Chapter 3: Learn Smart

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.

List the order in which financial statements are prepared.

1. Income Statement 2. Statement of Retained Earnings. 3. Balance Sheet 4. Statement of Cash Flows

Some of the steps in the accounting cycle are listed below. Place them in the correct order of use.

1. Journalize transactions into the journal. 2. Journalize the post and adjusting entries. 3. Prepare the adjusted trial balance. 4. Prepare the financial statements. 5. Journalize the post closing entries. 6. Prepare post-closing trial balance.

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

1. Prepare an unadjusted trial balance. 2. Journalize and post adjusting entries. 3. Prepare an adjusted trial balance. 4. Prepare financial statements.

Demostrate your knowledge of a depreciation adjusting entry by completing the following sentence. A depreciation adjustment would include a debit to __________ (depreciation expense/accumulted depreciation/building) and __________ (debit/credit) to __________ (depreciation expense/accumulated depreciation/building).

A depreciation adjustment would include a debit to _depreciation expense_ (depreciation expense/accumulted depreciation/building) and _credit_ (debit/credit) to _accumulated depreciation_ (depreciation expense/accumulated depreciation/building).

Cash basis accounting recognizes __________ (equity/revenues/expenses) when cash is received and records __________ (revenues/expenses/liabilities) when cash is paid.

Cash basis accounting recognizes _revenues_ (equity/revenues/expenses) when cash is received and records _expenses_ (revenues/expenses/liabilities) when cash is paid.

Closing means to transfer account balances from __________ (asset/liability/permanent/temporary) accounts so that they will start with a ___________ (contra/larger/zero) balance at the beginning of the next period.

Closing means to transfer account balances from _temporary_ (asset/liability/permanent/temporary) accounts so that they will start with a _zero_ (contra/larger/zero) balance at the beginning of the next period.

In order to prepare a balance sheet using the account balances on an adjusted trial balance, all of the __________ (expenses/assets) and their debit balances are transferred to the balance sheet as well as all of the __________ (liabilities/revenues) and their __________ (debit/credit) balances.

In order to prepare a balance sheet using the account balances on an adjusted trial balance, all of the _assets_ (expenses/assets) and their debit balances are transferred to the balance sheet as well as all of the _liabilities_ (liabilities/revenues) and their _credit_ (debit/credit) balances

Illustrate your understanding of how to use the adjusted trial balance to prepare an income statement by completeing 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 blances are transferred to the income statement as awell as all of the __________ (expenses/assets) and their __________ (debit/credit) balances.

In order to prepare an income statement using the account balances on an adjusted trial balance, all of the _revenues_ (revenues/liabilities) and their credit blances are transferred to the income statement as awell as all of the _expenses_ (expenses/assets) and their _debit_ (debit/credit) balances.

Illustrate your understanding of how to use the adjusted trial balance to prepare a statement of retained earnings by completing the following sentence. In order to prepare the statement of retained earnings, the balance of the __________ (retained earnings/cash) account balance as well as any debit balance in the __________ (dividends/supplies) account is transferred from the adjusted trial balance and is used along with the repored net income (loss) form the income statement.

In order to prepare the statement of retained earnings, the balance of the _retained earnings_ (retained earnings/cash) account balance as well as any debit balance in the _dividends_ (dividends/supplies) account is transferred from the adjusted trial balance and is used along with the repored net income (loss) form the income statement.

The closing process takes place at the __________ (end/beginning) of an accounting period, after the __________ (adjusted/unadjusted) trial balance is prepared and __________ (after/before) the financial statements are prepared.

The closing process takes place at the _end_ (end/beginning) of an accounting period, after the _adjusted_ (adjusted/unadjusted) trial balance is prepared and _after_ (after/before) the financial statements are prepared.

Complete the following statement. The purpose of the closing process is to rest ___________ (temporary/permanent) account balances to zerio and to transfer the changes in all of these accounts to the Retained __________ (earnings/summary/withdrawal) account.

The purpose of the closing process is to rest _temporary_ (temporary/permanent) account balances to zerio and to transfer the changes in all of these accounts to the Retained _earnings_ (earnings/summary/withdrawal) account.

For te current year, a business has earned (but not recoreded or received) $200 of interest from investments. Demostrate the required adjusting entry by completing the followin sentence. The required adjusting entry woul dbe to debit the __________ (unearned revenue/accounts receivable/cash/interest receivable) account and __________ (debit/credit) the __________ (cash/accounts receivable/interest revenue/interest receivable) account.

The required adjusting entry woul dbe to debit the _interest receivable_ (unearned revenue/accounts receivable/cash/interest receivable) account and _credit_ (debit/credit) the _interest revenue_ (cash/accounts receivable/interest revenue/interest receivable) account.

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 comapny by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) __________ account and (debit/credit) __________ the interest ___________ (expense/payable/receivable) account.

The required adjusting entry would be to debit the Interest (expense/payable/receivable) _expense_ account and (debit/credit) _credit_ the interest _payable_ (expense/payable/receivable) account.

