Chapter 4 ACCN

) Small Business Bank loaned $9,000 to Weidenhammer Company on May 1, 2012, accepting a 2-year, 8% note. The bank recorded the transaction properly on May 1. No other journal entry pertaining to the note has been made since May 1. As of year-end on December 31, 2012, what adjusting entry will the bank make with respect to this note?

A) Accrued interest receivable 480 Interest revenue 480

4) The entry to record the cash payment of salaries that had previously been accrued has what effect on the basic accounting equation?

A) Decrease liabilities, decrease assets

6) Cupling Enterprises borrowed $6,000 from Escada Bank on October 1, 2012. At that time, the company made the appropriate journal entry; however, no other journal entry pertaining to the note has been made. Given that the bank is charging interest at a rate of 9%, what adjusting entry is necessary as of Cupling Enterprise's year-end date of December 31, 2012?

A) Interest expense 135 Accrued interest payable 135

The adjustment for revenue received in advance that has now been earned involves a debit to

B) Unearned Revenue and a credit to Revenue.

10) Income before income tax is

A) a subtotal before net income on the income statement

7) Using the account format to prepare a balance sheet is

A) as acceptable as using a report format.

The adjustment for revenue received in advance, which has been earned in the current period, involves a

A) debit to unearned revenue.

An example of a current liability is

A) unearned revenue.

The multiple-step income statement is

A) used by most U.S. companies.

On April 30, Hilte Corporation performed services valued at $3,325. The company did not bill for the services until May 1. What adjusting entry would Hilte Corporation make on April 30?

Accounts Receivable 3,325 Revenue 3,325

During March, Getze Family Automotive installed a new engine with a billed price of $3,500. The company did not bill for the engine until April 1. Ignore the cost of the engine installed. What adjusting entry would Getze Family Automotive make on March 31?

Accounts receivable 3,500 Service revenue 3,500

Oleke Manufacturing performed services for a client during January valued at $5,000. The client was billed on February 9. What adjusting entry would Oleke Manufacturing make on January 31?

Accounts receivable 5,000 Revenue 5,000

Milton Company, a valued customer, placed an order for $1,500 on January 1. Because Milton is experiencing financial difficulties, it has been allowed to pay with a 3-month note receivable. The interest rate on the note is 8%. What adjusting entry is necessary for Oleke Manufacturing on January 31?

Accrued interest receivable 10 Interest revenue 10

Which of the following statements regarding adjusting entries is true?

Adjusting entries are made at periodic intervals, usually when the financial statements are about to be prepared.

An adjusting entry made to record accrued interest on a note payable involves a credit to

B) accrued interest payable.

An example of an adjusting entry is

B) the accruing of interest expense.

Blockade Consulting Services paid 3 months' rent in advance on July 1, at a total cost of $2,400. The rent covers the period from July 1 to September 30. At the time of the payment, prepaid rent was increased by $2,400. What adjusting entry is necessary on July 31?

B) Rent expense 800 Prepaid rent 800

Clokgel Inc. likes to maintain a current ratio near 1.4; however, the CFO for Clokgel, Inc. has noticed a decline in previous months. The current ratio for April, 2012 produced a ratio of 0.6. What would be the CFO's major concern with a declining current ratio?

B) The company may have difficulty meeting its short-term obligations.

If Company A has an accrual of interest to be received on a note receivable, then the company should debit

C) Accrued interest receivable.

What effect does the earning of revenue previously collected have on the basic accounting equation? Assume Unearned Revenue had been increased when the cash was collected in advance.

C) Decrease in liabilities, increase in stockholders' equity

9) The entry to accrue $2,000 of income tax monthly is

C) Income tax expense 2,000 Accrued income tax payable 2,000

2) Which of the following is the correct order in the recording process?

C) Ledger, unadjusted trial balance, journalize and post adjustments, adjusted trial balance, and financial statements

Which of the following statements regarding the current ratio is true?

C) The current ratio is widely used to evaluate liquidity.

quick ratio provides

C) a more restrictive view of a company's liquidity compared to the current ratio.

An example of a current asset is

C) accounts receivable.

3) Cash flows

C) may precede or follow the adjusting entries.

Liquidity is an entity's ability

C) to meet its near-term financial obligations with cash and near-cash assets as those obligations become due.

