ACCT 2301 Chapter 4

If a company determines that it has $1,400 of supplies on hand at the end of the period, which of the following statements is correct? The company ______. A. owes for $1,400 in supplies at the end of the period B. has $1,400 in supplies remaining at the end of the period C. used $1,400 in supplies during the current period D. purchased $1,400 in supplies during the current period

B. has $1,400 in supplies remaining at the end of the period

The adjusting entry to record the amortization of a long-term asset that lacks physical substance includes a debit to ______ and a credit to ______.

1. Amoritization Expense 2. Accumulated Amoritization

Which two accounts are used to record the adjusting entry for the amortization of long-term assets that lack physical substance? A. Accumulated Amortization B. Deferred Revenue C. Depreciation Expense D. Amortization Expense E. Accumulated Depreciation

A. Accumulated Amortization D. Amortization Expense

Which of the following account balances will typically be reduced as a result of adjusting entries? (Select all that apply.) A. Supplies B. Deferred Revenue C. Interest Payable D. Cash E. Prepaid Rent

A. Supplies B. Deferred Revenue E. Prepaid Rent

Adjustments ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the current period A. Revenues B. Accounts C. Expenses D. Assets E. Liabilities

D. Assets

As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period? A. Interest Expense does not affect this period since it will not be paid. B. The expense will be recorded when the note and interest are paid in full C. Note Payable should be increased to reflect the additional interest that will be due when the note is paid off next year D. Interest Expense should be increased, because the cost of interest relates to the current period E. Interest Receivable should be increased to reflect the accrued interest on the note payable

D. Interest Expense should be increased, because the cost of interest relates to the current period

________ is the process of allocating the cost of buildings, vehicles, and equipment to expense over time as they are used.

Depreciation

As of December 31 (the end of the accounting period), ABC Company has a profit before tax of $12,000. The company's tax rate is 25%. The adjustment will include a(n) ___________of $________to Income Tax Payable.

1. credit 2. 3,000

As of December 31 (the end of the accounting period), ABC Company has a profit before tax of $12,000. The company's tax rate is 25%. The adjustment will include a(n) ___________of $________to Income Tax Expense

1. debit 2. 3,000

When recording an adjustment for the use of equipment during the current accounting period, which two accounts are affected? A. Accumulated Depreciation and Depreciation Expense B. Accumulated Depreciation and Equipment C. Equipment and Depreciation Expense D. Revenue and Equipment

A. Accumulated Depreciation and Depreciation Expense

Which report is constructed immediately prior to preparing the financial statements with the purpose of demonstrating that the accounts balance?

Adjusted trial balance

Adjusting entries are required to ______. A. Be recorded during the accounting period to ensure balances are properly stated B. Adjust the unadjusted balances to the desired balances C. Be entered in journal and posted to the ledger before preparing the unadjusted trial balance

B. Adjust the unadjusted balances to the desired balances

What is the purpose of the depreciation adjustment for long-lived assets? A. Depreciation represents maintenance costs incurred to keep an asset in good working condition. B. Depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company. C. Depreciation represents the cash paid each year for the purchase of an asset.

B. Depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company.

A contra-account ______. (Select all that apply.) A. example is Accounts Payable because it has a normal balance opposite of Accounts Receivable B. example is Accumulated Depreciation because it has a normal credit balance C. has a normal balance opposite of the account it offsets D. example is Depreciation Expense because it has a normal debit balance

B. example is Accumulated Depreciation because it has a normal credit balance C. has a normal balance opposite of the account it offsets

True or false: Supplies is an asset account because it contains the value of supplies that have not been used, but still remain an economic resource for the company.

