W07 Study: Chapter 06 Smart Book

$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 the first month's depreciation expense as of December 31 using the straight-line method.

$350

Which of the following statements about the Accumulated depreciation account is (are) correct? (Check all that apply.)

-Accumulated depreciation is a contra account. -Accumulated depreciation is subtracted from its plant asset on the balance sheet. -Accumulated depreciation accumulates the total depreciation taken on an asset since its purchase. -The Accumulated depreciation account allows the original cost of the asset to remain in the plant asset account.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

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

Which of the following statements are true regarding depreciation? (Check all that apply.)

-Depreciation is recognized at the end of an accounting period. -Depreciation is the process of allocating the cost of an asset to the period the asset benefits. -Depreciation is recorded through an adjusting entry. -Depreciation is the original cost of an asset minus any residual value and this amount is expensed over its useful life.

A plant asset can be defined by which of the following statements? (Check all that apply.)

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

McDarrel's records $500 of accrued salaries on December 31. Three days later, on January 3, total salaries of $4,000 (including the $500 accrued at year end) are paid. Demonstrate the required journal entry on January 3 by selecting from the choices below. (Check all that apply.)

-Salaries payable will be debited for $500. -Salaries expense would be debited for $3,500. -Cash would be credited for $4,000.

Determine which of the following transactions may require adjustments. (Check all that apply.)

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

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

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

Not recording an accrued expense will have the following effect on the financial statements:

-expenses on the income statement will be understated. -liabilities on the balance sheet will be understated.

What is a plant asset?

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

Explain what a contra account is by choosing the statement(s) below that correctly describe(s) a contra account. (Check all that apply.)

Accumulated Depreciation is an example of a contra account. A contra account would be subtracted from another account. A contra account has an opposite normal balance than its linked account. A contra account is linked with another account.

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 _______________(expense/payable/receivable) account and _______________(debit/credit) the Interest _________________(expense/payable/receivable) account.

Blank 1: expense Blank 2: credit Blank 3: payable

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 ___________________(expense/payable) account and ____________________(debit/credit) the Salaries _______________(expense/payable/unearned) account.

Blank 1: expense Blank 2: credit Blank 3: payable

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

Debit Depreciation expense; credit Accumulated depreciation.

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.

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.

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 what the correct adjusting entry should include by choosing the correct statement below.

Debit Unearned revenues for $400.

Sheldon Company had $500 for one day of accrued salaries on December 31 of the prior year. On January 4 of the current year, total salaries for the five-day week are paid. The journal entry to record the payment of salaries on January 4 includes:

Debit to Salaries Payable for $500; Debit to Salaries Expense for $2,000

Able Company owes interest on a note for a loan. The note is dated December 1 and is due on February 1. On December 31, interest expense should be accrued for the following period

December 1 to December 31

A company using a calendar year-end will record an adjusting entry for a bill received on January 15 for services received during the month of December on:

December 31

What is depreciation?

Depreciation is the process of allocating the costs of long-term assets over their expected useful life.

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.

Which of the following describe the Salaries payable account? (Check all that apply.)

It is a liability account. It is increased with a credit. It reports amounts owed to employees. It is reported on the balance sheet.

Which of the following accounts is considered a prepaid expense?

Supplies

$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.

What is the date primarily used in adjusting entries?

The last day of the period

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

revenues

If an adjusting entry for unearned revenue is not recorded, what is the effect on the financial statements?

the revenues on the income statement will be understated.

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 _____________________(Unearned revenue/Accounts receivable/Cash/Service revenue) account and ______________________(debit/credit) the _________________________(Unearned revenue/Accounts receivable/Cash/Service revenue) account.

Blank 1: Accounts receivable Blank 2: credit Blank 3: Service revenue

Explain a contra account by filling in the following blanks. A contra account is an account that is linked with another _____________(report/account/statement). It has a(n) ________________________(similar/opposite) balance and is ______________________(added/subtracted) to/from the other account's balance.