By the end of the accounting period, employee have arned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the follwing sentence. The required adjusting entry would be to debit the Salaries __________ (expense/payable) account and __________ (debit/credit) the Salareis __________ (expense/payable/unearned) account.

The required adjusting entry would be to debit the Salaries _expense_ (expense/payable) account and _credit_ (debit/credit) the Salareis _payable_ (expense/payable/unearned) account.

On December 27, a business completed a $400 service taht had not yet been billed or recoreded 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 recieveable/cash/service revenue) account and __________ (debit/credit) the ____________ (unearned revenue/accounts receivable/cash/service revenue) account.

The required adjusting entry would be to debit the _Account Recieveable_ (unearned revenue/accounts recieveable/cash/service revenue) account and _Credit_ (debit/credit) the _Service Revenue_ (unearned revenue/accounts receivable/cash/service revenue) account.

A $300,000 bulidning was purchased on December 1. It is estimated that it will have a life of 20 years and zero salvage value. Calculate depreciation expense for the month of Decemeber using straight-line depreciation. a) $1,250 b) $15,000 c) $0 d) $2,500

a) $1,250

Which of the following statements about the Accumulated depreciation account is (are) correct? a) Accumulated depreciation is a contra account. b) Accumulated depreciation is an expense account. c) Accumulated depreciation accumulates the total depreciation taken on an asset since its purchase. d) The Accumulated depreciation account allows the original cost of the asset to remain in the plant asset account. e) Accumulated depreciation is subtracted form its plant asset on the balance sheet. f) Accumulated depreciation is added to its plant asset on the income statement.

a) Accumulated depreciation is a contra account. c) Accumulated depreciation accumulates the total depreciation taken on an asset since its purchase. d) The Accumulated depreciation account allows the original cost of the asset to remain in the plant asset account. e) Accumulated depreciation is subtracted form its plant asset on the balance sheet.

The Income Summary account can be defined as which of the following? a) An account used during the closing process. b) A permanent account. c) An account whose balance equals net income or net loss. d) A temporary account e) An account that contains a credit for the sum of all revenues. f) An account that contains a credit for the sum of all expenses.

a) An account used during the closing process. c) An account whose balance equals net income or net loss. d) A temporary account e) An account that contains a credit for the sum of all revenues.

Choose the statement(s) below which is (are) true regarding adjusting journal entries. a) An income statement account is always affected. b) A balance sheet account is always affected. c) Cash may sometimes be affected. d) Cash is never affected.

a) An income statement account is always affected. b) A balance sheet account is always affected. d) Cash is never affected.

The third closing journal entry, after closing revenues and expenses, would include which of the following? a) Debit Income Summary $9,400; and credit Retained Earnings $9,400 b) Debit Income Summary $10,000; and credit Retained Earnings $10,000. c) Credit Income Summary $9,400; and debit Retained Earnings $9,400 d) Debit Income Summary $600; and credit Expenses $600.

a) Debit Income Summary $9,400; and credit Retained Earnings $9,400

Demonstrate the last closing journal entry to close the Dividends account by selecting the correct answer below. a) Debit Retained Earnings $80; Credit Dividends $80 b) Debit Dividends $80; Credit Retained Earnings $80. c) Debit Income Summary $80; Credit Dividends $80. d) Debit Dividends $80; Credit Income Summary $80

a) Debit Retained Earnings $80; Credit Dividends $80

What is depreciation? a) Depreciation is the process of allocating the costs of long-erm assets over their expected useful life. b) Depreciation is the process of recognizing revenues earned within the current accounting period. c) Depreciation is the process of determining the value of accounts receivable which will be collected in the current period.

a) Depreciation is the process of allocating the costs of long-erm assets over their expected useful life.

Which of the following statements describes the expense recognition (matching) principle? a) Expense should be matched in the same accounting period as the revues taht are recognized as a result of those expenses. b) Expenses are recorded when they are paid and revenues are recorded when payment is received. c) Matching of expenses with revenues is a major part of the adjusting process. d) Revenues are recorded when they are earned or services are performed.

a) Expense should be matched in the same accounting period as the revues taht are recognized as a result of those expenses. c) Matching of expenses with revenues is a major part of the adjusting process.

A plant asset can be defined by which fo the following statements? a) Its original cost (minus an salvage value) is expensed over its useful life. b) It is reported on the balance sheet. c) Its original cost is expensed in the period in which it was purchased. d) It has a life within the business greater than one year. e) It is a tangible long-term asset.

a) Its original cost (minus an salvage value) is expensed over its useful life. b) It is reported on the balance sheet. d) It has a life within the business greater than one year. e) It is a tangible long-term asset.

$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 form the choices below. a) Supplies expense would be debited for $300. b) Supplies would be credited for $300. c) Supplies expense would be debited for $700. d) Supplies expense would be credited for $300. e) Supplies would be debited for $300.

a) Supplies expense would be debited for $300. b) Supplies would be credited for $300.

