Ch.3 Pre-chapter assignment

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ______.

$22,000

Adjusting entries: (Select all that apply)

--> are needed before financial statement preparation --> update the accounts to their proper balances

_____________-basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company

Accrual

paid

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

True or False: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

FALSE, (Reason: Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account.)

Which of the following would be referred to as "accruals?" (Select all that apply.)

Goods and services provided, not yet collected Expenses incurred, not yet paid

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next 6 months

Select all that apply: On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show:

Rent expense of $2,000, Prepaid rent of $22,000

_________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned

accruals

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by _________ entries.

adjusting

A prepayment that is originally recorded as an ASSET will be ____.

allocated to the future accounting periods based on the cost of the asset used during the period

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.

an asset is increased since cash will be collected at a later date

At the beginning of the accounting period, the balances of temporary accounts:

are zero

Depreciation is an allocation of the _______ of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)

cost

The statement of Stockholder's Equity includes these amounts:

ending balance retained earnings dividends for the period net income

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

expense

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is a cost of borrowing.

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent payed in advance

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

Service revenue for $1,800

Which of the following financial statements typically is prepared last?

Statement of cash flows

Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings?

Statement of stockholders equity

________________ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period. (Enter only one word.)

deferred

The process of allocating the cost of an asset to expense over the useful life of the asset is called...

depreciation

A primary purpose of adjusting entries is to record events that...

have occurred but that have not yet been recorded

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as __________ expense

interest

Deferred revenue is a(n)...

liability

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?

liability and prepaid expense

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary

Accrual-basis accounting

the accounting basis that records revenues in the period that goods and services are provided to customers is referred to as...

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

Correct answer: ASSETS Wrong answers and why: -expense (reason: expenses represent the economic benefits used during the period. Assets represent the economic benefits that remain at the end of the period.) -account (reason: not all accounts, just the asset accounts, are reported at amounts representing economic benefits that remain at the end of the period) -asset & liability (reason: liabilities represent economic obligations, not benefits) -revenue (reason: revenues represent amounts recognized during the period when goods and or services are provided to customers. Assets represent economic benefits that remain at the end of the period.)

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

The adjusting entry for an accrued revenue always includes:

a credit to a revenue account a debit to an asset account

A prepayment such as "Prepaid Insurance" is originally recorded as a(n) _______when an insurance policy is purchased and will later be expensed in the period used

asset or debit

prepaid rent appears in the _________.

balance sheet because it is an asset

Reporting revenues only when cash is received & expenses only when cash is paid is called the ________ basis of accounting

cash

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records as...

credit to Revenue debit to Deferred Revenue

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through _____

recording of adjusting entries

The two major categories reported in the income statement are:

revenue & expense

The post-closing trial balance helps to verify that:

we prepared and posted closing entries correctly, the accounts are ready for next period's transactions

The information reported in the statement of cash flows is organized by these activities:

financing, operating, and investing

Prepaid expenses should be ______ by the cost of the asset used during the accounting period.

decreased

Prepaid insurance is a(n)...

asset in the balance sheet

A classified balance sheet shows subtotals for current __________ and current ________.

assets liabilities

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

Revenues and expenses are reported in the:

income statement

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.)

A company pays for 4 months of advertising in the Wall Street Journal on November 1. A company pays a 6-month insurance premium at the beginning of October.

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period.

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) ______in the period the benefit expires.

expense