Adjusting Entries

A bank lent $100,000 to a customer on December 1 that required the customer to pay an annual percentage rate (APR) of 12% on the amount of the loan. The loan is due in six months and no payment of interest or principal is to be made until the note is due on May 31. The bank prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that the bank will be making for its accounting records. What is the amount of the debit and the credit?

$1,000. Computation: 12% per year is 1% per month X $100,000 = $1,000 per month. Another method is Principal X Rate X Time = $100,000 X .12 X 1/12 = $1,000. As of December 31 the bank has earned just one month of interest. When the note becomes due, the bank will collect six months of interest for a total of $6,000 ($100,000 X .12 X 6/12).

A company borrowed $100,000 on December 1 by signing a six-month note that specifies interest at an annual percentage rate (APR) of 12%. No interest or principal payment is due until the note matures on May 31. The company prepares financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be entered in the company's records. What is the amount of the debit and the credit?

$1,000. Computation: 12% per year is 1% per month X $100,000 = $1,000 per month. Another method is Principal X Rate X Time = $100,000 X .12 X 1/12 = $1,000. As of December 31 the company owes just one month of interest. When the note becomes due, the company will have to remit six months of interest for a total of $6,000 ($100,000 X .12 X 6/12).

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. What is the amount of the debit and the credit?

$2,200. Calculation: $2,400 divided by the 12 months of coverage = $200 per month. As of December 31 one month has gone by, so one month of insurance has expired and belongs in Insurance Expense. Presently there is a $2,400 debit balance in Insurance Expense. To reduce the Insurance Expense to $200 you need to credit Insurance Expense for $2,200. Prepaid Insurance should have a balance of $2,200 because 11 months of insurance is still prepaid or unexpired X $200 per month.

On December 1, XYZ Insurance Co. received $2,400 from your company for the annual insurance premium covering the twelve-month period beginning on December 1. XYZ Insurance Co. recorded the $2,400 receipt as of December 1 with a debit to the current asset Cash and a credit to the current liability Unearned Revenues. XYZ Insurance Co. prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the XYZ Insurance Co. What is the amount of the debit and the credit?

$200. Calculation: $2,400 divided by the 12 months of coverage = $200 per month. As of December 31 one month has gone by, so one month of insurance has been earned and belongs in revenue. (This means that the Unearned Revenues account should have a balance of $2,200—11 months still unearned X $200 per month.)

On December 1, your company began operations. On December 4 it purchased $1,500 of supplies and recorded the transaction with a debit to the income statement account Supplies Expense and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. What is the amount of the debit and the credit?

$700. Calculation: Account balances before adjustment: Supplies $0; Supplies Expense $1,500. Since there are $700 of supplies on hand, the balance in the current asset account Supplies must be increased from $0 to $700. Hence a debit to Supplies for $700. The present balance of $1,500 in the Supplies Expense account must be reduced, because not all $1,500 of supplies have been used. Since $700 of supplies are on hand the company is assumed to have used only $800 of supplies. ($1,500 minus $700 on hand.) To report Supplies Expense of $800, we need to credit Supplies Expense for $700.

On December 1, your company began operations. On December 3 it purchased $1,500 of supplies and recorded the transaction with a debit to the current asset Supplies and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. What is the amount of the debit and the credit?

$800. Calculation: The balance in the current asset account Supplies before any adjustment is a debit balance of $1,500. The actual amount of supplies on hand (unused) was determined to be $700. Therefore, the balance in the current asset account Supplies should be a debit balance of $700, not the present balance of $1,500. To reduce the Supplies account from a debit balance of $1,500 to become a debit balance of $700, you will need to credit Supplies for $800. The other half of the entry needs to be a debit of $800 to Supplies Expense. Since expenses are costs that have been used up, the $800 debit balance in Supplies Expense is proper. (Your company bought $1,500 and has $700 on hand/unused. Therefore, $800 must have been used up.)

The adjusting entry that reduces the balance in Deferred Revenues or Unearned Revenues will also include which of the following?

A Credit To Fees Earned As the deferred or unearned revenues become earned, the credit balance in the liability account such as Deferred Revenues needs to be reduced. Hence, the adjusting entry to record these earned revenues will include 1) a debit to Deferred Revenues, and 2) a credit to Fees Earned.

