MBA 628 - Chapter 4

liabilities will be understated stockholders' equity will be overstated

Miss Take, the accountant, forgot to record the interest owed at the end of the accounting period. As a result of this error, ______.

Income Tax Expense is a(n) ______.

expense on the income statement and reports the income tax incurred for the period, paid and/or unpaid

Accrual adjustments are needed when a company has earned revenue or incurred an expense but _____ has not been exchanged.

cash

T or F - Dividends are reports on the income statement

false

debit to Sales Revenue

A closing entry includes a ______.

credit to Wages Expense

A closing entry may include a ______.

balance sheet

Accumulated depreciation is listed on the

cost minus accumulated depreciation

An asset's book value or carrying value is its ______.

Interest Expense should be increased, because the cost of interest relates to the current period.

As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period?

net income

Both the income statement and the statement of stockholders' equity

asset that represents the right to collect interest

Interest Receivable is a(n) ______.

Concepts that need work

Interpret the effects on the accounting equation of the adjustment for interest accrued but not paid during the accounting period Calculate the amount of interest expense Infer Unearned Revenue is the remaining obligation after adjusting

carrying

Noncurrent assets, such as equipment, are reported at their ______ value on the balance sheet.

The carrying value of Supplies represents the cost of Supplies ______.

On hand at the end of the accounting period

assets and stockholders equity to decrease

The effect on the accounting equation of the adjusting entry to record the amount of prepaid expenses used during the period causes ______. (Select all that apply.)

depreciation expense

The income statement

How do accrual adjustments affect liabilities and expenses?

The increase liabilities and increase expenses

False

True or false: The term "defer" means "in advance."

Which report is constructed immediately prior to preparing the financial statements with the purpose of demonstrating that the accounts balance?

adjusted trial balance

Show the effect of the adjusting entry for interest earned on a note receivable.

assets increase stockholder's equity increases

If the adjusting entry to accrue interest of $1,000 on a note receivable is omitted, then ______.

assets, net income, and stockholders' equity are understated by $1,000

The adjusted trial balance should be prepared ___________ the financial statements are prepared to prove the ___________ of the debits and credits.

before; equality

Long-lived assets, such as equipments, are reported at their ________ value on the balance sheet which is the ________.

carrying; cost less accumulated depreciation

Adjusting entries never affect the asset account called ______.

cash

In practice, almost every account, except _____, could require an adjusting entry.

cash

The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the _________ process.

closing

For companies that generate net income during the current period, the closing entries will result in a net _____ entry to retained earnings.

credit

A closing entry may include a _______.

credit to Wages Expense

The post-closing trial balance checks that total _______ equal total ______ at the end of the period.

credits; debits

Balance sheet accounts, such as supplies or prepaid rent, _______ as a result of deferral adjustments.

decrease

The adjusting entry to record the supplies used during the period will result in a(n) ______.

decrease to Supplies and an increase to Supplies Expense

After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the ______.

depreciation for the current fiscal year

After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the ________.

depreciation for the current fiscal year

Unearned Revenue should be reduced and Revenue increased for the amount of revenue _____ during the period

earned

Adjustments made to expense accounts at the end of the accounting period adhere to the ______ recognition (matching) principle.

expense

The _____________ recognition principle requires an adjustment for income tax expenses owed attributable to the net income earned during the current period.

expense

Amortization is the expensing of ________.

long-term assets that lack physical substance

Permanent accounts are found on ______.

only on the balance sheet

The balance in Retained Earnings prior to the closing process equals _______.

the balance at the end of the previous accounting period

Temporary accounts are found on ______.

the income statement

After the adjustments have been recorded, Unearned Revenue on the balance sheet reports the amount of _________.

the sales or services still owed to the customer

Which of the following events require adjusting entries?

the use of supplies during the period incurring wages expense that will be paid in the following period the use of equipment during the period owing interest on notes payable

Adjusting entries are typically recorded ______.

to ensure revenues and expenses are recorded in the period in which they occur, even though the cash will be collected or paid in a future period at the end of the accounting period

Deferring a revenue or expense account in accounting means that the amount ______.

will be reported as a revenue or an expense in a later period

Deferring a revenue or expense account in accounting means that the amount _______.

will be reported as a revenue or an expense in a later period

The annual depreciation taken on a vehicle totals $3000. The vehicle has been in service for 3 whole years and the adjusting entries have been completed for the year. at the end of the 3rd year the financial statements will report depreciation expense of __________ and Accumulated Depreciation of ___________.

