ACCT-101 Ch 3

Which of the following describes accrued revenue? - Accounts receivable is usually increased when accruing revenues. - 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. - The adjustment causes an increase in an asset account and an increase in a revenue account. - Adjustments involve increasing both an expense account and a liability account.

- Accounts receivable is usually increased when accruing revenues. - 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. - The adjustment causes an increase in an asset account and an increase in a revenue account.

A classified balance sheet has several categories for assets and liabilities including: - Noncurrent equity. - Tangible current assets. - Current assets. - Noncurrent (long-term) liabilities. - Plant assets. - Long-term investments. - Operating expenses.

- Current assets. - Noncurrent (long-term) liabilities. - Plant assets. - Long-term investments.

Which of the following statements describes why accrual accounting better reflects a business's performance? (Check all that apply.) - Expenses are always recognized in the period in which they are incurred. - Comparability of financial statements is improved. - Revenues are always recorded in the period in which they are earned. - It provides a better focus and understanding of how cash is spent and why it is received.

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

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. - Expenses are recorded when they are paid and revenues are recorded when payment is received. - Matching of expenses with revenues is a major part of the adjusting process. - Revenues are recorded when they are earned or services are performed.

- 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.

A plant asset can be defined by which of the following statements? (Check all that apply.) - It has a life within the business more than one year. - Its original cost is expensed over its useful life. - It is a tangible long-term asset. - It is reported on the balance sheet. - Its original cost is expensed in the period in which it was purchased.

- It has a life within the business more than one year. - Its original cost is expensed over its useful life. - It is a tangible long-term asset. - It is reported on the balance sheet.

Identify which of the accounts below would be classified as a current asset. - Office supplies - Prepaid rent - Land - Equipment - Cash - Accounts receivable

- Office supplies - Prepaid rent - Cash - Accounts receivable

Select the statements below that describe the purpose of a post-closing trial balance. - One purpose is to verify that all permanent accounts have zero balances. - One purpose is to verify that total debits equal total credits for all temporary accounts. - One purpose is to confirm that if debits equal credits then no errors in journalizing and positing occurred during the period. - 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.

- 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 of the following accounts would be considered a prepaid expense or prepaid asset account? - Common Stock - Prepaid insurance - Supplies - Prepaid rent - Accounts payable

- Prepaid insurance - Supplies - Prepaid rent

Which of the following statements correctly defines 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 the amount of revenue received on a sale. - Profit margin is the ratio of a business's net income to its accounts receivables.

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

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

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

$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. - Accounts receivable would be debited for $700. - Unearned revenue would be debited for $300. - Unearned revenue would be debited for $700. - Service revenue would be credited for $300.

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

Determine which of the following transactions may require adjustments. (Check all that apply.) - Six months of rent were paid in advance. - Equipment was purchased in the middle of the year. - Rent was paid for the month. - An employee was paid his weekly wages in full at the end of the week. - a one-month premium on an insurance policy was paid - Supplies were purchased at the beginning of the year, but not all were used. - a 24-month insurance policy was prepaid - An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month.

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

$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 $700. - Supplies expense would be debited for $300. - Supplies expense would be credited for $300. - Supplies would be credited for $300. - Supplies would be debited for $300.

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

Which of the statements below are correct regarding the accounting cycle? - The accounting cycle refers to the steps that occur within a company to approve expenses for payment. - The accounting cycle is a series of steps repeated each reporting period. - The accounting cycle contains 10 steps (including an optional step). - The accounting cycle takes place anytime the general ledger accounts need adjusting. - The cycle contains steps for adjusting and closing accounts. - The accounting cycle refers to steps followed by a company to prepare its financial statements.

- The accounting cycle is a series of steps repeated each reporting period. - The accounting cycle contains 10 steps (including an optional step). - The cycle contains steps for adjusting and closing accounts. - The accounting cycle refers to steps followed by a company to prepare its financial statements.

What is the difference between an adjusted trial balance and an unadjusted trial balance? - The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. - The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. - The unadjusted trial balance is more up to date and should be used to prepare financial statements. - The adjusted trial balance is used to prepare financial statements.