$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. a) Unearned revenue would be debited for $700. b) Accounts receivable would be debited for $700. c) Services revenue would be credited for $700. d) Services revenue would be credited for $300. e) Unearned revenue would be debited for $300.

a) Unearned revenue would be debited for $700. c) Services revenue would be credited for $700.

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. a) accounts payable b) mortgage payable c) taxes payable d) notes payable (due in three months) e) accounts receiveable f) notes payable (due in three years) g) unearned rent

a) accounts payable c) taxes payable d) notes payable (due in three months) g) unearned rent

A classified balance sheet has several categories for assets and liabilities including: a) current assets b) noncurrent equity c) tanigible current assets d) noncurrent (long-term) liabilities e) operating expenses f) long-term investments g) plant assets

a) current assets d) noncurrent (long-term) liabilities f) long-term investments g) plant assets

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: a) debit to insurance expense for $400 b) credit to insurance expense for $400 c) credit to prepaid insurance for $400 d) debit to prepaid insurance for $400 e) debit to insurance expense for $4,800

a) debit to insurance expense for $400 c) credit to prepaid insurance for $400

Which of the lists below contains only permanent accounts? a) Supplies; Income Summary; Retained Earnings b) Retained Earnings; Accounts Payable; Accumulated Depreciation. c) Deprecaiation Expense; Income Summary; Service Revenue d) Unearned Rent; Service Revenue; Accumulated Depreciation

b) Retained Earnings; Accounts Payable; Accumulated Depreciation.

Review the adjusted trial balance below for XYZ Co. and determine the accounts that would be transferred to the Income Statement. a) Cash b) Supplies Expense c) Accounts Payable d) Rental Revenue e) Utilities Expense.

b) Supplies Expense d) Rental Revenue e) Utilities Expense.

Identify which group of accounts may require adjustments at the end of the accounting period. a) Cash; Notes Recieveable; Land b) Unearned Revenue; Supplies; Prepaid Rent c) Utilties Expense; Cash; Common Stock

b) Unearned Revenue; Supplies; Prepaid Rent

Which of the following lists contains only temporary accounts? a) Supplies; Wages Expense; Retained Earnings b) Wages Expense; Income Summary; Dividends c) Retained Earnings; Income Summary; Dividends d) Supplies; Land; Unearned Rent

b) Wages Expense; Income Summary; Dividends

At year-end, Zagnut Company is beginning its closing process. Use the following account balances to demonstrate the closing of its expense accounts. a) Credit to Dividends for $120. b) A credit to Income Summary for $1,600 c) A debit to Income Summary for $1,600 d) Debit Insurance Expense for $900. e) Credit Insurance Expense for $900 f) Credit to Supplies Expense for $700. g) Debit Supplies Expense $700

c) A debit to Income Summary for $1,600 e) Credit Insurance Expense for $900 f) Credit to Supplies Expense for $700.

Current assets are: a) difficult to convert to cash or other monetary assets. b) property, plant, and equipment that are tangible and depreciated. c) cash and other resources that are expected to be sold, collected, or used within one year. d) equipment and other assets that have a life greater than one year.

c) cash and other resources that are expected to be sold, collected, or used within one year.

The first closing journal entry would include which of the following? a) A credit to Income Summary for $5,400. b) A debtit to Income Summary for $80. c) A debit to Income Summary for $6,000. d) A credit to Income Summary for $6,000

d) A credit to Income Summary for $6,000

Define an adjusting journal entry. a) An adjusting journal entry is made at the end of an accounting cycle to update the fair market value of land, equipment, and building accounts. b) An adjusting journal entry is made at the beginning of an accounting period to reflect a transaction or event that is not yet recorded. c) An adjusting journal entry is made to Cash and cash equilvalent accounts to recognize outstanding checks. d) An adjusting journal entry is made at the end of an accounting period to reflect a transaction or event that is not yet recorded.

d) An adjusting journal entry is made at the end of an accounting period to reflect a transaction or event that is not yet recorded.

Select the statement below that explain how to use the Income Summary account. a) The Income Summary account is debited for the sum of all revenue accounts during the closing process. b) The Income Summary account is credited during the adjusting process, as it is a contra asset account. c) The Income Summary account is used during the closing process to facilitate the closing of all permanent accounts. d) The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts.

d) The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts.

Explain what unearned revenues are by choosing the correct statement below. a) Unearned revenues refer to amounts owed to the company that have not yet been bille.d b) Unearned revenues refer to income reported on the income statement. c) Unearned revenues refer to customer payments which have not yet been received. d) Unearned revenues refer to cash received in advance of providing a service or product.

d) Unearned revenues refer to cash received in advance of providing a service or product.

Identify the accounts below that would be classified as long-term liabilities on a classified balance sheet. a) Unearned rent b) Notes receivable (due in three years) c) Notes payable (due in five months) d) Accounts payable e) Morgage payable f) Bonds payable (due in five years)

e) Morgage payable f) Bonds payable (due in five years)