Accounting- Chapter 3 Smartbook

At year-end, ABC Company is beginning its closing process. Use the following account balances to demonstrate the closing of its revenue accounts. -Service Fees: $15,000 credit -Consulting Revenue: $12,000 credit -Supplies Expense: $900 debit -Rent Expense: $600 debit -Dividends: $80 debit

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

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.

-Expense -Credit -Payable

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

-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

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 -Profit margin is a useful measure of a business's operating results

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.

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

$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 statements about the Accumulated depreciation account is (are) correct?

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

Illustrate your understanding of how to use the adjusted trial balance to prepare the balance sheet by completing the following sentence. In order to prepare a balance sheet using the account balances on an adjusted trial balance, all of the Blank 1Blank 1 expenses , Incorrect Unavailable (expenses/assets) and their debit balances are transferred to the balance sheet as well as all of the Blank 2Blank 2 revenues , Incorrect Unavailable (liabilities/revenues) and their Blank 3Blank 3 debit , Incorrect Unavailable(debit/credit) balances.

Blank 1: assets Blank 2: liabilities Blank 3: credit

A company had the following selected balances: -Service Revenue: $4,000 credit -Rental Revenue: $2,000 credit -Wages Expense: $500 debit -Utilities Expense: $100 debit -Dividends: $80 debit Demonstrate the last closing journal entry to close the Dividends account by selecting the correct answer below.

Debit Retained Earnings $80; Credit Dividends $80

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:

Debit accounts receivable Credit services revenue

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

A depreciation adjustment would include a debit to _______________ (depreciation expense/accumulated depreciation/building) and _____________ (debit/credit) to _______________ (depreciation expense/acculated depreciation/building).

Depreciation Expense Credit Accumulated Depreciation

A depreciation adjustment would include a debit to _________ (depreciation expense/accumulated depreciation/building) and ____________ (debit/credit) to _____________ (depreciation expense/accumulated depreciation/building)

Depreciation expense Credit 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.

Interest receivable Credit Interest revenue

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

Its original cost (minus any salvage value) is gradually expensed over its useful life It is reported on the balance sheet. Provide benefits for greater than one period. It is a tangible long-term asset.

An adjusted trial balance is:

a list of accounts and balances after adjusting entries have been recorded and posted

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

At year-end, Zagnut Company is beginning its closing process. Use the following account balances to demonstrate the closing of its expense acccounts. -Service Fees: $10,000 credit -Consulting Revenue: $2,000 credit -Supplies Expense: $700 debit -Insurance Expense: $900 debit -Dividends: $120 debit

-A debit to Income Summary for $1,600 -Credit Insurance Expense for $900 -Credit to Supplies Expense for $700

A classified balance sheet has several categories for assets and liabilites including:

-Plant assets -Noncurrent (long-term) liabilites -Long-term investments -Current assets

The following categories are on a classified balance sheet. List them in the order that they would appear.

1. Current assets 2. Long-term investments 3. Plant assets 4. Intangible assets 5. Current liabilites 6. Long-term liabilites

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. Multiple choice question.

100

Given the following information for Mouse Inc., calculate its profit margin for the year 2018. ($ in thousands) -Net Income: 2018: $500 2019: $450 -Net Sales: 2018: $3500 2019: $3650 -Accounts Receivable: 2018: $2150 2019: $1500

14.29% {($500/$3500)*100]

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

A contra account is linked with another account 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 company had the following selected balances: -Service Revenue: $4,000 credit -Rental Revenue: $2,000 credit -Wages Expense: $500 debit -Utilities Expense: $100 debit -Dividends: $80 debit The first closing journal entry would include which of the following?

A credit to Income Summary for $6,000

A contra account is an account that is linked with another _____________ (report/account/statement). It has a(n) ______________ (similiar/opposite) balance and is ______________ (added/subtracted) to/from the other account's balance.

