BUS 1A Ch. 3

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation. Position 1 of 4 Prepare an unadjusted trial balance. correct toggle button unavailable Prepare an unadjusted trial balance.

1. Prepare an unadjusted trial balance. 2. Journalize and post adjusting entries. 3. Prepare an adjusted trial balance. 4. Prepare financial statements.

A calendar year-end reporting period is defined as a ___-month period which ends on ___ 31st.

12 December

Select the statements below that describe the purpose of a post-closing trial balance.

A credit to Income Summary for $27,000. Debit Service Fees for $15,000. Debit to Consulting Revenue for $12,000.

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance.

The Income Summary account can be defined as which of the following?

An account whose balance equals net income or net loss A temporary account An account used during the closing process An account that contains a credit for the sum of all revenues

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

Describe your understanding of the closing process by identifying the correct steps below.

Close the Dividends account. Close all revenue accounts. Close all expense accounts. Close the Income Summary account.

Choose the statement below that explains what "closing" means.

Closing means to bring an account balance to zero.

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600

Choose the statement below that demonstrates the correct adjusting entry to recognize depreciation expense on a building.

Debit Depreciation expense; credit Accumulated depreciation.

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Interest expense for $30

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Debit Salaries expense for $500

Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney's customers have not yet been billed. Chimney's customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction?

Debit accounts receivable and credit services revenue

Which of the following statements describes the expense recognition (matching) principle?

Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses. Matching of expenses with revenues is a major part of the adjusting process.

When preparing the Statement of Retained Earnings, which account is carried forward from the Income Statement?

Net income

Select the statements below that describe the purpose of a post-closing trial balance.

One purpose is to verify that all temporary accounts have zero balances. One purpose is to verify that total debits equal total credit for permanent accounts.

Which statements below are true regarding permanent and temporary accounts?

Permanent accounts are reported on the balance sheet. Retained Earnings is a permanent account, but Dividends is a temporary account. Temporary accounts have a balance for one period only. Permanent accounts will appear on a post-closing trial balance. Temporary accounts are reported on the income statement.

Which of the following accounts would be considered a prepaid expense or prepaid asset account?

Prepaid rent Prepaid insurance Supplies

Which of the following statements correctly define(s) a profit margin?

Profit margin is also called return on sales. Profit margin is the ratio of a business's net income to its net sales.

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below.

Service revenue would be credited for $700. Unearned revenue would be debited for $700.

Which of the following accounts is considered a prepaid expense?

Supplies

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below.

Supplies expense would be debited for $300. Supplies would be credited for $300.

What is the difference between an adjusted trial balance and an unadjusted trial balance?

The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. The adjusted trial balance is used to prepare financial statements. The adjusted trial balance generally has more accounts listed than the unadjusted trial balance.

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements.

The income statement is the first financial statement prepared after preparing the adjusted trial balance Financial statements are easier to prepare using the adjusted trial balance than the general ledger. The ending Retained Earnings account balance on the Balance Sheet is taken from the Statement of Retained Earnings.

Explain what unearned revenues are by selecting the statements below which are correct.

They are also called deferred revenues. They refer to cash received in advance of performing a service or product. They are reported on a balance sheet. They are a liability.

All of the following are on an unclassified balance sheet:

Total liabilities Total assets

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent

Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product.

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a:

credit to Prepaid insurance for $400 debit to Insurance expense for $400

Review and complete the following statement regarding the Income Summary account. The Income Summary account is ___ for the sum of all revenue accounts and is ___for the sum of all expense accounts and its balance will be transferred to the ___ account.

credited debited retained earnings

A depreciation adjustment would include a debit to ___ and ___ to ___.

depreciation expense credit accumulated depreciation

A post-closing trial balance is a list of ___ accounts and their balances from the ___ all ___ entries have been journalized and posted.

permanent ledger after closing

Illustrate your understanding of how to use the adjusted trial balance to prepare a statement of retained earnings by completing the following sentence. In order to prepare the statement of retained earnings, the balance of the ___ account balance as well as any debit balance in the ___ account is transferred from the adjusted trial balance and is used along with the reported net income (loss) from the Income statement.

retained earnings dividends

Accrued ___ are earned in a period that are both unrecorded and not yet received in cash

revenues

A $300,000 building was purchased on December 1. It is estimated that it will have a life of 20 years and zero salvage value. Calculate depreciation expense for the month of December using straight-line depreciation.