Scrumptious Donuts sold $2,000 worth of gift certificates in December. As of December 31, $500 worth of the $2,000 gift certificates had been redeemed. All gift certificates sold use the Deferred Revenue account. The balance in the Deferred Revenue account as of December 31 is

D) $1,500

vWhich of the following is an example of an accrual of unrecorded revenues?

D) An attorney has performed work for a client, but has not billed the client yet.

7) The adjusting entry to record the accrual of interest expense has what effect on the basic accounting equation?

D) Increase liabilities, decrease stockholders' equity

Which of the following situations involves a deferral?

D) Recording revenue earned that was collected in advance

1) A classified balance sheet

D) groups accounts into subcategories to help readers quickly gain a perspective on the company's financial position.

Gross profit appears on a

D) multiple-step income statement.

The adjusting entry to recognize periodic depreciation expense has what effect on the basic accounting equation?

Decrease in assets, decrease in stockholders' equity

The entry to record equipment depreciation when the equipment depreciates $100 per month, the balance in the Accumulated Depreciation, Equipment account is $600 and the balance in the Equipment account is $5,600 is

Depreciation expense 100 Accumul dep, Equipt 100

Which account is usually a separate line item on the multiple-step income statement?

E) Income taxes

The collection in cash of interest receivable previously accrued has what effect on the basic accounting equation?

E) It has no effect as one asset increases while another asset decreases.

5) Howard Products has a daily payroll of $2,200, 5 days a week. The employees are paid every Friday for that week's wages. July 31 was on a Wednesday and the employees were paid $11,000 on August 2. What is the journal entry on August 2, assuming the appropriate month ending adjusting entry was made on July 31?

E) Wage expense 4,400 Accrued wages payable 6,600 Cash 11,000

Recording revenue in 2012 that is actually earned in 2013 will result in

E) an overstatement of net income in 2012 and an understatement in net income in 2013

After the accrual of unrecorded expenses, ________ are decreased by later cash payments.

E) liabilities

Gross profit is defined as

E) sales minus cost of goods sold.

Implicit transactions

Events, such as the passage of time, that do not generate source documents or any visible evidence that the event actually occurred -Not recognized in the accounting records until the end of an accounting period (Interest)

All creditor transactions will result in an adjusting entry

FALSE

An income statement without any intermediate subtotals is referred to as a multiple-step income statement.

FALSE

Analysts will compare a company's financial ratios from the current year with those of past years in order to make judgments about a company's financial status, but comparison to other companies' ratios is usually not performed.

FALSE

Cash account can be used to record adjusting entries

FALSE

Circle Knitting, Inc. recorded $4,000 of unearned revenue being earned and the collection of $1,500 cash for services previously accrued. The impact of these two entries on total revenue is an increase of $5,500.

FALSE

Failure to adjust for depreciation results in the overstatement of assets and the understatement of net income.

FALSE

Module Accounting Services receives $8,000 cash for service revenue to be earned in the future. The company credits Service Revenue upon receipt of the cash.

FALSE

On a multiple-step income statement, operating expenses are deducted from cost of goods sold to obtain operating income.

FALSE

The adjusting entry to record $650 of expired insurance would include a debit to Unearned Insurance.

FALSE

The adjusting entry to record accrued interest revenue includes a debit to interest payable.

FALSE

The adjusting entry to record accrued salaries has what effect on the basic accounting equation?

Increases liabilities, decreases stockholders' equity

On October 1, Hurt Enterprises paid 4 months' insurance in advance for $3,600. At the time of the payment, prepaid insurance was increased by $3,600. What adjusting entry is necessary as of December 31?

Insurance expense 2,700 Prepaid insurance 2,700

Oleke Manufacturing borrowed $20,000 from Second National Bank on January 1. The note is for 9 months with all interest due at the end of the note. The bank is charging the company 9% interest. What adjusting entry is necessary for Oleke Manufacturing on January 31?

Interest expense 150 Acc int pay 150

Explicit transactions

Observable events such as cash receipts and disbursements, credit purchases, and credit sales -Trigger majority of day-to-day routine journal entries -Vast majority are explicit some do not involve actual exchanges of goods and services between parties.

