ACC 201 Learnsmart Chapter 4

Which of the following are temporary accounts that will be closed at the end of the accounting period during the closing process? (Select all that apply.) A) Dividends B) Revenues C) Liabilities D) Common Stock E) Retained Earnings F) Expenses G) Assets

A) Dividends B) Revenues C) Expenses

The annual depreciation taken on a vehicle totals $3,000. The vehicle has been in service for 3 full years and the adjusting entries have been completed for the year. At the end of the 3rd year, the annual financial statements will report Depreciation Expense equal to $______ and Accumulated Depreciation equal to $________.

3000; 9000

In its 1st year of business, Daily Grind, Inc. purchased $1,000 of supplies of which it only has $300 left at the end of the period. Which of the following will be found in the year-end financial statements? (Select all that apply.) A) Supplies on the balance sheet of $700 B) Supplies Expense on the income statement of $700 C) Supplies Expense on the income statement of $1,300 D) Supplies on the balance sheet of $300

B and D - Supplies Expense on the income statement of $700 - Supplies on the balance sheet of $300 Reason: The adjusting entry to record the amount of supplies used includes a debit to Supplies Expense (+E,-SE) and a credit to Supplies (-A) of $700 (=$1,000 available - $300 remaining).

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest _____________ " and a credit to "Interest _______________ ."

Expense; Payable

True or false: Accumulated Depreciation is a contra-account to a long-lived asset account, such as Equipment. This means that it increases the balance of the long-lived asset on the balance sheet. True False

False Reason: A contra-account is a negative account. It carries the opposite balance of the account with which it is paired. Consequently, Accumulated Depreciation reduces the long-lived asset when portrayed on the balance sheet.

True or false: Since Retained Earnings is involved in the closing process, it is considered a temporary account.

False Reason: Although Retained Earnings is involved in the closing process, it is a permanent, not a temporary, account.

True or false: The adjusting entry to record depreciation does not directly reduce the long-lived asset accounts, such as Equipment, so that the original cost of the asset remains unchanged. True False

True Reason: The reduction to the asset account is taken through the Accumulated Depreciation account rather than directly through the long-lived asset account. The long-lived asset account is not affected and, therefore, keeps its original balance until it is sold or discarded.

The closing entry to close Rent Expense requires Rent Expense to be ____________ and Retained Earnings to be ______________ .

credited; debited

The adjusting entry to record the amount of prepaid rent used during the period requires a ___________ to Rent Expense and a __________ to Prepaid Rent.

debit; credit

Which line item will have a larger balance related to equipment that has been used over the past 3 years. A) Depreciation Expense B) Accumulated Depreciation C) Equipment Expense

B) Accumulated Depreciation Reasons: This reports only the current periods use of the equipment. Accumulated Depreciation reports all of the equipment's usefulness used over the past 3 years. Equipment is not directly affected by depreciation. The account Accumulated Depreciation is used instead and netted against the related equipment account.

After the adjustments have been recorded, Deferred Revenue on the balance sheet reports the amount of ______. A) revenues the seller has fulfilled of its obligations during the current period B) revenues that have been fulfilled by the seller, but not collected during the period C) the sales or services still owed to the customer

C) the sales or services still owed to the customer Reasons: Deferred Revenue represents the amount of sales or services that have been collected in advance. Accounts Receivable represents that amount of sales or services that have been fulfilled by the seller of its obligations but not yet collected.

On June 30, Daily Kneads paid $12,000 in advance for one year of insurance coverage beginning July 1. Match each line item with the correct amount that would be reported in the following month, July, and on which July financial statement the line item would be reported. Insurance Expense Prepaid Insurance $1,000 on the income statement $11,000 on the balance sheet

Insurance Expense - $1,000 on the income statement $1,000 on the income statement Prepaid Insurance - $11,000 on the balance sheet

Which of the following is true about the adjusting entry to record the revenue for which the seller has performed of its obligations but not yet collected? (Select all that apply.) Multiple select question. liabilities will decrease liabilities will increase assets will increase assets will decrease stockholders' equity will increase

stockholders' equity will increase This should be recorded as an adjusting entry with a debit to Accounts Receivable (+A) and a credit to Revenues (+SE).

The entry to record income tax accrued, but unpaid, at the end of the accounting period includes both a ______ and a ______. (Check all that apply.) A) debit to Income Tax Expense B) credit to Income Tax Payable C) credit to Cash D) debit to Income Tax Payable E) credit to Income Tax Expense

A) debit to Income Tax Expense B) credit to Income Tax Payable Reason: The debit is to Income Tax Expense, not Income Tax Payable. The debit, not credit, is to Income Tax Expense and the credit to Income Tax Payable.

Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account? A) The Accumulated Depreciation account contains the value of the long-lived asset as well as the depreciation. B) The adjusting entry contains a different amount for Depreciation Expense and Accumulated Depreciation. C) Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased. D) The balances in the two accounts should be the same amount.

C) Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.

