Accounting 210 Chapter 3 Review

$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 Dec. 31 of the first year using the straight-line method.

$350

Which statements are true regarding adjusting journal entries? 1. Cash is never affected 2. Cash may sometimes be affected 3. A balance sheet account is always affected 4. An income statement account is always affected

1, 3, 4

What is an adjusted trial balance?

A list of accounts and balances after the adjusting journal entries have been recorded and prepared

What is a plant asset?

A long-term tangible asset used to produce and sell products or services

In order to prepare the statement of owner's equity, the Owner's _____ 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 or loss from the income statement

Capital Withdrawals

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

Debit Salaries Expense Credit Salaries Payable

The 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

Describe depreciation

1. Depreciation is the process of allocating the cost of an asset to the period the asset benefits 2. Depreciation is recognized at the end of an accounting period 3. Depreciation is the original cost of an asset minus any residual value and this amount is expensed over its useful life 4. Depreciation is recorded as an adjusting entry

Determine which of the following transactions may require adjustments? 1. Six months of rent were paid in advance 2. An employee was paid his weekly wages at the end of the week 3. A 24-month insurance policy was prepaid 4. A one-month premium on an insurance policy was paid 5. Supplies were purchased at the beginning of the year, but not all were used 6. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month 7. Rent was paid for the month 8. Equipment was purchased in the middle of the year

1, 3, 5, 6, 8

What are the three steps to the adjusting process?

1. Determine what the current account balance is 2. Determine what the correct account balance should be 3. Record an adjusting entry

What is cash basis accounting?

An accounting system which recognizes revenues when cash is received and records expenses when cash is paid

What is the correct adjusting entry to recognize depreciation expense on a building?

Debit Depreciation Expense Credit Accumulated Depreciation

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

Debit Interest Expense Credit Interest Payable

Explain what a contra account is

1. A contra account has an opposite normal balance than its linked account 2. Accumulated Depreciation is an example of a contra account 3. A contra account would be subtracted from another account 4. A contra account is linked with another account

What are the 4 steps involved with adjusting entries?

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

Accrual basis accounting recognizes _____ when earned and records _____ when _____ in order to adhere to the matching principle.

Revenues when earned Expenses when incurred