- The adjusted trial balance generally has more accounts listed than the 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.

Explain what unearned revenues are by selecting the statements below which are correct. - They are reported on a balance sheet. - They are a liability. - They are also called deferred revenues. - They refer to cash received in advance of performing a service or product. - They are also called accounts receivable. - They refer to earnings which have been earned, but not yet billed.

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

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. - Examples of accrued expenses are wages expense and interest expense. - They are reported on an income statement. - They are also called accounts receivable. - Adjustments involve increasing both an expense and a liability account. - They refer to earnings which have been earned, but not yet billed.

- 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. - They are reported on an income statement. - Adjustments involve increasing both an expense and a liability account.

All of the following subtotals and totals are shown on an unclassified balance sheet: - Total current liabilities - Total liabilities - Total assets - Total noncurrent liabilities - Total noncurrent assets - Total current assets

- Total liabilities - Total assets

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 services revenue - debit accounts receivable - debit cash - credit accounts payable

- credit services revenue - debit accounts receivable

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 Insurance expense for $400. - debit to Insurance expense for $4,800. - debit to Prepaid insurance for $400. - credit to Prepaid insurance for $400.

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

A classified balance sheet can be described as a balance sheet that: - lists all assets according to the size of their balance with larger dollar amounts listed first. - lists current assets in the order of how quickly they can be converted to cash. - organizes assets and liabilities into important subgroups. - contains subgroups for expenses and revenues. - is more useful to decision makers.

- lists current assets in the order of how quickly they can be converted to cash. - organizes assets and liabilities into important subgroups. - is more useful to decision makers.

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: - 2.33 - 67% - 28% - 1.5%

1.5%

On December 1, a company pays $3,600 for a 36-month insurance policy. After one month, accrual accounting requires $__________ (100/3,600) of insurance expense be reported on the income statement ending December 31. However, if cash basis accounting is used, $__________ (100/3,600) of insurance expense would be reported at the time of purchase.

100; 3,600

A calendar year-end reporting period is defined as a __________ (1 / 3 / 12) -month period which ends on __________ (December/January/March) 31st.

12; December

Given the following information for Mouse Inc., calculate its profit margin for the year 20x1. $ in thousands 20x1 20x2 Net income $ 500 $ 450 Net sales 3500 3650 Accounts receivable 2150 1500 - 7% - 61.42% - 14.29% - 57%

14.29%

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: - 0.5 - 1.67 - 2.0 - 3.33

3.33 [(total assets - current assets) divided by current liabilities]

What is a plant asset? - A plant asset is the portion of a current asset which will be used up in the next accounting period. - A plant asset is considered temporary and will be used up within one accounting period. - A plant asset refers to the stock purchased by a business held for future investment. - A plant asset refers to a long-term tangible asset used to produce and sell products or services.

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. - A permanent account will not appear on a post-closing trial balance. - Permanent account balances will be transferred to the Retained Earnings account. - Temporary account balances will be carried to the next accounting period.

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

Describe an unclassified balance sheet. - An unclassified balance sheet lists all operating expenses separate from its non-operating expenses. - An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity. - An unclassified balance sheet is one where assets are separated into operating assets and non-operating assets. - An unclassified balance sheet organizes assets and liabilities into important subgroups.

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

When does the closing process take place? - Multiple times throughout a month to determine net income - At the beginning of an accounting period - Before financial statements are prepared - At the end of an accounting period

At the end of an accounting period

Choose the statement below that explains what "closing" means. - Closing means to bring an account balance to zero. - Closing means to transfer an expense account's balance to the income statement. - Closing means to adjust an account's balance to its correct amount. - Closing means to transfer the balance in an account to an asset account.

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 Catering revenue for $600. - Credit Accounts receivable for $600. - Debit Accounts receivable for $600. - Debit Unearned revenue for $600.

Debit Accounts receivable for $600.

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. - Credit Interest expense for $30. - Debit Interest payable for $30. - Debit Interest expense for $30. - Credit Unearned revenues for $30.

Debit Interest expense for $30.

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. - Credit Interest receivable for $600. - Debit Cash for $600. - Debit Interest revenue for $600.