Account Opposite Subtracted

Accrual basis accounting is defined as:

An accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred An accounting system that uses the matching principle to determine when to recognize revenues and expenses An accounting system which is consistent with generally accepted accounting principles

Describe an unclassified balance sheet.

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

What is the book value of an asset?

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

Which of the accounts below would be classified as long-term or fixed assets?

Building Vehicles Land Equipment

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

Buildings Machines

Current assets are:

Cash and other resources that are expected to be sold, collected, or used within one year

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 the year end) are paid. Demonstrate the required journal entry on January 3 by selecting from the choices below

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

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

Closing means to bring an account balance to zero

Define "current" as it applies to assets and liabilities on a classified balance sheet.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer

On December 28, I. M. Greasy, Catering 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.

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

Place the steps in the adjusting process in the correct order in which they would be performed

Determine what the current account balance is Determine what the correct account balance should be Record an adjusting entry

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

What is needed in order to figure interest expense? (Check all that apply.) Multiple select question.

Fraction of year since last payment annual interest rate principle amount owed

Define the salaries payable account by selecting the appropriate statement below

It reports amounts owed to employees and is a liability

Which of the accounts below would appear in the equity section of a classified balance sheet?

Retained Earnings

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

Revenue

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

Revenues

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

Revenues

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 1 is? (Check all that apply.)

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

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 is considered a prepaid expense?

Supplies

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

Supplies Prepaid Rent Prepaid Insurance

$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

Closing means to transfer account balances from ______ (asset/liability/permanent/temporary) accounts so that they will start with a _______ (contra/larger/zero) balance at the beginning of the next period.

Temporary Zero

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

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

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 adjusted trial balance includes all accounts and balances appearing in financial statements. Financial statements are prepared more easily using the adjusted trial balance than with the general ledger. The income statement is the first financial statement prepared after preparing the adjusted trial balance. The ending Owner, Capital account balance on the balance sheet is transferred from the statement of owner's equity.

Describe the final step in the adjusting process.

The final step is to create an adjusting journal entry to get from step 1 to step 2

Which of the following is (are) true regarding timeliness and the importance of periodic reporting?

The value of information is often linked to its timeliness Useful information must reach decision makers frequently and promptly Businesses report financial information at regular intervals to ensure timeliness of data

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 They are reported on a balance sheet They are also called deferred revenues they are a liability

Which of the following lists contains only temporary accounts?

Wages expense, Income Summary, Dividends

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

Illustrate your understanding of how to use the adjusted trial balance to prepare a statement of owner's equity by completing the following sentence. In order to prepare the statement of owner's equity, the Owner Blank 1Blank 1 capital , Correct Unavailable(Capital, Cash) account balance as well as any debit balance in the Blank 2Blank 2 withdrawals , Correct Unavailable (Withdrawals, Supplies) account is transferred from the adjusted trial balance and is used along with the reported net income (loss) from the Income statement.

capitals 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. 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.

expense credit payable

Accrued ________ , Incorrect Unavailable are earned in a period that are both unrecorded and not yet received in cash.

revenue

Illustrate your understanding of how to use the adjusted trial balance to prepare an income statement by completing the following sentence. In order to prepare an income statement using the account balances on an adjusted trial balance, all of the Blank 1Blank 1 revenues , Correct Unavailable(revenues/liabilities) and their credit balances are transferred to the income statement as well as all of the Blank 2Blank 2 expenses , Correct Unavailable(expenses/assets) and their Blank 3Blank 3 credit , Incorrect Unavailable(debit/credit) balances.

revenues expenses debit

The entries to close the revenue and expense accounts for Jefferson Company are shown below. The next closing entry in the closing process would include?? -Service Fees: $10,000 debit -Income Summary: $10,000 credit -Income Summary: $2,900 debit -Wages Expense: $2,900 credit

-A debit to Income Summary for $7,100 -A credit to the Retained Earnings account for $7,100

Which of the statements below is (are) correct regarding the accounting cycle?