Which of the following will be included in the adjusting entry to accrue interest expense?

A Credit To Interest Payable When interest expense has been incurred by a company but no payment has been made and no related paperwork has been processed, the company will need to accrue the interest with a debit to Interest Expense and a credit to Interest Payable.

The adjusting entry that reduces the balance in Prepaid Insurance will also include which of the following?

A Debit To Insurance Expense As the debit balance in the asset account Prepaid Insurance expires, there will need to be an adjusting entry to 1) debit Insurance Expense, and 2) credit Prepaid Insurance.

Which of the following will be included in the adjusting entry to accrue interest income or interest revenues?

A Debit To Interest Receivable When interest has been earned but no cash has been received and no billing paperwork has been processed in the accounting records, a company will need to accrue 1) interest revenue or interest income, and 2) an asset such as Interest Receivable. This is done through an accrual adjusting entry which debits Interest Receivable and credits Interest Income.

What type of accounts are Prepaid Insurance, Prepaid Advertising, and Prepaid Expenses?

ASSET Prepaid expenses that have not been used up or have not yet expired are reported as assets. In other words, prepaid expenses are unexpired costs. When the costs expire (or are used up) they become expenses.

What type of accounts are Interest Receivable and Fees Receivable?

ASSET Receivables are asset accounts. Assets appear on the left side of the accounting equation and asset accounts will normally have debit balances.

Which type of adjusting entry is often reversed on the first day of the next accounting period?

Accrual For example, if a company has incurred commissions expense on December's sales, but will not pay the commissions until January 25, the company will write an accrual type adjusting entry for December's financial statements. On January 25 the company will write a check to pay those commissions. To avoid having two entries for December's commissions, it is common practice on the first day of the month following the accrual adjusting entry to record a reversing entry. (Deferrals do not pose the risk of double counting expenses or revenues.)

What type of entry will decrease the normal balances of the general ledger accounts Interest Receivable and Fees Receivable?

CREDIT Receivables normally have debit balances. Therefore to decrease the debit balance in a receivable account you will need to credit the account.

What type of entry will decrease the normal balances of the accounts Prepaid Insurance and Prepaid Expenses, and Insurance Expense?

CREDIT Since Prepaid Insurance and Prepaid Expenses are asset accounts, their normal debit balance will be decreased with a credit entry. Since expenses usually have debit balances, Insurance Expense will be decreased with a credit entry.

What type of entry will increase the balances that are normally found in the accounts Accumulated Depreciation and Allowance for Doubtful Accounts?

CREDIT Since contra asset accounts have credit balances, the credit balance will become larger when a credit entry is recorded.

What type of entry will increase the normal balance of the general ledger account Service Revenues?

CREDIT Since revenues cause stockholders' equity to increase, revenues are increased with a credit entry. [Stockholders' equity appears on the right side of the accounting equation. Credit entries appear on the right side of a T-account.]

What type of entry will increase the normal balance of the general ledger account that reports the amount owed as of the balance sheet date for a company's accrued expenses?

CREDIT The amount owed for accrued expenses is reported in a liability account such as Accrued Expenses Payable. Since a liability account is expected to have a credit balance, a credit entry will increase the normal balance. [Recall that liabilities are on the right side of the accounting equation. Credit entries appear on the right side of a T-account.]

What type of accounts are Accumulated Depreciation and Allowance for Doubtful Accounts?

Contra Asset Contra asset accounts will have credit balances. The word contra indicates the balances in these two accounts will be contrary to the debit balances that are expected in asset accounts.

What type of entry will increase the normal balances of the general ledger accounts Electricity Expense, Insurance Expense, Interest Expense, and Repairs Expense?

DEBIT Expenses are recorded in expense accounts with a debit entry. The reason is that expenses will cause a decrease in stockholders' (or owner's) equity.

What type of entry will decrease the normal balances of the accounts Deferred Revenues and Unearned Revenues?

DEBIT Since Deferred Revenues is a liability account, the normal credit balance will be decreased with a debit entry. For example, when some of the deferred revenues become earned, the company will debit the Deferred Revenues and will credit a revenue account such as Service Revenues.