Which balance sheet line item reports the amount collected in advance for which the seller has not yet fulfilled of its obligations to the buyer? A) Deferred Revenue B) Accumulated Depreciation C) Service Revenue D) Accounts Receivable

A) Deferred Revenue Reason: Deferred Revenue is recorded when cash is collected in advance by debiting Cash (+A) and crediting Deferred Revenue (+L). Accounts Receivable is recorded when revenue is recorded in advance of the collecting the cash and is recorded with a debit to Accounts Receivable (+A) and a credit to Revenue (+SE).

Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account? A) Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased. B) The balances in the two accounts should be the same amount. C) The Accumulated Depreciation account contains the value of the long-lived asset as well as the depreciation. D) The adjusting entry contains a different amount for Depreciation Expense and Accumulated Depreciation.

A) Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.

As of December 31, $2,500 of interest expense has accrued on a $50,000 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? A) Interest Expense should be increased, because the cost of interest relates to the current period. B) 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. C) Note Payable should be increased to reflect the additional interest that will be due when the note is paid off next year. D) Interest Receivable should be increased to reflect the accrued interest on the note payable.

A) Interest Expense should be increased, because the cost of interest relates to the current period. Reasons: Interest Expense will increase, since the interest was attributable to the current period. Interest Payable will be increased. Notes Payable is used to record only the principal of the note. Interest Payable will be increased as cash will be paid, not received, in the following year.

After the adjustments have been recorded, the adjusted balance in the Prepaid Rent account represents the ______. A) amount of the prepayment that remains towards future rental periods B) amount of the prepayment that has expired during the period C) amount that is owed for rent

A) amount of the prepayment that remains towards future rental periods Reason: Rent Expense is the amount that has expired during the period and is reported on the income statement. Prepaid Rent is the amount that has been paid in advance and has not yet expired or been used. Prepaid Rent is an asset on the balance sheet.

Which of the following adjusting entries will cause assets and stockholders' equity to increase? Adjusting for services provided ________________________________. A) but not yet collected. B) that were collected in advance. C) and collected.

A) but not yet collected. Reasons: The adjusting entry for amounts collected in advance that have now been fulfilled is recorded with a debit to Deferred Revenue (-L) and a credit to Service Revenue (+SE). Adjusting entries never affect cash.

The Deferred Revenue T-account will show which of the following? (Select all that apply.) A) the normal ending balance on the credit side B) the amounts the seller has fulfilled of its obligations that were collected in advance on the debit side C) the amounts received in advance that the seller has not yet fulfilled of its obligations on the credit side D) the normal ending balance on the debit side E) the amounts received in advance that the seller has not yet fulfilled of its obligations on the debit side F) the amounts the seller has fulfilled of its obligations that were collected in advance on the credit side

A, B and C A) the normal ending balance on the credit side B) the amounts the seller has fulfilled of its obligations that were collected in advance on the debit side C) the amounts received in advance that the seller has not yet fulfilled of its obligations on the credit side

After posting the adjusting entry to record revenues for which the seller has performed of its obligations but has not yet collected, which account will be increased? A) Prepaid Revenue B) Accounts Receivable C) Accounts Payable D) Deferred Revenue

B) Accounts Receivable Reason: Deferred Revenue represents the amount collected in advance of the seller fulfilling its obligations to its buyers. Accounts Receivable represents the amount from providing goods and services that has not yet been collected.

How do the adjusting entry to record the supplies used during the period affect the financial statements? A) Accounts Payable on the balance sheet will decrease B) Net Income on the income statement will decrease C) Supplies on the balance sheet will decrease D) Supplies Expense on the income statement will increase

B) Net Income on the income statement will decrease C) Supplies on the balance sheet will decrease D) Supplies Expense on the income statement will increase

In its 1st year of business, Daily Grind, Inc. purchased $1,000 of supplies of which it only has $300 left at the end of the period. Which of the following will be found in the year-end financial statements? (Select all that apply). A) Supplies Expense on the income statement of $1,300 B) Supplies on the balance sheet of $300 C) Supplies Expense on the income statement of $700 D) Supplies on the balance sheet of $700

B) and C) B) Supplies on the balance sheet of $300 C) Supplies Expense on the income statement of $700 Reason: The adjusting entry to record the amount of supplies used includes a debit to Supplies Expense (+E,-SE) and a credit to Supplies (-A) of $700 (=$1,000 available - $300 remaining).

Which of the following is true about the adjusting entry to record the revenue for which the seller has performed of its obligations but not yet collected? (Select all that apply.) A) stockholders' equity will decrease B) stockholders' equity will increase C) liabilities will decrease D) assets will increase E) assets will decrease F) liabilities will increase

B) and D) B) stockholders' equity will increase D) assets will increase

Which of the following statements are true about the closing process? (Select all that apply.) A) Permanent accounts, which include revenues, expenses, and dividends, are closed into Retained Earnings B) Temporary accounts, which include revenues, expenses, and dividends, are closed into Retained Earnings C) Retained Earnings is a temporary account and is closed into stockholders' equity D) Permanent accounts are not closed and are reported on the income statement E) Permanent accounts are not closed and are reported on the balance sheet

B) and E) B) Temporary accounts, which include revenues, expenses, and dividends, are closed into Retained Earnings E) Permanent accounts are not closed and are reported on the balance sheet

A prepayment is originally recorded as an asset. Later at the end of the accounting period, an adjustment is recorded causing in a(n) ______ in the asset account and a(n) ______ in the expense account. A) increase; decrease B) decrease; increase C) decrease; decrease D) increase; increase

B) decrease; increase Reason: The asset value is decreasing as the benefit of the prepayment is being used. Consequently, the expense account is increasing by the value of the benefit used.

