at the end of the accounting period.
False Reason:Temporary accounts are closed at the end of the accounting period.
Norton Corp. has revenues of $5,000 and expenses of $2,000. What is the total effect on retained earnings? Decreases $2,000. Increases $3,000. Decreases $3,000. Increases $7,000.
Increases $3,000.
Which accounts are closed to retained earnings at the end of an accounting period? Both temporary and permanent Temporary Permanent
Temporary
True or false: The objective of an Enterprise Resource Planning (ERP) system is to create a customized software program that integrates the information of departments and functions of a company into a single computer system.
True Reason: ERP systems are usually customized packages used in larger firms.
Entries made at the end of the accounting period before the financial statements are prepared are called _______________ entries.
adjusting, adjusted, or adjust
Logan Corp. purchases supplies on account and appropriately records the transaction in an asset account. The adjusting journal entry at year-end when accounting for supplies used will require a (Select all that apply.) credit to supplies debit to supplies debit to supplies expense credit to supplies expense
credit to supplies debit to supplies expense
Ragland Corp. purchases supplies on account for $1,000 and appropriately records the transaction in an asset account. A count of inventory at year-end indicates that $300 of supplies are remaining. The adjusting journal entry required at year-end includes (Select all that apply.) credit to supplies expense $700. debit to supplies expense $700. debit to supplies on hand $700. credit to supplies on hand $700 debit to supplies on hand $300. credit to supplies on hand $300
debit to supplies expense $700. credit to supplies on hand $700
Revenues will ______ retained earnings, and expenses will ______ retained earnings. increase; increase decrease; decrease decrease; increase increase; decrease
increase; decrease
Conner Corporation purchases supplies on account. This transaction will ______ assets and ______ liabilities. increase; decrease increase; increase decrease; increase decrease; decrease
increase; increase
A T-account has space at the top for the account title and two sides for recording ______ and ______ to the account. assets; liabilities increases; decreases payables; receivables income; loss
increases; decreases
Borrowing $50,000 from the bank and signing a note payable causes: (Select all that apply.) cash to decrease notes payable to decrease notes payable to increase cash to increase
notes payable to increase cash to increase
To adjust for rent used up during the year that was recorded to the prepaid rent account when paid for, rent expense is debited, prepaid rent is credited prepaid rent is credited, rent expense is credited prepaid rent is debited, rent expense is credited rent expense is debited, prepaid rent is debited
rent expense is debited, prepaid rent is credited