On December 1, your company began operations. On December 3 it purchased $1,500 of supplies and recorded the transaction with a debit to the current asset Supplies and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. What date should be used to record the December adjusting entry?

DECEMBER 31st

A bank lent $100,000 to a customer on December 1 that required the customer to pay an annual percentage rate (APR) of 12% on the amount of the loan. The loan is due in six months and no payment of interest or principal is to be made until the note is due on May 31. The bank prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that the bank will be making for its accounting records. What date should be used to record the December adjusting entry?

December 31

On December 1, XYZ Insurance Co. received $2,400 from your company for the annual insurance premium covering the twelve-month period beginning on December 1. XYZ Insurance Co. recorded the $2,400 receipt as of December 1 with a debit to the current asset Cash and a credit to the current liability Unearned Revenues. XYZ Insurance Co. prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the XYZ Insurance Co. What date should be used to record the December adjusting entry?

December 31

In the case of a bank's accrued interest revenues, which occurs first?

Earning The Interest Revenues Accrued revenues are recorded because the bank has earned both the interest revenue and a related receivable and neither has yet been recorded by the bank.

On December 1, your company began operations. On December 4 it purchased $1,500 of supplies and recorded the transaction with a debit to the income statement account Supplies Expense and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. What date should be used to record the December adjusting entry?

December 31

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the current asset Prepaid Insurance and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. What date should be used to record the December adjusting entry?

December 31

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. What date should be used to record the December adjusting entry?

December 31

A company borrowed $100,000 on December 1 by signing a six-month note that specifies interest at an annual percentage rate (APR) of 12%. No interest or principal payment is due until the note matures on May 31. The company prepares financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be entered in the company's records. What date should be used to record the December adjusting entry?

December 31 (the last day of the accounting period)

In the case of a company's accrued interest expense, which of the following occurs first?

Incurring The Interest Expense An accrued expense is an expense (and a liability) which was incurred by a borrower but the interest has not been recorded.

On December 1, XYZ Insurance Co. received $2,400 from your company for the annual insurance premium covering the twelve-month period beginning on December 1. XYZ Insurance Co. recorded the $2,400 receipt as of December 1 with a debit to the current asset Cash and a credit to the current liability Unearned Revenues. XYZ Insurance Co. prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the XYZ Insurance Co. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?

If XYZ Insurance Co. fails to make the December 31 adjusting entry there will be four consequences: 1) Unearned Revenues will be overstated by $200. 2) Service Revenues will be understated by $200. 3) Net Income will be understated by $200. 4) Owner's equity will be understated by $200. The accounting equation and balance sheet will show liabilities (Unearned Revenues) overstated by $200 and owner's equity understated by $200.

A bank lent $100,000 to a customer on December 1 that required the customer to pay an annual percentage rate (APR) of 12% on the amount of the loan. The loan is due in six months and no payment of interest or principal is to be made until the note is due on May 31. The bank prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that the bank will be making for its accounting records. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?

If the bank fails to make the December 31 adjusting entry there will be four consequences: 1) Interest Revenue or Interest Income will be understated by $1,000. 2) Net Income will be understated by $1,000. 3) Owner's equity will be understated by $1,000. 4) Interest Receivable will be understated by $1,000. The accounting equation and balance sheet will show assets (Interest Receivable) understated by $1,000 and owner's equity understated by $1,000.

A company borrowed $100,000 on December 1 by signing a six-month note that specifies interest at an annual percentage rate (APR) of 12%. No interest or principal payment is due until the note matures on May 31. The company prepares financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be entered in the company's records. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?

If the company fails to make the December 31 adjusting entry there will be four consequences: 1) Interest Expense will be understated (too little expense being reported) by $1,000. 2) Net Income will be overstated (too much net income being reported) by $1,000. 3) Owner's equity will be overstated by $1,000. 4) Interest Payable will be understated by $1,000. The accounting equation and balance sheet will show liabilities (Interest Payable) understated by $1,000 and owner's equity overstated by $1,000.

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the current asset Prepaid Insurance and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?

