Chapter 2 SmartBook

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.

8

Which of the following accounts would most likely use a subsidiary ledger?

Accounts receivable accounts payable

_basis accounting measures income based on accomplishments and resource sacrifices during the period.

Accrual

When are adjusting entries recorded? a. When any external transaction or event occurs. b. At the end of a period when preparing financial statements. c. At the beginning of each reporting period. d. After closing entries are prepared for the period.

At the end of a period when preparing financial statements.

Which of the following are examples of prepayments? a. Expense paid when it is incurred b. Purchasing supplies that will be used later c. Revenue collected when it is earned

Purchasing supplies that will be used later

Which of the following are economic events? (Select all that apply.) a. A proposal to purchase $1,000 of inventory from supplier. b. The payment of employee salaries for the week. c. Borrowing $10,000 from the bank.

The payment of employee salaries for the week. Borrowing $10,000 from the bank.

A group of subsidiary accounts associated with a particular general ledger control account is called a:

subsidiary ledger

Accrued liabilities are costs incurred in an accounting period:

before a cash payment

Prepaid expenses are costs of assets acquired in an accounting period: a. after they will be expensed b. at the same time they will be expensed c. before they will be expensed

before they will be expensed

Cash basis accounting measures income based on

cash receipts and cash disbursements.

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. a. True b. False

a. True

Expenses incurred in one accounting period and paid for in a future accounting period are _____ liabilities.

accrued

Interest earned, but not yet received is an example of:

an accrued receivable

A company paying rent in advance for the month of April records: a. an expense b. revenue c. a liability d. an asset

an asset

The process in which temporary accounts are reduced to zero balances and transferred to retained earnings is the ______ process.

closing

Supplies expense is ______ and supplies is ______ for the amount of supplies used during the period that were originally recorded as an asset when purchased. a. debited, debited b. credited, debited c. credited, credited d. debited, credited

debited, credited

To record an adjusting entry when deferred revenue is recognized:

deferred revenue is debited revenue is credited

A(n) _____ event is any event that directly affects the financial position of the company.

economic

Adjusting journal entries are needed to record (Select all that apply.) a. cash that has been paid for expenses b. expense incurred, but not yet paid c. revenue earned, but not yet received d. cash that has been collected from customers

expense incurred, but not yet paid revenue earned, but not yet received

Revenue and expenses on the income statement are classified as: (Select all that apply.)

non-operating items operating items

The components of the income statement are usually classified as: (Select all that apply.)

operating items non-operating items

Adjusting entries are recorded for (Select all that apply.) a. prepayments b. estimates c. post-payments d. accruals

prepayments estimates accruals

One of the purposes of adjusting entries is to a. ensure debits equal credits. b. recognize all revenues earned during the period. c. record all external transactions at the end of the year. d. make assets equal liabilities plus owners' equity.

recognize all revenues earned during the period.

A(n) _____ is an informal tool used to organize the accounting information and to prepare adjusting and closing entries at the end of the period.

worksheet

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 a. $165,000 b. $75,000 c. $85,000 d. $65,000 e. $125,000

$85,000

An informal tool used to organize the accounting information needed to prepare adjusting and closing entries and the financial statements is a:

worksheet

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%

Adjusting journal entries are necessary for three situations: deferrals, _____, and estimates.

accruals

To increase the accumulated depreciation account, you would ______ the account, and to increase depreciation expense, you would _____ the account.

credit, debit

Millburg Corp. uses the periodic inventory method. Millburg's beginning inventory is $10,000. During the year, Millburg purchases $8,000 of inventory. Ending inventory is $5,000. Cost of goods sold is a. $3,000. b. $18,000. c. $13,000. d. $7,000.

$13,000. Beginning balance $10,000 + $8,000 purchases - $5,000 ending inventory = $13,000 cost of goods sold.

Lassiter Corp. uses the periodic inventory method. During the year, Lassiter purchases $10,000 of inventory. Ending inventory is $6,000. Cost of goods sold is $12,000. Beginning inventory was: a. $8,000 b. $4,000 c. $16,000 d. $18,000

$8,000 Let beginning inventory = x. x + $10,000 - 12,000 = $6,000. Solve for x, and x = $8,000.