Interest incurred, but not yet paid during an accounting period, should be recorded as an expense and a(n) ______. A) asset B) liability C) contra account D) revenue

B) liability

Permanent accounts are found on ______. A) only the income statement B) only the balance sheet C) both the balance sheet and the income statement

B) only the balance sheet Reason: Permanent accounts include assets, liabilities, and equity accounts which are found on the balance sheet.

On November 1, Lawn & Order, Inc. paid $24,000 for two years of rent in advance for rent beginning on November 1. How much should be expensed for the month of November? A) $12,000 B) $24,000 C) $1,000 D) $23,000

C) $1,000 Reason: The amount expensed is the amount that has expired (been consumed) during the month which is $1,000 (=$24,000/24 months). On November 1, it recorded a debit to Prepaid Rent (+A) and credit to Cash (-A) for $24,000. The adjusting entry to record the amount used in November includes a debit to Rent Expense (+E,-SE) and a credit to Prepaid Rent (-A) for $1,000. Prepaid Rent will have a remaining balance of $23,000 (=$24,000 - 1,000) on the balance sheet.

Which line item will have a larger balance related to equipment that has been used over the past 3 years. A) Depreciation Expense B) Equipment Expense C) Accumulated Depreciation

C) Accumulated Depreciation Reasons: This reports only the current periods use of the equipment. Accumulated Depreciation reports all of the equipment's usefulness used over the past 3 years. Equipment is not directly affected by depreciation. The account Accumulated Depreciation is used instead and netted against the related equipment account.

What are the effects on the financial condition of the business from the adjustment for revenues from the seller fulfilling its obligations that have not yet been collected? A) Total assets will increase and total stockholders' equity will decrease. B) Total assets will decrease and total stockholders' equity will increase. C) Total assets will increase and total stockholders' equity will increase. D) Total assets will decrease and total stockholders' equity will decrease.

C) Total assets will increase and total stockholders' equity will increase. Reason: This should be recorded as an adjusting entry with a debit to Accounts Receivable (+A) and a credit to Revenues (+SE).

The Deferred Revenue T-account will show which of the following? (Select all that apply.) A) the normal ending balance on the debit side B) the amounts received in advance that the seller has not yet fulfilled of its obligations on the debit side C) the amounts received in advance that the seller has not yet fulfilled of its obligations on the credit side D) the amounts the seller has fulfilled of its obligations that were collected in advance on the debit side E) the normal ending balance on the credit side F) the amounts the seller has fulfilled of its obligations that were collected in advance on the credit side

C) the amounts received in advance that the seller has not yet fulfilled of its obligations on the credit side D) the amounts the seller has fulfilled of its obligations that were collected in advance on the debit side E) the normal ending balance on the credit side

Which balance sheet line item reports the amount collected in advance for which the seller has not yet fulfilled of its obligations to the buyer? A) Accumulated Depreciation B) Service Revenue C) Accounts Receivable D) Deferred Revenue

D) Deferred Revenue Reasons: Deferred Revenue is recorded when cash is collected in advance by debiting Cash (+A) and crediting Deferred Revenue (+L). Service Revenue is the amount the seller has fulfilled of its obligation to its buyers. Accounts Receivable is recorded when revenue is recorded in advance of the collecting the cash and is recorded with a debit to Accounts Receivable (+A) and a credit to Revenue (+SE).

After the adjustments have been recorded, the adjusted balance in the Prepaid Rent account represents the ______. A) amount of the prepayment that has expired during the period B) amount of the prepayment that remains towards future rental periods C) amount that is owed for rent D) Prepaid Rent is an asset on the balance sheet.

D) Prepaid Rent is an asset on the balance sheet. Rent Expense is the amount that has expired during the period and is reported on the income statement. Prepaid Rent is the amount that has been paid in advance and has not yet expired or been used.

_____________ Expense should be recorded to recognize the use of and benefit received from long-lived assets, such as equipment, during the accounting period.

Depreciation

True or false: Adjustments ensure that assets on the balance sheet are reported at amounts that have been used up or expired during the period.

False Reason: Adjustments ensure that assets report their economic benefit remaining, not the amount that has been used up or expired during the period. The related expense on the income statement is the amount used or expired during the accounting period.

True or false: Since Retained Earnings is involved in the closing process, it is considered a temporary account. True false question. True False

False Reason: Although Retained Earnings is involved in the closing process, it is a permanent, not a temporary, account.

Match each financial statement line item with the appropriate description. Supplies Expense Supplies Accounts Payable Amount used and reported on the income statement Amount remaining and reported on the balance sheet Amount owed for supplies purchased on account

Supplies Expense - Amount used and reported on the income statement Supplies - Amount remaining and reported on the balance sheet Accounts Payable - Amount owed for supplies purchased on account