If the company fails to make the December 31 adjusting entry there will be four consequences: 1) Prepaid Insurance will be overstated by $200. 2) Insurance Expense will be understated by $200. 3) Net Income will be overstated by $200. 4) Owner's equity will be overstated by $200. The accounting equation and balance sheet will show assets (Prepaid Insurance overstated by $200 and owner's equity overstated by $200).

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?

If the company fails to make the December 31 adjusting entry there will be four consequences: 1) Prepaid Insurance will be understated by $2,200. 2) Insurance Expense will be overstated by $2,200. 3) Net Income will be understated by $2,200. 4) Owner's Equity will be understated by $2,200. The accounting equation and balance sheet will show assets (Prepaid Insurance) understated by $2,200 and owner's equity understated by $2,200.

On December 1, your company began operations. On December 4 it purchased $1,500 of supplies and recorded the transaction with a debit to the income statement account Supplies Expense and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?

If your company fails to make the December 31 adjusting entry there will be four consequences: 1) Supplies Expense will be overstated by $700. 2) Supplies will be understated by $700. 3) Net Income will be understated by $700. 4) Owner's equity will be understated by $700. The accounting equation and balance sheet will show assets (Supplies) understated by $700 and owner's equity understated by $700.

What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?

If your company fails to make the December 31 adjusting entry there will be four consequences: 1) Supplies will be overstated by $800. 2) Supplies Expense will be understated by $800. 3) Net Income will be overstated by $800. 4) Owner's equity will be overstated by $800. The accounting equation and balance sheet will show assets (Supplies) overstated by $800 and owner's equity overstated by $800.

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the current asset Prepaid Insurance and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. What is the name of the account that will be debited?

Insurance Expense (an income statement account)

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. What is the name of the account that will be credited?

Insurance Expense (an income statement account)

A company borrowed $100,000 on December 1 by signing a six-month note that specifies interest at an annual percentage rate (APR) of 12%. No interest or principal payment is due until the note matures on May 31. The company prepares financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be entered in the company's records. What is the name of the account that will be debited?

Interest Expense (an income statement account)

A company borrowed $100,000 on December 1 by signing a six-month note that specifies interest at an annual percentage rate (APR) of 12%. No interest or principal payment is due until the note matures on May 31. The company prepares financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be entered in the company's records. What is the name of the account that will be credited?

Interest Payable (a balance sheet account)

A bank lent $100,000 to a customer on December 1 that required the customer to pay an annual percentage rate (APR) of 12% on the amount of the loan. The loan is due in six months and no payment of interest or principal is to be made until the note is due on May 31. The bank prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that the bank will be making for its accounting records. What is the name of the account that should be debited?

Interest Receivable (a balance sheet account)

A bank lent $100,000 to a customer on December 1 that required the customer to pay an annual percentage rate (APR) of 12% on the amount of the loan. The loan is due in six months and no payment of interest or principal is to be made until the note is due on May 31. The bank prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that the bank will be making for its accounting records. What is the name of the account that should be credited?

Interest Revenue or Interest Income (an income statement account)

What type of accounts are Deferred Revenues and Unearned Revenues?

Liability Accounts such as Deferred Revenues, Unearned Revenues, and Customer Deposits are liability accounts. As with liability accounts, the normal balance will be a credit balance. Under the accrual method of accounting, the accounts such as Unearned Revenues are necessary when a company receives money from a customer in advance of the company earning the money. (Since the money has not yet been earned, it cannot be reported as revenues on the income statement.) The liability account communicates that a company has an obligation to provide its customers with goods or services or return the money to the customers.

Typically an adjusting entry will include which of the following?

One Balance Sheet Account And One Income Statement Account Nearly all adjusting entries involve a minimum of one balance sheet account and a minimum of one income statement account.

In the case of a company deferring insurance expense, which occurs first?

Paying The Insurance Company Deferred insurance expense is the result of paying the insurance premiums at the start of an insurance coverage period. The amount of insurance premiums that have not expired as of the balance sheet date should be reported in an asset account such as Prepaid Insurance. [As the prepaid insurance premiums expire an adjusting entry should be written to credit the asset Prepaid Insurance and debit Insurance Expense.]

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the current asset Prepaid Insurance and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. What is the name of the account that will be credited?

