ACT210 - SB 3

If revenues equal $100,000 and expenses equal $120,000, then net income (loss) must equal ______.

$(20,000)

Creative Advertising Company had retained earnings of $100,000 at December 31, 2018. Net income for 2019 was $150,000, and dividends for 2019 were $80,000. What amount of retained earnings should be reported at December 31, 2019?

$170,000

Quartz Instruments had retained earnings of $145,000 at December 31, 2018. Net income for 2019 was $90,000, and dividends for 2019 were $30,000. What amount of retained earnings should be reported at December 31, 2019?

$205,000. $145,000+$90,000-$30,000= $205,000

During the year, Pizza Company, Inc. had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends. Net income equals ______.

$60,000. Dividend payments do not affect the net income

Andy records an adjusting entry for deferred revenue. Andy should:

- credit a revenue account - debit a liability account

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes:

- credit to prepaid insurance - debit to insurance expense

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?

- credit to revenue - debit to deferred revenue

Sabrina Company recorded an adjusting entry for salaries owed to employees at the end of the year. As a result of this entry, Sabrina Company's:

- equity decreases - liabilities increase

Norbert Company debits Accounts Receivable and credits Service Revenue. As a result of this adjusting entry, Norbert Company's:

- equity increases - assets increase

The adjusted trial balance provides account balances reported in which financial statements?

- income statement - balance sheet - statement of stockholder's equity

The information reported in the statement of cash flows is organized by these activities:

- investing - financing - operating

Munster Inc. debits Deferred Revenue and credits Service Revenue. As a result of this adjusting entry, Munster's:

- liabilities will decrease - equity will increase

Which of the following statements regarding the statement of cash flows are correct?

- reports cash disbursements - reports cash receipts - the final financial statement that is typically prepared

Which of the following accounts should be classified as stockholders' equity?

- retained earnings - common stock

As of December 31, the end of the accounting period, $700 of salaries to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, which two of the following will occur?

- salaries expense will increase by $700 - salaries payable will increase by $700

The post-closing trial balance helps to verify that:

- the accounts are ready for next period's transactions - we prepared and posted closing entries correctly

_________ Expense should be recorded to recognize the cost of using long-lived assets, such as equipment, during the accounting period.

Depreciation

The adjusting entry to record salaries owed to employees at the end of the accounting period includes a debit to "Salaries ________" and a credit to "Salaries ________ ."

Expense; Payable

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

False. Adjustments remove the value of assets have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period.

Which of the following statements is correct regarding an adjusting entry for salaries accrued but not paid at the end of the accounting period?

Salaries Expense will increase by the amount of the unpaid salaries.

Which of the following relationships is correct?

Total assets = total liabilities plus stockholders' equity

What are the effects on the accounting equation from an adjusting entry for revenues earned, but not yet collected, during the accounting period?

Total assets will increase and total stockholders' equity will increase.

What are the effects on the accounting equation when an adjusting entry is made for goods or services provided during the accounting period related to an amount previously received in advance from a customer?

Total liabilities will decrease and total stockholders' equity will increase.

What are the effects on the accounting equation from the adjustment for salaries incurred but not yet paid during the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

Egon Inc. delivered goods and services during December. Payment is expected during the first week of January. An adjusting entry at the end of the period should consist of a debit to ____ and a credit to _____.

accounts receivable; service revenue

______ -basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company

accrual

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as

accrual-basis accounting

When recording an adjustment for the cost of using equipment during the current accounting period, which two accounts are affected?

accumulated depreciation and depreciation expense

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by _________ entries.

adjusting

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.

an asset is increased since cash will be collected at a later date

At the beginning of the accounting period, the balances of temporary accounts

are zero

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset

Prepaid insurance is a(n)

asset in the balance sheet

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

A classified balance sheet shows subtotals for current _______ and current ______.

assets; liabilities

Prepaid rent appears in the ______.

balance sheet because it is an asset

The adjusted trial balance should be prepared ______ the financial statements are prepared in order to prove the ______ of the debits and credits.

before; equality

The retained earnings balance shown in an adjusted trial balance is the account's _______ balance.

beginning

Adjusting entries never affect the asset account called

cash

Reporting revenues only when cash is received and expenses, only when cash is paid, is called the _____ basis of accounting.

cash

Which of the following accounts will never be affected by an adjusting entry?

cash

________ typically is the most liquid asset reported on the balance sheet.

cash

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

If an asset account such as Equipment has a normal debit balance, the associated contra account should have a normal _________ balance.

credit

The post-closing trial balance checks that total ______ equal total ______ at the end of the period.

credit; debit

Which of the following entries records the adjustment for revenue earned, but not yet collected?

debit account receivable and credit sales revenue

During the year, Smite Company declared and paid dividends in the amount of $50,000. As part of the closing process, Smite should

debit retained earnings and credit dividends

The adjusting entry for prepaid rent requires a(n) _______ to Rent Expense and a(n) _________ to Prepaid Rent.

debit; credit

The adjusting entry to record the supplies used during the period will result in a(n) ______.

decrease to Supplies and an increase to Supplies Expense

True or false: The adjusted trial balance presents the ending balance of retained earnings.

false. The amount shown is the beginning of period balance because revenues, expenses, and dividends were not yet closed to retained earnings

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

false. it is a permanent account that is involved in the closing process

True or false: A contra-asset account, such as Accumulated Depreciation, will have a normal debit balance.

false. while accumulated depreciation is listed in the asset section, it is a contra or negative asset. Therefore, it will have a normal credit balance since the true assets have a debit balance.

A classified balance sheet ________.

groups asset and liabilities into current and long-term categories

An asset that can quickly be turned into cash has the characteristic of

liquidity

With respect to current assets, _______ refers to how quickly an asset can be converted to cash

liquidity

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period.

owed

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

Retained earnings is an example of a ____ account, meaning its balance is carried forward from one period to the next.

permanent

Zweig Company's adjusting entries include a debit to accounts receivable and a credit to service revenue. This means that Zweig:

provided services for which it did not yet receive payment

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

Stockholders' equity consists of two main components, common stock and ______.

retained earnings

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the closing process, Wald should debit

service revenue

Which of the following financial statements typically is prepared last?

statement of cash flows

The adjusting entry for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.

supplies expense; supplies

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary

Cash typically is the first current asset reported on the balance sheet because it is:

the most liquid asset