Chapter 3 Smartbook

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period? (Select all that apply.) - Taggert will debit Insurance Expense for $1,800 on Dec. 1. - Taggert will credit Prepaid Insurance for $300 on Dec. 31. - Taggert will debit Insurance Expense for $300 on Dec. 31. - Taggert will debit Prepaid Insurance for $1,500 on Dec. 31. - Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.

- Taggert will credit Prepaid Insurance for $300 on Dec. 31. - Taggert will debit Insurance Expense for $300 on Dec. 31. - Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes: (Select all that apply.) - credit to Cash - debit to Insurance Expense - credit to Prepaid Insurance - debit to Prepaid Insurance - debit to Cash

- debit to Insurance Expense - credit to Prepaid Insurance

The adjusting entry to record the supplies used during the period will result in a(n) ______. - increase to Supplies and an increase to Supplies Expense - decrease to Supplies and an increase to Supplies Expense - increase to Supplies and a decrease to Supplies Expense - decrease to Supplies and a decrease to Supplies Expense

- decrease to Supplies and an increase to Supplies Expense

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ______.

22,000

On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?

35,910

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?

A company pays for 4 months of advertising in the Wall Street Journal on November 1, A company pays a 6-month insurance premium at the beginning of October.

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?

December 31

Which of the following would be referred to as "accruals?" (Select all that apply.)

Expenses incurred, not yet paid; Goods and services provided, not yet collected

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is a cost of borrowing.

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months.

How do temporary accounts differ from permanent accounts?

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

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show: (Select all that apply.)

Rent expense of $2,000, Prepaid rent of $22,000

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

Service revenue for $1,800

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

The adjusting entry for an accrued revenue always includes: (Select all that apply.)

a debit to an asset account, a credit to a revenue account

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

Consistent with the ____________-basis of accounting, we record revenue when we provide goods and services to customers, and we record expenses in the period that costs are used to provide those goods and services.

accrual

Reporting revenues when goods or services are provided and expenses in the period they are incurred to generate related revenues is referred to as _____________-basis accounting.

accrual

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

accrual

The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account. a decrease no change an increase

an increase

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

are zero

A prepayment such as "Prepaid Insurance" is originally recorded as a(n) ____________ when an insurance policy is purchased and will later be expensed in the period used

asset

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

asset

Neumann Corporation purchases supplies that will be used during the following quarter. At the time of purchase, the supplies should be recorded as a(n) expense revenue asset liability

asset

Supplies that are not used immediately are recorded as a(n) ______ when purchased. liability expense asset revenue

asset

Prepaid insurance is a(n) ______

asset in the balance sheet

permanent accounts

asset, liability, equity

a classified balance sheet shows totals for current ___ and current ____

assets and liabilities

Prepaid rent appears in the ______

balance sheet because it is an asset

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

cash

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

closing entries

After the adjusting entries have been completed, the adjusted balance in the Rent Expense account represents:

cost of rent for the accounting period

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

credit a revenue account, debit a liability account

An adjusting entry for accrued expenses involves: (Select all that apply.)

credit to a liability, debit to an expense

prepaid expenses should be ______ by the cost of the asset used during the accounting period

decreased

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.

decreased; increased

evenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.

deferred

The process of allocating the cost of an asset to expense over the useful life of the asset is called

depreciation

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

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

financing, operating, and investing

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded

The expense that relates to notes payable and accumulates or accrues throughout the accounting period is referred to as ________ expense.

interest

______ is the "cost of borrowing" money

interest

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?

liability and prepaid expense

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

paid

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following? (Select all that apply.)

prepaid expense, liability

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

recording of adjusting entries

The two major categories reported in the income statement are:

revenue and expenses

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

debits and credits

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

The post-closing trial balance helps to verify that: (Select all that apply.)

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

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

accrual basis accounting

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

accrual-basis accounting

___________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned

accruals

_____________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned

accruals

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for ______ entries

adjusting

After the adjusting entries have been completed, the adjusted balance in the Rent Expense account represents:

amount of the prepayment that remains towards future rental periods

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

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a:

debit to Deferred Revenue, credit to Revenue

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

debit; credit

________ Expense should be recorded to recognize the cost of using long-lived assets, such as equipment, during the accounting period. (Enter one word per blank.)

depreciation

________ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used

depreciation

The statement of stockholders' equity includes these amounts:

dividends for the period, ending balance retained earnings, and net income

Adjusting entries are made at the __________ of the accounting period, while daily transactions are made throughout the accounting period

end

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

expense

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) _______ in the period the benefit expires

expense

Under cash-basis accounting, (Select all that apply.)

revenues are recorded when cash is received, expenses are recorded when cash is paid.

temporary accounts

revenues, expenses, dividends

Which of the following financial statements typically is prepared last?

statement of cash flows

Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings?

statement of stockholders equity

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

temporary

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account. expense; asset revenue; liability asset; expense liability; revenue

expense; asset

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred

expenses