True Supplies Expense reports the amount of supplies that have been used during the period

The ________ recognition principle requires that a portion of long-lived assets be transferred to an expense account during the accounting period the asset is being used to generate revenues.

expense

Which action will be taken in the adjusting entry to record rent expense that has expired during the month? (Assume that the rent was paid in advance and previously recorded as an asset.) A. Debit Rent Expense B. Debit Prepaid Rent C. Credit Cash D. Debit Cash

A. Debit Rent Expense The original entry to record the prepayment would have resulted in a debit to Prepaid Rent (+A) and a credit to Cash (-A). The adjusting entry will show a debit to Rent Expense (+E,-SE) and a credit to Prepaid Rent (-A)

Which of the following account balances will typically be increased as a result of adjusting entries? (Select all that apply.) A. Supplies Expense B. Cash C. Prepaid Rent D. Deferred Revenue E. Interest Payable F. Supplies

A. Supplies Expense E. Interest Payable

Beauty and the Bistro, Inc. had $500 of Supplies on its balance at the end of its 1st year of business. It purchased $5,000 of supplies during the 2nd year. At the end of the 2nd year, it had $800 of supplies on hand. What is the amount of Supplies Expense on the income statement? A. $1,300 B. $4,700 C. $5,800 D. $6,300 E. $800

B. $4,700 It started with $500 and purchased $5,000 but only has $800 of supplies left, thus it used $4,700. The amount used is Supplies Expense and is recorded as an adjusting entry with a debit to Supplies Expense (+E,-SE) and credit to Supplies (-A) for $4,700. The Supplies balance on the balance sheet equals $800 (the supplies left).

When will Accounts Receivable be involved in an adjusting entry? A. Recognizing revenue from cash collected earlier in the period B. Cash is collected in advance of the revenue at the end of the period C. Revenue is earned but not yet collected or recorded at the end of the period D. Accounts Receivable will never be used in an adjusting entry. It is only used in daily transactions

C. Revenue is earned but not yet collected or recorded at the end of the period

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

D. decrease to Supplies and an increase to Supplies Expense

Adjustments help to ensure that all ______ are recorded in the period in which they are incurred. A. expenses B. cash transactions C. closing entries D. journal entries

A. expenses

How does the timing of adjusting entries differ from the accounting for daily transactions? A. Adjustments are made at the discretion of management and are not necessary for each accounting period B. Adjustments are made at the beginning of the accounting period to ensure accuracy is maintained during the cycle C. Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient D. Adjustments are made throughout the accounting period as information becomes available

C. Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient

The seller's adjusting entry to record the revenue earned by fulfilling its obligation to its buyers which had been collected in advance requires a ______ (debit/credit) to Deferred Revenue and a ______ (debit/credit) to Sales Revenue

1. debit 2. credit

The adjusting entry to record depreciation on equipment includes a ______. (Select all that apply.) A. credit to Cash B. debit to Accumulated Depreciation C. credit to Accumulated Depreciation D. credit to Equipment E. credit to Depreciation Expense F. debit to Depreciation Expense

C. credit to Accumulated Depreciation F. debit to Depreciation Expense

The adjusting entry to record depreciation, includes a debit to ______ and a credit to ______.

1. Depreciation Expense 2. Accumulated Depreciation

As of December 31, the end of the accounting period, $700 of salaries and wages owed to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, Salaries and Wages ___________ will be debited and Salaries and Wages ___________ will be credited by $700. (Enter one word per blank.)

1. Expense 2. Payable

Adjusting entries to adjust Supplies or Prepaid Rent have which of the following effects? (Select all that apply.) A. Total expenses on the income statement are increased B. Total assets is decreased on the balance sheet C. Total expenses on the income statement are decreased D. The carrying value of the assets are decreased E. The carrying value of the assets are increased

A. Total expenses on the income statement are increased B. Total assets is decreased on the balance sheet D. The carrying value of the assets are decreased The assets, Supplies and Prepaid Rent, are decreased by the amount used or expired during the period. The entry is a debit to the related expense (+E,-SE) and credit to the asset (-A).

The adjusting entry to record amortization causes ______. (Select all that apply) A. assets to decrease B. liabilities to increase C. ssets to increase D. stockholders' equity to decrease E. stockholders' equity to increase F. liabilities to decrease

A. assets to decrease D. stockholders' equity to decrease The entry to record amortization of an intangible asset includes a debit to Amortization Expense (+E,-SE) and credit to Accumulated Amortization (+xA,-A).