$3000 and $9000

Why are the adjustments important to the preparation of the financial statements?

-Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes -Adjustments ensure that the revenues earned and expenses incurred during the period are reflected in the income statement -Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results

Identify the entries needed for the closing process.

-Credit dividends and debit retained earnings -Debit each Revenue debit each expense and record the difference in retained earnings

The adjusting entries to record the amount of interest earned on investments includes a ________.

-Debit to Interest Receivable -Credit to interest revenue

Which of the following statements are correct regarding Dividends?

-Dividends are closed into retained earning by crediting Dividends. -Dividends are closed into retained earnings by debiting Retained earnings. -Dividends have a normal debit balance

Place the steps in the adjustment process in order. Drag the items to put them i the proper order with the first step on top.

1. Analyze the accounts to determine the amount of the adjustment. 2. Record the adjusting entry in the journal. 3. Summarize the adjusting entries in the accounts.

Depreciation

? is the process of allocating the cost of buildings, vehicles, and equipment to expense over time as they are used.

Deferred

? revenues and expenses result because the cash changed hands prior to the revenue being earned or the expense being incurred.

What is the effect of the December 31 adjusting entry to record $400 of revenues earned from sales to customers but not yet collected?

Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400

How do accrual adjustments affect liabilities and expenses?

Accrual adjustments can increase liabilities and increase expenses.

__________ adjustments are used when cash has not yet been received in a prior transaction. __________ adjustments are used when cash has been exchanged in a prior transaction.

Accrual; deferral

credit; decreases

Accumulated Depreciation has a normal ? balance which indicates that it ? Total Assets.

accrual; deferral

Adjusting entries include ? adjustments for revenues earned but not yet collected and expenses incurred but not yet paid. They also include ? adjustments for revenues earned that were collected in advance and expenses incurred that were previously recorded as assets.

Which of the following adjusting entries will decrease assets and stockholders' equity?

Adjusting for depreciation on equipment Adjusting for amounts used that were paid in advance

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

Adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

paid

After the adjustments have been completed, the adjusted balance in the "Accrued Expenses Payable" or "Wages Payable" account represents amounts incurred, but not yet ? by the company.

Which two accounts are used to record the adjustment entry for amortization for long term assets that lack physical substance?

Amortization Expense and Accumulated Amortization

cost - accumulated depreciation

An asset's book value or carrying value is its ______.

will be reported as a revenue or an expense in a later period

Deferring a revenue or expense account in accounting means that the amount ______.

Which of the following line items appear on a statement of stockholders' equity?

Dividends declared Common stock Retained earnings from the prior period Net income

Temporary accounts include ______, _______, and ________. These accounts only track the current results.

Dividends, expenses, revenues

credit

During the closing process, the closing entries to individual expense accounts will be recorded with a ______ to reduce the account balance to zero.

debited

During the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account be

T or F: Since Retained Earnings is involved in the closing process, it is considered a temporary account.

False

True or false: To calculate a company's income tax obligation, the income after tax is multiplied by the company's tax rate.

False

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

False Adjustments reduce assets for the amounts used or expired during the period, leaving a balance that represents the economic benefit remaining in the account

Accrual adjustments can increase liabilities and increase expenses.

How do accrual adjustments affect liabilities and expenses?

Retained Earnings on the statement of stockholders' equity will be overstated Total stockholders' equity on the balance sheet will be overstated

If there is an error in recording an adjusting entry on the income statement causing Net Income to overstated, then ______.

When should supplies be recorded as an expense?

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

Which financial statement reports the amount of prepaid expenses used during the accounting period?

Income Statement

Total stockholders' equity Net income Ending retained earnings

Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following items on the statement of stockholders' equity to be overstated?

Current assets will be overstated. Retained earnings will be overstated. Supplies will be overstated.

Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following on the balance sheet?