$1,250

On December 1, a company pays $3,600 for a 36-month insurance policy. After one month, accrual accounting requires $___ of insurance expense be reported on the income statement ending December 21. However, if cash basis accounting used, $___ of insurance expense would be reported at the time of purchase.

$100 $3,600

$21,000 of equipment is purchased on December 1. It is estimated that it will have a life of 5 years and zero salvage value. Calculate depreciation expense as of December 31 of the first year using the straight-line method.

$350

Vito Co. had current assets of $9,000 and current liabilities of $6,000 at the end of the year. Net income during the year was $21,000. The current ratio for the period is:

1.5

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

Select the statement below that describes a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing.

Summarize the closing process by listing the closing entries in the order in which they would occur at the end of the accounting period. Step 1: Close Income Statement ___ balance accounts. Step 2: Close Income Statement ___ balance accounts. Step 3: Close ___. Step 4: Close ___.

credit debit income summary dividends

The expense recognition (matching) principle aims to record ___ in the same accounting period as the ___ that are earned as a result of those costs. This principle is a major part of the ___ process.

expenses revenues adjusting

The formula to figure out the profit margin of a company is ___ divided by ___.

net income net sales

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following sentence. The required adjusting entry would be to debit the ___ account and ___ the ___ account.

accounts receivable credit service revenue

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December:

credit services revenue debit accounts receivable

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest ___ account and ___ the Interest ___ account.

expense credit payable

Which of the following statements describes why accrual accounting better reflects a business's performance?

Expenses are always recognized in the period in which they are incurred. Revenues are always recorded in the period in which they are earned. Comparability of financial statements is improved.

Define the Income Summary account.

It is a temporary account used during the closing process to summarize revenues and expenses.

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the ___ account and ___ the ___ account.

interest receivable credit interest revenue

Brown Co. had current assets of $15,000, total assets of $30,000 and current liabilities of $9,000 at the end of the year. The current ratio for the period is:

1.67

Determine which of the following transactions may require adjustments.

Equipment was purchased in the middle of the year. A 24-month insurance policy was prepaid. Six months of rent were paid in advance. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. Supplies were purchased at the beginning of the year, but not all were used.

A plant asset can be defined by which of the following statements?

It has a life within the business greater than one year or the current operating cycle, whichever is longer. Its original cost (minus any salvage value) is expensed over its useful life. It is reported on the balance sheet. It is a tangible long-term asset.

$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?

Supplies expense would be debited for $600.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct.

They refer to costs that are incurred in a period, but are both unpaid and unrecorded. Adjustments involve increasing both an expense and a liability account. Examples of accrued expenses are wages expense and interest expense. They are reported on an income statement.

Which of the following describes accrued revenue?

They refer to revenues that are earned in a period, but have not been received and are unrecorded. The adjustment causes an increase in an asset account and an increase in a revenue account. They refer to earnings which have been earned but not yet billed. Accounts receivable is usually increased when accruing revenues.

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries ___ account and ___ the Salaries ___ account.

expense credit payable

Select the statement below that explains how to use the Income Summary account.

The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts.

When does the closing process take place?

At the end of an accounting period

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

The closing process takes place at the ___ of an accounting period, after the ___ trial balance is prepared and ___ the financial statements are prepared.

end adjusted after

Closing means to transfer account balances from ___ accounts so that they will start with a ___ balance at the beginning of the next period.

temporary zero

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate the December 31 adjusting entry by choosing the correct statement below.

Debit Unearned revenues for $400