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 payable for $500. - Credit Salaries expense for $500. - Debit Salaries expense for $500. - Credit Unearned revenues for $500.

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 the December 31 adjusting entry by choosing the correct statement below. - Debit Service revenue for $400. - Credit Unearned revenues for $400. - Debit Unearned revenues for $600. - Debit Unearned revenues for $400.

Debit Unearned revenues for $400.

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 - Debit cash and credit services revenue - Debit accounts receivable and credit cash

Debit accounts receivable and credit services revenue

A calendar year-end reporting period is defined as a 12-month period which ends on __________ (December/January/March) 31st.

December

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

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. - Prepaid insurance would be credited for $3,600. - Insurance expense would be debited for $300. - Insurance expense would be debited for $3,600. - Cash would be credited for $3,600.

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

Select the statement below that describes a post-closing trial balance. - It is a listing of all temporary accounts and their balances after closing. - It is a financial statement that describes all revenue and expense accounts after closing, - It is a listing of all permanent accounts and their balances immediately after the adjusting process. - It is a listing of all permanent accounts and their balances after closing.

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

Which of the following accounts is considered a prepaid expense? - Accounts payable - Utility expense - Wages expense - Supplies

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. - Supplies would be debited for $200. - Supplies expense would be debited for $200. - Supplies would be credited for $200.

Supplies expense would be debited for $600.

Which of the statements below explains the accounting cycle? - The accounting cycle is another name for the adjustment process at the end of the period. - The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements. - The accounting cycle refers to the work sheet used during the period to record adjustments and the post-closing trial balance. - The accounting cycle is another name for the closing process at the end of the year.

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

Explain the difference between the unadjusted and the adjusted trial balance. - The unadjusted trial balance is more up to date than the adjusted trial balance. - The unadjusted trial balance is more accurate and should be used to prepare financial statements. - The adjusted trial balance is prepared after adjusting entries have been recorded and posted. - The adjusted trial balance contains only the accounts which were adjusted. The unadjusted trial balance contains all of the remaining accounts.

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

Describe the final step in the adjusting process. -The final step is to post to a trial balance so financial statements can be prepared. - The final step is to create an adjusting journal entry to get from step 1 to step 2. - The final step is to determine the current balance of an account. - The final step is to determine the correct balance of an account.

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

Identify which group of accounts may require adjustments at the end of the accounting period. - Unearned revenue; Supplies; Prepaid rent - Cash; Notes receivable; Land - Utilities expense; Cash; Common Stock

Unearned revenue; Supplies; Prepaid rent

Identify which group of accounts may require adjustments at the end of the accounting period. - Utilities expense; Cash; Common Stock - Unearned revenue; Supplies; Prepaid rent - Cash; Notes receivable; Land

Unearned revenue; Supplies; Prepaid rent

Explain what unearned revenues are by choosing the correct statement below. - Unearned revenues refer to customer payments which have not yet been received. - Unearned revenues refer to cash received in advance of providing a service or product. - Unearned revenues refer to amounts owed to the company that have not yet been billed. - Unearned revenues refer to income reported on the income statement.

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

Which of the accounts below are considered accrued expenses? - Wages expense, Interest expense - Unearned revenue, Utility expense - Common Stock, Dividends - Cash, Building, Equipment

Wages expense, Interest expense

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.

accounts receivable; credit; service revenue

Current assets are: - equipment and other assets that have a life greater than one year - cash and other resources that are expected to be sold, collected or used within one year - property, plant and equipment that are tangible and depreciated - difficult to convert to cash or other monetary assets

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

The closing process takes place at the __________ (end/beginning) of an accounting period, after the __________ (adjusted/unadjusted) trial balance is prepared and __________ (after/before) the financial statements are prepared.

end; adjusted; after

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

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.

expenses; credit; payable

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/estimating) process.

expenses; revenues; adjusting

The formula to figure out the profit margin of a company is net __________ (income/receivable/sales) divided by net __________ (income/Cash/sales).

income; sales

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 __________ (Retained earnings/Cash) account as well as any debit balance in the __________ (Dividends/Supplies) 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.

revenue

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