Chapter 3 Homework

Explain your understanding of the closing process by choosing the correct statements below.

-the closing process helps to summarize a period's revenues and expenses. -the closing process resets the balances in temporary accounts to zero.

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

1) Determine what the current account balance is. 2) Determine what the correct account balance should be. 3) Record an adjusting entry.

Given the following information for Mouse Inc., calculate its profit margin for the year 2018. Net Income is $500 and Net Sales is 3500

14.29%

What is a plant asset?

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.

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 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.

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.

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 what the correct adjusting entry should include by choosing the correct statement below.

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

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.

Select the statement below that describes a post-closing trial balance.

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

Define the Salaries payable account by selecting the appropriate statement below.

It reports amounts owed to employees and is a liability.

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

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.

Which of the following lists contains only temporary accounts?

Wages Expense; Income Summary; Dividends

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

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.

Which of the statements below explains the accounting cycle?

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

Which of the statements below describe(s) a temporary account?

-A temporary account has a balance for only one period. -A temporary account is closed at the end of an accounting period.

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 -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. -Six months of rent were paid in advance.

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

-Examples of accrued expenses are wages expense and interest expense. -Adjustments involve increasing both an expense and a liability account. -They are reported on an income statement. -They refer to costs that are incurred in a period, but are both unpaid and unrecorded.

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

-It is a tangible long-term asset. -Its original cost (minus any salvage value) is expensed over its useful life. -It is reported on the balance sheet. -It has a life within the business greater than one year or the current operating cycle, whichever is longer.

Which of the following describe the Salaries payable account?

-It is reported on the balance sheet. -It is increased with a credit. -It reports amounts owed to employees. -It is a liability account.

Which of the following statements describes the expense recognition (matching) principle?

-Matching of expenses with revenues is a major part of the adjusting process. -Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses.

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

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

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

-Supplies -Prepaid Rent -Prepaid Insurance

$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.

Which statements below are true regarding permanent and temporary accounts?

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

Which of the statements below is (are) correct regarding the accounting cycle?

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

Which of the following is (are) true regarding timeliness and the importance of periodic reporting?

-The value of information is often linked to its timeliness. -Businesses report financial information at regular intervals to ensure timeliness of data. -Useful information must reach decision makers frequently and promptly.

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

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

$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.

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 _____ account and _____ the _____ account.

-accounts receivable -credit -service revenue

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. -an accounting system which is consistent with generally accepted accounting principles.

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:

-debit accounts receivable -credit services revenue

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 Prepaid insurance for $400.

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 _____ account and _____ the Interest _____ 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 _____ account and _____ the Salaries _____ account.

-expense -credit -payable

The expense recognition (matching) principle aims to record _____ in the same accounting period as the _____ that are earned as a result of those costs. This principle is a major part of the _____ process.

-expenses -revenues -adjusting

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 _____ account and _____ the _____ account.

-interest receivable -credit -interest revenue

Which of the following could be a logical or realistic accounting period for a business that is creating financial statements?

-one year -six months -one month

A post-closing trial balance is a list of _____ accounts and their balances from the _____ _____ all _____ entries have been journalized and posted.

-permanent -ledger -after -closing

Which of the following describes accrued revenue?

-refer to earnings which have been earned but not yet billed. -They refer to revenues that are earned in a period, but have not been received and are unrecorded. -The adjustment causes an increase in an asset account and an increase in a revenue account. -Accounts receivable is usually increased when accruing revenues.

Accrual basis accounting recognizes _____ when earned and records _____ when _____ in order to adhere to the matching principle.

-revenues -expenses -incurred

The purpose of the closing process is to reset _____ account balances to zero and to transfer the changes in all of these accounts to the Retained _____ account.

-temporary -earnings

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

revenue

The revenue recognition principle states that revenue:

should be recorded when goods or services are provided to customers at an amount expected to be received