Place the steps at the end of the accounting period in the correct order. a. Close the temporary accounts b. Prepare an adjusted trial balance c. Prepare financial statements d. Prepare an unadjstued trial balance e. Record adjusting entries

1. Prepare an unadjusted trial balance 2. Record adjusting entries 3. Prepare an adjusted trial balance 4. Prepare financial statements 5. Close the temporary accounts

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.) a. credit to supplies expense $700. b. debit to supplies on hand $300. c. debit to supplies on hand $700. d. credit to supplies on hand $700 e. debit to supplies expense $700. f. credit to supplies on hand $300

credit to supplies on hand $700 debit to supplies expense $700.

True or false: If a company makes end-of-year accruals, it must use reversing entries.

False

True or false: Prepayments are transactions in which the cash flow follows the expense or revenue recognition. a. True b. False

False

Accumulated depreciation is (Select all that apply.) a. a stockholder's equity account b. a contra asset account c. a balance sheet account d. an expense account

a contra asset account a balance sheet account

Accruals occur when cash flow comes: (Select all that apply.) a. before expense recognition b. after expense recognition c. after revenue recognition d. before revenue recognition

after expense recognition after revenue recognition

Prepaid expenses are the cost of _____ acquired in one accounting period and _____ in a future period.

assets expensed

Accrued receivables involve situations when the revenue is earned in a period ______ the cash receipt.

before

A deferred revenue liability appears on the balance sheet for:

cash received before revenue is earned

The normal balance of the contra asset accumulated depreciate account is a(n) _____.

credit

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.) a. debit to supplies expense b. credit to supplies expense c. credit to supplies d. debit to supplies

debit to supplies expense credit to supplies

Accrued liabilities are:

expenses incurred before cash was paid

Deferred revenue should be classified as a(n) ______ on the balance sheet.

liability

The balance sheet account that depreciation is recorded to is: a. depreciation expense b. plant and equipment c. accumulated depreciation

accumulated depreciation

Entries made at the end of the accounting period before the financial statements are prepared are called _____ entries.

adjusting

Accruals involve transactions where the cash outflow or inflow takes place in a period ______ expense or revenue recognition.

after

Accrual accounting measures:

an entity's accomplishments and resource sacrifices during the period

The type of system that integrates the information of departments and functions of a company into a single computer system is called a(n) a. Accounting Data system. b. Electronic Data Processing system. c. Enterprise Resource Planning (ERP) system.

Enterprise Resource Planning (ERP) system.

Which of the following steps occurs only at the end of the year? a. Prepare the financial statements b. Obtain information about external transactions from source documents c. Close the temporary accounts to retained earnings d. Record adjusting entries and post to the general ledger accounts

Close the temporary accounts to retained earnings

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 to deferred revenue $300.

The adjusting journal entry required when deferred revenue is recognized includes a _____ entry to revenue.

credit

The adjusting journal entry required when deferred revenue is recognized includes a entry _____ to a liability.

debit

A reversing entry is used: (Select all that apply.)

most often with accruals. at the beginning of a reporting period. to simplify journal entries recorded during the new period.

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) _____.

prepayment expense

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?

retained earnings

Adjusting entries help a company accurately measure (Select all that apply.) a. revenues and expenses for the period. b. the company's financial performance. c. the cash received and paid during the year.

revenues and expenses for the period. the company's financial performance.

Prepayments are: (Select all that apply.) a. transactions in which cash flow follows revenue recognition. b. transactions in which cash flow follows expense recognition. c. transactions in which cash flow precedes expense recognition. d. transactions in which cash flow precedes revenue recognition.

transactions in which cash flow precedes expense recognition. transactions in which cash flow precedes revenue recognition.

Adjusting entries are recorded: a. after closing entries have been prepared b. when the financial statements are prepared c. after the financial statements have been prepared d. at the beginning of an accounting period

when the financial statements are prepared