Accounting 201 Test 1
______ Expense accumulates or accrues throughout the accounting period on Notes Payable.
Interest
Which of the following statements is correct regarding the adjustment for salaries and wages accrued by not paid at the end of the accounting period?
Salaries and wages expense will increase by the amount of the unpaid salaries and wages.
Taggert Company paid $1800 for a 6-month insurance premium on September 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?
Taggert will be debit Prepaid insurance for $1800 on sep 1; Taggert will debit insurance expense for $300 on sept 30; Taggert will credit Prepaid Insurance for $300 on Sept 30
How does the adjustment for depreciation differ from other defferal adjustments ?
The depreciation adjustment uses a contra-account rather than reducing the asset accounts directly
Notes Receivable
The right to collect from others under a formal agreement ("note")
Accounts Receivable
The right to collect interest from others
What is a good starting point for determining which accounts require adjustment?
Unadjusted trial balance
As of December 31, the unadjusted trial balance in Unearned Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $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?
Unearned Revenue needs to be decreased by the amount of the gift cards redeemed during the month. Sales revenue needs to be increased by the amount of gift cards redeemed during the month.
other liabilities
a variety of liabilities with smaller balances
A prepayment that is originally recorded as an asset will be
allocated to future accounting periods based on the value of the benefit used during the period
retained earnings
amount of accumulated earnings not distributed as dividends
prepaid rent
amount paid for rent relating to future periods
Prepaid insurance
amount paid to obtain insurance covering future periods
Unearned revenues
amounts (customers deposits) received in advance of providing goods or services to customers
salaries and wages payable
amounts owed to employees for salaries wages, and bonuses
Accrued liabilities
amounts owed to other for advertising, utilities, interest, etc
intangible assets
brand names, goodwill, and other assets that lack a physical presence
buildings
cost of buildings the business will use for operation
equipment
cost of equipment used to produce goods or provide services
land
cost of land to be used by the business
software
cost of purchased computer programs and code
Equity Accounts increase with a
credit
Adjusting entries are made at the ______ of the accounting period, while daily transactions are made throughout the accounting period
end
The _____ recognition principle requires an adjustment for salaries and wages expense incurred during the accounting period that will be paid in a future accounting period
expense
In the closing process, _____ are zeroed out by crediting each account and ___ are zeroed out by debiting each account
expenses and dividends; revenues
Amortization is the concept that applies to the
expensing of long-term assets that lack physical substance over their useful lives
inventory
goods on hand that are being held for resale
cash
includes cash in the bank and in the cash register
As of December 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 (Income tax expense decreases stockholder's equity and thus is debited
increase; 3000
short-term investments
investments in government securities and certificates of deposit
supplies
items on hand that will be used to make goods or provide services
Why is it necessary to make adjustments to revenue accounts at the end of the period?
payments received in advance, and originally recorded as a liability, should be reduced for any portion earned during the current period; Revenues earned at the end of the period, but not yet billed to accounts receivable, should be recorded as a revenue
asset account
requires credit entry to decrease the account
closing entries move the balances from the ____ accounts into the Retained Earnings account.
temporary
After the adjustments have been completed, the adjusted balance in Income Tax Expense account represents ____.
total income tax that has been paid or accrued during the period
Temporary Accounts Include
Expenses, Revenues, dividends
Sonic gateway purchased $1,000 of app software that is estimated to have four years of usefulness. The adjusting entry to record the amortization includes a debit to ____ and a credit to ____
Amortization Expense; Accumulated Amortization
Interest payable
Amount due on loans as the cost of borrowing
Common stock
Amount of cash (or other property) contributed in exchange for the company's common stock
Bonds payable
Amounts borrowed from lenders; involves issuance of bonds
Notes Payable
Amounts borrowed from lenders; involves signing a promissory note
Accounts payable
Amounts owed to suppliers for good and services bought on credit
As of December 31, $2500 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 year?
Interest expense should be increased, because the cost of interest relates to the current period.
How do temporary accounts differ from permanent accounts?
Only temporary accounts are closed at the end of the accounting period
For companies that generate a net loss during the current period, the closing entries will result in a net ______ entry to retained earnings
debit