Blank 1: account Blank 2: opposite Blank 3: subtracted

$200 of supplies were purchased at the beginning of the period and recorded as an asset. During the period, $90 of supplies were used. The adjustment to show the supplies used up would cause ____________(assets/liabilities/expenses) to be reduced and ___________________(expenses/liabilities/revenues) to be increased, so net income would decline.

Blank 1: assets Blank 2: expenses

Demonstrate your knowledge of a depreciation adjusting entry by completing the following sentence. A depreciation adjustment would include a debit to ___________________(depreciation expense/accumulated depreciation/building) and _________________(debit/credit) to _____________________________(depreciation expense/accumulated depreciation/building).

Blank 1: depreciation expense Blank 2: credit Blank 3: accumulated depreciation

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 ________________-(Unearned revenue/Accounts receivable/Cash/Interest receivable) account and __________________(debit/credit) the ____________________(Cash/Accounts receivable/Interest revenue/Interest receivable) account.

Blank 1: interest receivable Blank 2: credit Blank 3: interest revenue

Which of the following lists of assets would be classified as plant assets?

Buildings, Machines

At the end of the previous year, a customer owed Days Company $400. On February 1 of the current year, the customer paid $600 total, which included the $400 owed plus $200 owed through February 1st. The journal entry on February 1st is? (Check all that apply.)

Cash will be debited for $600. Accounts receivable will be credited for $400. Service revenue would be credited for $200.

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.

Define what the book value of an asset is by choosing the correct statement(s) below. (Check all that apply.)

It is the original cost of an asset minus its accumulated depreciation. The formula is Cost less Accumulated depreciation. it is sometimes referred to as the net amount of an asset.

Define the Salaries payable account by selecting the appropriate statement below.

It reports amounts owed to employees and is a liability.

$500 of supplies were purchased at the beginning of the period. By the end of the period, only $100 remains. The adjustment to show the $400 of supplies used would have the following effect(s). (Check all that apply.)

It would reduce assets, so total assets would be lower. It would increase expenses, so net income would be reduced.

Describe the effect of an accrued revenue adjustment on the income statement and the balance sheet by choosing from the statements below. (Check all that apply.)

Net income is increased. Total assets will be increased. An asset will be increased. A revenue account will be increased.

At the end of the previous year, a customer owed Chocolates R US $500. On January 31 of the current year, the customer paid $900 total, which included the $500 owed plus $400 owed for the current month of January. What would be the journal entry on January 31 that reflects this? (Check all that apply.)

Service revenue would be credited for $400. Accounts receivable will be credited for $500. Cash will be debited for $900.

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

Supplies Prepaid insurance Prepaid rent

$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. (Check all that apply.)

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

What is the purpose of the Accumulated Depreciation account?

The account allows both the original cost of plant assets and the total depreciation taken to be shown simultaneously.

$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. (Check all that apply.)

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

Debit accounts receivable and credit services revenue

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.

Not recording an adjusting entry for accrued revenue will result in:

accounts receivable being understated revenue being understated

The formula for figuring interest expense is:

amount owed x interest rate x fraction of the year since last payment

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 accounts receivable credit services revenue

The Fish Aquarium obtained funds from a bank and owes interest on a note at the end of the month. The required adjusting journal entry will

debit interest expense and credit interest payable

Which of the following describes accrued revenue? (Check all that apply)

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

What is the effect of an accrued expense (such as salaries expense) adjustment on the income statement and the balance sheet? (Check all that apply.)

Net income is reduced. Expenses are increased. A liability (such as salaries payable) will be increased.

Which of the accounts below would be classified as long-term or fixed assets? (Check all that apply.)

Vehicles Land Equipment Building

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

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

What is the book value of an asset?

Book value is the original cost of an asset minus its accumulated depreciation.

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

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: (Check all that apply.)

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

A business has a $10,000 loan from a bank at 8% annual interest. Calculate the amount of interest to accrue if the loan has been outstanding for 45 days. Use a 360 day year.

$100

Describe the effect of the adjusting entry to show the earned amount of a previously recorded unearned revenue on the income statement and on the balance sheet by choosing the correct statements below. (Check all that apply.)

A revenue account is increased. Net income is increased. Total liabilities are reduced. A liability (unearned revenue) will be reduced.