Which of the following statements is NOT true?

Profitability evaluation ratios have a higher power than liquidity ratios for predicting a company's liquidity.

Which of the following situations does NOT involve an adjusting entry

Recognizing sales when they occur

Oleke Manufacturing paid $1,800 for 4 months' rent in advance on January 1. Assuming only asset accounts were used in the January 1 journal entry, what adjusting entry is necessary on January 31?

Rent expense 450 Prepaid rent 450

On March 31, Getze Family Automotive performed a month-end inventory and counted office supplies valued at $2,100. On March 1, the balance in the Supplies account was $1,200. Assume that $2,900 of purchases for the month was posted to the Supplies account, what adjusting entry would Getze Family Automotive make on March 31?

Supplies expense 2,000 Supplies 2,000

On April 30, Hilte Corporation performed a month-end inventory and counted office supplies valued at $1,425. On April 1, the balance in the Supplies account was $750. Assuming that $2,900 of purchases for the month was posted to the Supplies account, what adjusting entry would Hilte Corporation make on April 30?

Supplies expense 2,225 Supplies 2,225

5) Entries for the accrual of unrecorded expenses and the accrual of unrecorded revenues are made prior to the associated cash flows.

TRUE

12) Failure to adjust for an unrecorded expense such as wages expense will overstate net income and stockholders' equity for the period.

TRUE

13) Failure to adjust for an unrecorded expense such as interest expense will understate liabilities.

TRUE

Current assets are cash plus those assets that are expected to be converted to cash or sold or consumed during the next 12 months or within the normal operating cycle if longer than a year.

TRUE

Examples of adjusting for asset expirations include the write-offs to expense of such assets as Office Supplies and Prepaid Insurance.

TRUE

If the adjusting entry to record the current period's prepaid rent that is expired is omitted, current assets will be overstated.

TRUE

Prepaid expenses are listed as current assets on the balance sheet.

TRUE

The accountant uses adjusting entries to record implicit transactions at the end of each reporting period.

TRUE

The adjusting entry to record $675 of earned revenue received in advance would include a debit to Unearned Revenue.

TRUE

1) Which of the following statements is true with respect to the gross profit percentage?

The gross profit percentage is useful to retailers in choosing a pricing strategy and in judging its results.

On March 1, Getze Family Automotive received $7,000 cash for services to be rendered in March and April. The company recorded unearned revenue upon receipt of cash. What adjusting entry would Getze Family Automotive make on March 31, assuming that $2,000 of services was performed in March?

Unearned revenue 2,000 Service revenue 2,000

Oleke Manufacturing received $800 in advance on January 1 from Zinger Company for services to be performed over the next 3 months. If the $800 received from Zinger Company was placed into the Unearned Revenue account, and Oleke had completed 30% of the work as of the end of the month, what adjusting entry would Oleke Manufacturing make on January 31?

Unearned revenue 240 Revenue 240

On April 30, Hilte Corporation owes $14,100 for wages to be paid on May 6. What adjusting entry is necessary on April 30?

Wage expense 14,100 Accrd wgs pay 14,100

At March 31, Getze Family Automotive owes $5,400 for wages to be paid on April 8. What adjusting entry is necessary on March 31?

Wage expense 5,400 Accrued wgs pay 5,400

Which of the following is an example of an accrual?

Wages incurred but not yet paid.

Working capital is defined as

b)) the difference between current assets and current liabilities

1) The order of the steps in the recording process has

the unadjusted trial balance after the ledger.

Adjusting entries affect

both an income statement account and a balance sheet account

An example of an explicit transaction is

cash disbursement for the payment of 3 months' rent in advance.

In times of economic stress and instability, companies typically have

higher current ratios.

Profitability evaluation ratios have a higher power than liquidity ratios for predicting a company's liquidity.

how effectively assets generate profits

An example of an adjusting entry

is recognizing rent expense by reducing Prepaid Rent.

An example of an entry that is not an adjusting entry is

purchase of land for cash and a note payable.

An example of an explicit transaction is

purchasing inventory on account.

Recording an accrual entry involves recording a(n) ________ or ________ at the end of an accounting period even though no explicit transaction occurs.

receivable; payable

An example of an implicit transaction is

the expiration of prepaid rent