Chapter 3

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 (revenues/liabilities) and their credit balances are transferred to the income statement as well as all of the (expenses/assets) and their (debit/credit) balances.

-Revenues - Expenses - Debit

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?

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

What is the difference between an adjusted trial balance and an unadjusted trial balance?

-The adjusted trial balance is used to prepare financial statements. - The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. - The adjusted trial balance generally has more accounts listed than the unadjusted trial balance.

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.

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

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.

Insurance expense would be debited for $300.

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.

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent

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

The expense recognition(matching) principle requires that_____ (expense/assets/liabilities) be recorded in the same accounting period as the _____ (expenses/revenues/ assets) that are recognized as a result of those cost. This principle is a major part of the _____( timing/adjusting/estimating) process.

expenses revenues adjusting

A plant asset can be defined by which of the following statements?

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

$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.

- Supplies would be credited for $300. - Supplies 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/Account receivable/Cash/Interest receivable) account and ___(debit/credit) the ___(Cash/Account receivable/Interest revenue/Interest receivable) account.

-Interest receivable -Credit -Interest revenue

A company borrowed $4,000 from the bank at 5% interest. The loan had been outstanding for 45 days. Demonstrate the required adjusting entry by choosing the correct statement below. 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

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

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.

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.

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.

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 Unearned revenues for $400.

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.

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

Revenues

Which of the following accounts is considered a prepaid expense?

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.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct.

- Adjustments involve increasing both an expense and a liability account. -They refer to costs that are incurred in a period that are both unpaid and unrecorded. - Examples of accrued expenses are salaries expense and interest expense.

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

- Determine what the current account balance equals. - Determine what the current account balance should equal. Record an adjusting entry.

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

The formula to compute the profit margin of a company is ___ (Net income/Accounts Receivable/Net sales) divided by ____(Net income/Cash/Net sales).

- Net income -Net sales

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

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

- Prepaid rent - Supplies - Prepaid insurance

Explain the difference between the unadjusted and the adjusted trial balance.

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

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.

Determine which of the following transactions may require adjustments.

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

Rather than debiting an asset account, which of the following statements explains an alternate recording procedure to journalize prepaid expenses, such as prepaid rent or supplies. (Check all that apply.)

- Record all prepaid expenses with debits to expense accounts. -Any unused prepaid existing at end of period are transferred to asset accounts.

$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.

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 $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.

Insurance expense would be debited for $300.

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.

$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.

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

Which of the following could be a logical or realistic accounting period for a business when preparing their financial statements?

- Six- month period - One-month period - One-year period

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

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:

-Credit to Prepaid insurance for $400. - Debit to Insurance expense for $400.

$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. (Check all that apply.)

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

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.

-Account receivable - Credit - Service revenue

Explain what unearned revenues are by selecting the statements below which are correct.

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

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. (Check all that apply.)

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

$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.

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

Mouse Inc. uses the alternative method of accounting for prepayments and purchased a $1,200, 6-month insurance policy. The company immediately debited the Insurance expense account. By the end of the period, $400 of the policy had expired. Demonstrate the required adjustment needed at the end of the period.

-Debit Prepaid Insurance $800.

Which of the following statements correctly define(s) profit margin?

-Profit margin is a useful measure of a business's operating results. - Profit margin is the ration of a business's net income to its net sales. -Profit margin is also called return on sales.

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?

-Service revenue would be credited for $400. - Accounts receivable will be credited for $500. - Cash will be debited for $900.

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)___ and Interest___(expense/payable/receivable) account.

Expense Credit Payable

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 ____(revenues/liabilities) and their credit balances are transferred to the income statement as well as all of the___ (expenses/assets) and their____(debit/credit) balances.

-revenues -expenses -debit

Accrual basis accounting recognizes___ (equity/revenues/expenses) when the service or product is delivered and records ___(revenues/expenses/liabilities) when____ (incurred/paid) in order to adhere to the matching principle.

revenues expenses incurred