ACT 101 Chapter 5 Adjustments and the Worksheet

On June 1, a company purchased equipment costing $7,200. The equipment has an expected useful life of 5 years and a salvage value of $1,200. The company uses straight-line method of depreciation. On June 30, the company will recognize $-- of depreciation expense.

$100. ($7,200-1200) / 5 = $1,200 yearly depreciation. $1,200/12= $100 monthly depreciation.

Vera Bookkeeping reported the following amounts on its December 31 Balance Sheet: Equipment: $6,000; Accumulated Depreciation $4,000. The book value of the equipment is ---?

$2000

On Dec. 1, a company purchased equipment costing $10,000. The equipment has an expected useful life of 3 years and salvage value of $1,000. The company uses straight-line method of depreciation. Determine the amount of depreciation expense that will be recognized each month;

$250. $3,000/12=$250.

Adjusted Trial Balance section

1. Combine the figures from the Trial Balance section and the Adjustments section of the worksheet. Record the computed results in Adjusted Trial Balance columns. 2. Total the Debit and Credit columns in the Adjusted Trial Balance section. Confirm the debits equal credits.

Balance Sheet headings in correct order:

1. Company Name 2. Balance Sheet 3. MM/DD/YYYY

Trial Balance worksheet

1. Enter the general ledger account names. 2. Transfer the general ledger account balances to the debit and credit columns of the trial balance section. 3. Total the debit and credit columns to prove that the trial balance is in balance. 4. Place a double rule under each Trial Balance column is complete.

What are the five sections of a worksheet?

1. Trial Balance. 2. Adjustments. 3. Adjusted Trial Balance. 4. Income Statement. 5. Balance Sheet. The heading shows the company name, report title, and period covered. Each section includes a Debit column and a Credit column. The worksheet has 10 columns in which to enter dollar amounts.

Account form balance sheet

A balance sheet that lists assets on the left and liabilities and owner's equity on the right.

Report form balance sheet

A balance sheet that lists the asset accounts first, followed by liabilities and owner's equity.

Worksheet

A form used to gather all data needed at the end of an accounting period to prepare financial statements The heading shows the company name, report title, and period covered.

On Nov. 1, a company paid $1,200 for a twelve-month advertising contract. The $1,200 was debited to the Prepaid Advertising account. The necessary adjustment to record the advertising expense for both Nov. and Dec. on Dec 31 will include a debit to the ------- account in the amount of $-----

Advertising expense, 200.

Straight-line depreciation

Allocation of an asset's cost in equal amounts to each accounting period of the asset's useful life.

Straight-line depreciation

Allocation of an asset's cost in equal amounts to each accounting period of the asset's useful life. Depreciation= Cost-salvage value ------------------------ Estimated useful life

Depreciation

Allocation of the cost of a long-term asset to operations during its expected useful life.

Accumulated depreciation

An account that is used to record all depreciation taken on an asset during its useful life A contra-asset account, and increases with a credit.

Contra account

An account with a normal balance that is opposite that of a related account

Contra asset account

An asset account with a credit balance, which is contrary to the normal balance of an asset account.

Salvage value

An estimate of the amount that could be received by selling or disposing of an asset at the end of its useful life.

Identify which of the following accounts would appear on a balance sheet:

Cash Ending Capital Accounts Payable Accumulated Depreciation

On January 1, a firm paid $3,000 rent in advance for a three-month period. The $3,000 was debited to the Prepaid Rent account. The necessary adjustment on January 31 will include a:

Credit to prepaid rent for $1,000.

Which of the following items are true regarding preparation of the balance sheet:

Ending capital is carried from the statement of owner's equity to the balance sheet.

Prepaid expenses

Expense items acquired, recorded, and paid for in advance of their use.

Preparing the Income Statement

Extend the expense account balances from the Adjusted Trial balance to the debit columns of the Income Statement Sections. Extend the revenue account balances from the Adjusted Trial Balance to the credit columns of the Income Statement sections. Calculate the total of the Debit and Credit columns.

True or False: The owner's capital ending balance is carried from the balance sheet to the statement of owner's equity.

False.

Identify which of the following items appear on an income statement:

Fees Income Net income Supplies expense

Identify the headings that appear in the Statement of Owner's Equity:

For the period ended MM/DD/YYYY Company Name Statement of Owner's Equity

A worksheet

Is a tool used to help determine the effects of adjusting journal entries on account balances.

Adjusting entries

Journal entries made to update accounts for items that were not recorded during the accounting period.

The Income Statement section of the worksheet shows total debits of $700 and total credits of $1,000. The Income Statement will show:

Net income totaling $300

Adjusting Entries can contain which of the following:

One income statement account and one balance sheet accounts

Adjusting Entries can contain which of the following:

One income statement account and one balance sheet accounts.

Identify which of the following accounts appear on an income statement:

Salaries expense Utilities expense Fees income

Book value

That portion of an asset's original cost that has not yet been depreciated. The difference between the cost of a long-term asset and accumulated depreciation.

Net income can be calculated by taking total credits less total debits in the Income Statement Section of the worksheet, and verified by taking:

The Balance Sheet Debit column subtracted from the amount in the Credit column.

Why is the worksheet prepared?

The worksheet is used to preare the financial statements.

Identify the accounts that would NOT appear on a company's balance sheet:

Withdrawals

Preparing The Statement of Owner's Equity

Withdrawals, starting capital, ending capital, and net income are the account that appear on this statement. Reports the changes that have occurred in the owner's financial interest during the reporting period. From the Balance Sheet section of the worksheet use amounts for owner's capital; owner's withdrawals, if any; and owner's investments, if any. From the Income Statement section of the worksheet, use the amount calculated for net income or net loss. As well as the net income or net loss figure, to prepare the statement of owner's equity Prepared before the balance sheet because the ending capital balance is needed to prepare the balance sheet.

Long-term tangible assets

land, buildings, equipment, trucks, automobiles, furniture, and fixtures. Depreciation is calculated on all long-term tangible assets except land. Lang is not depreciated.