-The cycle contains steps for adjusting and closing accounts -The accounting cycle contains 10 steps -The accounting cycle is a series of steps repeated each reporting period -The accounting cycle refers to steps followed by a company to prepare its finanacial statements

Explain what unearned revnues 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 a liability -They are reported on a balance sheet

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 -They are reported on an income statement -Adjustments involve increasing both an expense and a liability account -Examples of accrued expenses are wages expense and interest expense

Current items can be described as those expected to come due within one ______ (month/year) and are listed in the order of how ______ (quickly/slowly) they could be converted to or paid in cash.

-Year -Quickly

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

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.

Debit unearned revenues for $400

Which of the statements below describe(s) a temporary account?

-A temporary account has a balance for only one period -A temporary account is closed at the end of an accounting period

The formula to figure out the profit margin of a company is ______ (net income/accounts receivable/net sales) divided by _____ (net income/cash/net sales).

-Net Income -Net Sales

Identify which of the accounts below would be classified as a current asset.

-Office Supplies -Accounts Receivable -Prepaid Rent -Cash

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation

-Prepare an unadjusted trial balance -Journalize and post adjusting entries -Prepare an adjusted trial balance -Prepare finanaicla statements

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 revnue) account and ___________ (debit/credit) the _________________ (Unearned recenue/Accounts receivable/Cash/Service recenue) account.

Accounts receivable Credit Service revenue

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

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:

Debit to insurance expense for $400 Credit to prepaid insurance for $400

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

Equipment was purchased in the middle of the year. Supplies were purchased at the beginning of the year, but not all were used. 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. a 24-month insurance policy was prepaid

The expense recognition (matching) principle aims to record _________ (expenses/assets/liabilities) in the same accounting period as the _________ (expenses/revenues/assets) that are earned as a result of those costs. This principle is a major part of the ____________ (timing/adjusting/esetimating) process

Expenses Revenues Adjusting

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.

Insurance expense would be debited for $300

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.

Interest receivable Credit Interest revenue

Accrual basis accounting recognizes __________ (equity/revenues/expenses) when earned and records __________ (revenues/expenses/liabilities) when ____________ (incurred/paid) in order to adhere to the matching principle.

Revenues Expenses Incurred

Which of the following could be a logical or realistic accounting period for a business that is creating financial statements?

Six-month One-month One-year

$1000 of supplies were purchased at the beginning of the month. $300 were used during the month. (Supplies account was increased at the time of the initial purchase) Demonstrate the required adjusting journal entry

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

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

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.

Which of the following describes accrued revenue?

-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 -They refer to earnings which have been earned but not yet billed

Describe the general ledger after adjusting and closing entries have been posted

-All expense accounts will show a $0 balance after closing -The Income Summary account will show three closing entries -The Dividends account will have a $0 balance after closing -The abbreviations "adj." and "clos." have been entered in the explanation columns of the ledger

The journal entry to close all of a company's expense accounts would include a ___ (debit/credit) to each of the expense accounts and a corresponding ____ (debit/credit) to the Income ______ (statement/summary) account.

-Credit -Debit -Summary

At year-end, ABC Company is completing its closing process. Use the following account balances to demonstrate the closing of the Dividends account. -Consulting Fees: $5,000 credit -Rental Revenue: $2,000 credit -Wages Expense: $700 debit -Rent Expense: $1,900 debit -Dividends: $500 debit

-Credit Dividends for $500 -Debit Retained Earnings for $500

The Income Summary account is _______ (debited/credited) for the sum of all revenue accounts and is ______ (debited/credited) for the sum of all expense accounts and its balance will be transferred to the ______ (retained earnings/cash) account.

-Credited -Debited -Retained Earnings

A company had the following selected balances: -Service Revenue: $8,000 credit -Rental Revenue: $2,000 credit -Wages Expense: $500 debit -Utilities Expense: $100 debit The third closing journal entry, after closing revenues and expenses, would include which of the following?

-Debit Income Summary $9,400; and credit Retained Earnings $9,400

Which of the following describe the salaries payable account?

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

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

$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