In its 1st year of business, Eel Electric purchased $1,000 of supplies on account. During the year, it paid $700 of the amount it owed for supplies. At the end of the year, it had $200 of supplies remaining. What is Supplies Expense on the income statement equal? A. $900 B. $1,900 C. $1,200 D. $100 E. $800

E. $800 It had $1,000 of supplies and only $200 left at the end of the year, it must have used $800 of its supplies during the year. At the end of the year, it recorded an adjusting entry that debited Supplies Expense (+E,-SE) and credited Supplies (-A) for $800

True or false: A contra-account, such as Accumulated Depreciation, will have a normal debit balance.

False While Accumulated Depreciation is listed in the asset section, it is a contra or negative asset. Therefore, it will have a normal credit balance since the true assets have a debit balance.

Sonic Gateway purchased $1,000 of app software that is estimated to have four years of usefulness. The adjusting entry to record the amortization includes a debit to ______ and a credit to ______. A. Accumulated Depreciation; Depreciation Expense B. Amortization Expense; Accumulated Amortization C. Software; Amortization Expense D. Depreciation Expense; Accumulated Depreciation E. Accumulated Amortization; Amortization Expense

B. Amortization Expense; Accumulated Amortization

Why is the Deferred Revenue account reduced during the adjustment process? A. As cash is paid to the customer, Deferred Revenue is reduced B. As the seller performs its obligations, it is removed from Deferred Revenue and transferred into a revenue account C. As cash is received from the customer, Deferred Revenue is reduced D. As the seller performs its obligations, it is removed from Deferred Revenue and transferred into the Accounts Receivable account.

B. As the seller performs its obligations, it is removed from Deferred Revenue and transferred into a revenue account

What are the effects on the accounting equation from the adjustment for which the seller has satisfied the performance obligation to its buyers during the accounting period that had previously been recorded as a liability? A. Total liabilities will decrease and total stockholders' equity will increase B. Total liabilities will increase and total stockholders' equity will increase C. Total liabilities will increase and total stockholders' equity will decrease D. Total liabilities will decrease and total stockholders' equity will decrease

A. Total liabilities will decrease and total stockholders' equity will increase When a company receives cash in advance for which the seller has satisfied the performance obligation, it debits Cash (+A) and credits Deferred Revenue (+L). It defers recording the revenue until it fulfills its obligation. Later, when the revenue is recognized by satisfying the sales obligation, it will debit Deferred Revenue (-L) and credit Revenue (+SE)

Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account? A. The adjusting entry contains a different amount for Depreciation Expense and Accumulated Depreciation B. Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased C. The Accumulated Depreciation account contains the value of the long-lived asset as well as the depreciation D. The balances in the two accounts should be the same amount.

B. Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.

When should supplies be recorded as an expense? A. In the period the supplies are sold, regardless of when they were received B. In the period the supplies are purchased, regardless of when cash is paid C. In the period the supplies are used, regardless of when they were purchased D. In the period cash is paid for the supplies, regardless of when the supplies were received

C. In the period the supplies are used, regardless of when they were purchased Supplies are recorded as an asset when purchased and later expensed as they are used

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to ______. A. Interest Payable and credit to Interest Expense B. Interest Revenue and credit to Interest Receivable C. Interest Expense and credit to Notes Payable D. Interest Receivable and credit to Interest Revenue E. Interest Expense and credit to Interest Payable

E. Interest Expense and credit to Interest Payable Interest Payable should be the credit entry for this transaction. The adjustment is recording interest owed but not yet paid at the end of the period. Liabilities are increased with credit entries. The debit, not the credit, should go to Interest Expense. Debits, not credits, increase expense accounts.

Which of the following is true regarding depreciation of equipment? A. Depreciation directly decreases the Equipment account causing the carrying value to decrease. B. Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date. C. Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the balance sheet D. Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet E. Accumulated Depreciation is decreased as the equipment is used causing the carrying value to increase.

B. Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date C. Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the balance sheet D. Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet. The Equipment account is not reduced directly by depreciation. Instead, depreciation is recorded with a debit to Depreciation Expense (+E,-SE) and a credit to Accumulated Depreciation (+xA,-A) which is a contra-account that increases with credits and causes total assets to decrease.

In its 1st year of business, Daily Grind, Inc. purchased $1,000 of supplies of which it only has $300 left at the end of the period. Which of the following will be found in the year-end financial statements? (Select all that apply.) A. Supplies on the balance sheet of $700 B. Supplies Expense on the income statement of $700 C. Supplies Expense on the income statement of $1,300 D. Supplies on the balance sheet of $300

B. Supplies Expense on the income statement of $700 D. Supplies on the balance sheet of $300 The adjusting entry to record the amount of supplies used includes a debit to Supplies Expense (+E,-SE) and a credit to Supplies (-A) of $700 (=$1,000 available - $300 remaining).

The balance in the Prepaid Insurance account after the adjusting entries have been recorded represents the ______. A. amount owed for insurance at the end of the accounting period B. cost of the insurance expired during the period C. value of the insurance prepayment that remains to benefit future periods

C. value of the insurance prepayment that remains to benefit future periods Insurance Expense, not Prepaid Insurance, reports the cost of the insurance expired during the period and is reported on the income statement. Prepaid Insurance reports the amount of insurance paid for in advance that has not yet expired and is reported as an asset on the balance sheet.

How do the adjusting entry to record the supplies used during the period affect the financial statements? A. Accounts Payable on the balance sheet will decrease B. Supplies Expense on the income statement will increase C. Supplies on the balance sheet will decrease D. Net Income on the income statement will decrease

B. Supplies Expense on the income statement will increase C. Supplies on the balance sheet will decrease D. Net Income on the income statement will decrease

What is the effect of the December 31 adjusting entry to record $400 of revenue for which the seller has performed for its customers but not yet collected? A. Deferred Revenue should be increased by $400 and Sales Revenue should be decreased by $400 B. Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400 C. Accounts Receivable should be increased by $400 and Deferred Revenue should be increased by $400 D. Cash should be decreased by $400 and Sales Revenue should be increased by $400

B. Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400 The correct entry is a $400 debit to Accounts Receivable (+A) and $400 credit to Sales Revenue (+SE). The seller has fulfilled its obligation to the buyer before the cash was collected, not after, thus Deferred Revenue is not affected

After the adjustments have been completed, the balance in the Rent Expense account represents the ______. A. amount of the future benefit remaining in the account B. cost of rent for the accounting period C. amount of rent owed at the end of the accounting period

B. cost of rent for the accounting period An amount owed would be found in a liability account and the amount of a future benefit would be found in an asset account, such as Prepaid Rent

The Deferred Revenue T-account will show which of the following? (Select all that apply.) A. the amounts received in advance that the seller has not yet fulfilled of its obligations on the debit side B. the amounts the seller has fulfilled of its obligations that were collected in advance on the debit side C. the normal ending balance on the debit side D. the amounts the seller has fulfilled of its obligations that were collected in advance on the credit side E. the amounts received in advance that the seller has not yet fulfilled of its obligations on the credit side F. the normal ending balance on the credit side

B. the amounts the seller has fulfilled of its obligations that were collected in advance on the debit side E. the amounts received in advance that the seller has not yet fulfilled of its obligations on the credit side F. the normal ending balance on the credit side

After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the ______. A. cash paid for the long-lived assets in the fiscal year B. total depreciation that has accrued on the long-lived assets since their purchase C. decline in the market value of the long-lived assets D. depreciation for the current fiscal year

D. depreciation for the current fiscal year Depreciation Expense represents the depreciation for the current period only. Accumulated Depreciation represents all the depreciation taken since the asset was purchased. Depreciation is not intended to show a decline in market value but rather is intended to allocate the initial cost of the asset to the periods in which its benefits are used-up, resulting in an expense.