Prepaid Insurance (a balance sheet account)

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. What is the name of the account that will be debited?

Prepaid Insurance (a balance sheet account)

In the case of a company's deferred revenues, which occurs first?

Receiving The Money From The Customer Deferred revenues indicate that a company has received money from a customer before it has been earned.

On December 1, XYZ Insurance Co. received $2,400 from your company for the annual insurance premium covering the twelve-month period beginning on December 1. XYZ Insurance Co. recorded the $2,400 receipt as of December 1 with a debit to the current asset Cash and a credit to the current liability Unearned Revenues. XYZ Insurance Co. prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the XYZ Insurance Co. What is the name of the account that will be credited?

Service Revenues (an income statement account)

On December 1, your company began operations. On December 3 it purchased $1,500 of supplies and recorded the transaction with a debit to the current asset Supplies and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. What is the name of the account that will be credited?

Supplies (a balance sheet account)

On December 1, your company began operations. On December 4 it purchased $1,500 of supplies and recorded the transaction with a debit to the income statement account Supplies Expense and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. What is the name of the account that will be debited?

Supplies (a balance sheet account)

On December 1, your company began operations. On December 3 it purchased $1,500 of supplies and recorded the transaction with a debit to the current asset Supplies and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. What is the name of the account that will be debited?

Supplies Expense (an income statement account)

On December 1, your company began operations. On December 4 it purchased $1,500 of supplies and recorded the transaction with a debit to the income statement account Supplies Expense and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. What is the name of the account that will be credited?

Supplies Expense (an income statement account)

On December 1, your company began operations. On December 3 it purchased $1,500 of supplies and recorded the transaction with a debit to the current asset Supplies and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. How many accounts are involved in the adjusting entry?

TWO

The ending balance in the account Deferred Revenues (or Unearned Fees) should report which of the following?

The Fees Received In Advance Which Are Not Yet Earned When customers pay a company in advance, the company credits Unearned Revenues. Then as the company earns some of the revenues, the account Unearned Revenues will be debited and an income statement account such as Service Revenues or Fees Earned will be credited. Thus, the remaining credit balance in Unearned Revenues is the amount received but not yet earned.

The ending balance in the account Prepaid Insurance is expected to report which of the following?

The Unexpired Portion Of The Insurance Premiums Paid The ending balance in the asset account Prepaid Insurance should be the cost of the insurance premiums that have been paid and which have not yet expired (or have not yet been used up).

A bank lent $100,000 to a customer on December 1 that required the customer to pay an annual percentage rate (APR) of 12% on the amount of the loan. The loan is due in six months and no payment of interest or principal is to be made until the note is due on May 31. The bank prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that the bank will be making for its accounting records. How many accounts are involved in the adjusting entry?

Two

A company borrowed $100,000 on December 1 by signing a six-month note that specifies interest at an annual percentage rate (APR) of 12%. No interest or principal payment is due until the note matures on May 31. The company prepares financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be entered in the company's records. How many accounts are involved in the adjusting entry?

Two

On December 1, XYZ Insurance Co. received $2,400 from your company for the annual insurance premium covering the twelve-month period beginning on December 1. XYZ Insurance Co. recorded the $2,400 receipt as of December 1 with a debit to the current asset Cash and a credit to the current liability Unearned Revenues. XYZ Insurance Co. prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the XYZ Insurance Co. How many accounts are involved in the adjusting entry?

Two

On December 1, your company began operations. On December 4 it purchased $1,500 of supplies and recorded the transaction with a debit to the income statement account Supplies Expense and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company. How many accounts are involved in the adjusting entry?

Two

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the current asset Prepaid Insurance and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. How many accounts are involved in the adjusting entry?

Two

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company. How many accounts are involved in the adjusting entry?

Two

On December 1, XYZ Insurance Co. received $2,400 from your company for the annual insurance premium covering the twelve-month period beginning on December 1. XYZ Insurance Co. recorded the $2,400 receipt as of December 1 with a debit to the current asset Cash and a credit to the current liability Unearned Revenues. XYZ Insurance Co. prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the XYZ Insurance Co. What is the name of the account that will be debited?

Unearned Revenues (a balance sheet account)