Chapter 4 LS Questions/Answers

As the balance in the accumulated depreciation increases, total assets ______ because accumulated depreciation is a _______-account.

decrease, contra

Adjustments made to expense accounts at the end of the accounting period adhere to the _____ recognition (matching) principle.

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)

1) debit prepaid rent 2) credit cash 3) debit cash 4) *debit rent expense*

Which 2 accounts are used to record the adjusting entry for the amortization of long term assets that lack physical substance?

1) depreciation expense 2) *accumulated amortization* 3) unearned revenue 4) *amortization expense* 5) accumulated depreciation

Which of the following statements describes the effect that adjustments may have on liabilities?

1) *Adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.* 2) Adjustments reduce liabilities for the amount of any accrued and unpaid expenses at the end of the period. 3) Adjustments do not have any effect on liabilities, since cash in not included in the adjusting entries.

At the end of the accounting period, adjusting entries are required. Place the steps in the adjustment process in the correct order

1) use the unadjusted trial balance to determine the accounts requiring adjustment 2) record and post adjusting entries 3) prepare an adjusted trial balance to check the equality of the debits and credits 4) prepare financial statements 5) record closing journal entries and post to the accounts 6) prepare a post-closing trial balance

______ expense should be recorded to recognize the use of and benefit received from long-lived assets, such a equipment, during the accounting period

Depreciation

Accrual adjustments are needed when a company has earned revenue or incurred an expense but _____ has not been exchanged

cash

The adjusting entry for supplies used during the period requires a ______ (debit or credit) to supplies and a _____ (debit or credit) to supplies expense

credit, debit

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.

debit, credit

The accounts receivable account should be ______ when adjustment at the end of the period for any revenues that have been earned but yet collected or recorded

debited

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?

1) total assets will increase and total stockholders' equity will decrease 2) total assets will decrease and total stockholders' equity will increase 3) total assets will decrease and total stockholders equity will decrease 4) *total assets will increase and total stockholders equity will increase*

The adjusting entry to record the amounts earned during the accounting period results in a(n) ______ to the unearned revenue account

decrease Unearned revenue should be credited (increase) when the cash is collected in advance. Later, when the revenue is earned, the unearned revenue account will be debited (decreased)

Prepaid expenses should be _____ by the benefits that were used up during the accounting period

decreased

As of December 31, $2500 of interest expense has accrued on a $50000 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?

1) *Interest expense should be increased because the cost of interest relates to the current period* 2) note payable should be increased to reflect the additional interest that will be due when the note is paid off next year 3) interest receivable should be increased to reflect the accrued interest on the note payable 4) interest expense does not affect this period since it will not be paid. The expense will be recorded when the note and interest are paid in full

Which of the following types of transactions represent accrual adjustments?

1) *increase to income taxes payable and increase to income taxes expense* 2) decrease to supplies and increase to supplies expense 3) *increase to interest payable and increase to interest expense*

Which of the following accounts are found on a balance sheet?

1) *interest payable* 2) interest expense 3) rent expense 4) sales revenue 5) *prepaid rent* 6) dividends

What are the effects on the accounting equation from the adjustment for salaries and wages incurred, by not yet paid, during the accounting period

1) *total liabilities will increase and total stockholders' equity will decrease* 2) total liabilities will increase and total stockholders' equity will increase 3)total liabilities will decrease and total stockholders' equity will decrease 4)total liabilities will decrease and total stockholders' equity will increase

As of December 31, the adjusted balance in Unearned Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates the $3200 gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period?

1) *unearned revenue needs to be decreased by the amount of the gift cards redeemed during the month* 2) *sales revenue needs to increased by the amount of gift cards redeemed during the month* 3) sales revenue needs to be decreased by the amount of gift cards redeemed during the month 4) no adjustment is necessary as the gift cards were credited to revenue at the time they were sold 5) cash needs to increased by the amount of the gift cards redeemed during the month

Deferring a revenue or expense account in accounting means that the amount ______.

1) *will be reported as a revenue or an expense in a later period* 2) was reported as a revenue or an expense in a prior period 3) will be reported as a revenue or an expense in the current period 4) will not be reported in the accounting records

Which of the following is incorrect regarding the income tax payable account?

1) The adjusting entry involving this account also requires an entry to income tax expense. 2) The account represents income tax incurred but not yet paid by the company/ 3) This is a liability account. 4) *The account represents tax refunds due to the company.*

In a deferral adjustment for revenues collected in advance that are now earned, ______.

1) a liability is increased because cash will be paid for an expense in the future 2) *the liability recorded when cash was received is decreased by the adjustment for the revenue being earned* 3) the liability recorded when cash was received is increased by the adjustment for the revenue being earned 4) a liability is decreased because cash is being paid for an expense incurred at the time of the adjustment

In a deferral adjustments for revenues collected in advance that are now earned, _____.

1) a liability is increased because cash will be paid for an expense in the future 2) the liability recorded when cash was received is increased by the adjustment for the revenue being earned 3) *the liability recorded when cash was received is decreased by the adjustment for the revenue being earned* 4) a liability is decreased because cash is being paid for an expense incurred at the time of the adjustment

Place the steps in the adjustment process in order

1) analyze the accounts to determine the amount of the adjustment 2) record the adjusting entry in the journal 3) summarize the adjusting entries in the accounts

Interest incurred , but not yet paid during an accounting period, should be recorded as an expense and a(n) _____

1) asset 2) contra account 3) *liability* 4) revenue

Adjustments to revenue accounts at the end of the accounting period are made to adhere to accrual accounting principles, specifically the _______ principle.

1) cost 2) expense recognition (matching) 3) *revenue-recognition* 4) contra-account

Identify the entries needed for the closing process

1) credit each revenue, debit each expense, and record the difference in retained earnings 2) *debit each revenue, credit each expense and record the difference in retained earnings* 3) *credit dividends and debit retained earnings* 4) debit divided ends and credit retained earnings

The adjusing entry to record depreciation on equipment includes a _____.

1) credit to equipment 2) *debit to depreciation expense* 3) *credit to accumulated depreciation* 4) debit to accumulated depreciation 5) credit to depreciation expense 6) credit to cash

Which of the following types of transactions represent deferral adjustments that are recorded to adjust for amounts expired or used during the period?

1) increase to wages payable and wage expense 2) increase to interest receivable and interest revenue 3) *decrease to prepaid insurance and increase to insurance expense* 4) *decrease to supplies and increase to supplies expense*

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.

1) liability 2) revenue 3) expense 4) *asset* 5) account

Initially a prepayment for items such as rent and insurance are recorded as assets and later recorded as a(n) ________ in the period the benefits expires

expense

Adjustments help to ensure that all revenues are recorded in the period in which they are

earned

As of Decemeber 31 (the end of the accounting period), ABC Company has a profit before tax of $12,000. The company's tax rate is 25%. The adjustment will include a(n) ______ of $______ to income tax expense.

increase, $3000 (12000*.25)

Net income (or loss) is recorded in the retained earnings account when ______ and _____ accounts are closed and transferred into retained earnings

revenue, expense