3200

On December 1, ABC Apartment Company received $4,800 in advance from a tenant for 3 months' rent, December through February. It credited Unearned Rent Revenue for the full amount. After the adjusting entry is recorded, the Unearned revenue balance at December 31 equals $

amounts not yet collected from customers

On the balance sheet, accounts receivable represents ______.

Permanent accounts are found on ______.

Only the balance sheet

Which type of adjusting entry may management manipulate and overstate the amount to report a higher net income?

Overstating the amount of accrued revenues Overstating the amount earned of deferred revenues

Which of the following accounts are found on the balance sheet?

Prepaid Rent and Interest Payable

Which of the following line items appear on a statement of stockholders' equity? (Check all that apply.)

Retained earnings from the prior period Common stock Net income Dividends declared

400;400;800

Sterling Company paid $1,200 for 3 months of rent on April 1 of the current year. On April 30, Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry contained a debit to Rent Expense in the amount of $? and a credit to Prepaid Rent in the amount of $?. The remaining balance in the Prepaid Rent account after the adjustment was $?

Balance Sheet

Supplies Unearned revenue Accrued expenses payable are all found on the

the expense accounts and crediting the related payable accounts

The adjusting entry to record accrued expenses requires debiting ______.

debit to Depreciation Expense credit to Accumulated Depreciation

The adjusting entry to record depreciation on equipment includes a ______.

Debit interest expense Credit Interest payable

The adjusting entry to record interest owed on notes payable includes ______.

debit Wage Expense Credit Wage Payable

The adjusting entry to record the amounts owed for wages incurred during the period includes a ______.

credit to Service Revenue debit to Accounts Receivable

The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a ______.

debit to Account Receivable and credit to Service Revenue

The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a ______.

debit; credit

The post-closing trial balance checks that total ?unavailable correctequal total ? unavailable correct at the end of the period.

dividends

The statement of stockholders' equity

Which of the following statements most accurately describes the purposes of the closing entries?

To establish zero balances in the income statement accounts and to transfer net income into retained earnings

What are the effects on the accounting equation from the adjustment for revenue earned during the accounting period that had previously been recorded as a liability?

Total liabilities will decrease and total stockholders' equity will increase.

What are the effects on the accounting equation from the adjusting entry for interest expense accrued, but not paid, at the end of the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

What are the effects on the accounting equation from the adjustment for wages incurred, but not yet paid, during the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following items on the statement of stockholders' equity to be overstated?

Total stockholders' equity Net income Ending retained earnings

FAlse

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

True

True or false: Supplies is an asset account because it contains the value of supplies that have not been used, but still remain an economic resource for the company.

true

True or false: The adjusting entry to record depreciation does not directly reduce the noncurrent asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.

False

True or false: To calculate a company's income tax obligation, the income after tax is multiplied by the company's tax rate.

Cash; Unearned Revenue

When Pizza Company sells three $100 gift cards at the beginning of the month, it should record a $300 debit to ______ and a $300 credit to ______.

debit to Unearned Revenue and credit to Revenue

When a company provides services previously recorded as unearned revenue, it records a ______,

The post-closing trial balance is an internal report prepared as the last step in the accounting cycle.

Which of the following statements is true regarding the post-closing trial balance?

Taxes incurred but not yet paid to the government as of the end of the accounting period Wages incurred but not yet paid to employees as of the end of the accounting period

Which of the following transactions constitute an accrual adjustment involving an expense account?

After posting the adjusting entry to record revenues earned but not yet collected, which account will be increased?

accounts receivable

After the adjustments have been recorded, the adjusted balance in the Prepaid Rent account represents the _______.

amount of the prepayment that remains towards future rental periods

If a company debits Interest Receivable and credits Interest Revenue, it must be recording ______.

amounts earned from its investments but not yet collected

Prepaid rent is ______.

an asset and represents rent paid for in advance

The 3 variables needed to calculate interest are the ______.

annual interest rate time period covered in the interest calculation principal

Adjustments ensure that _____ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.

asset

The effect on the accounting equation of the adjusting entry to record the amount of prepaid expenses used during the period causes ______.

assets to decrease stockholders' equity to decrease

After the adjustments have been completed, the balance in the Rent Expense account represents the __________.

cost of rent for the accounting period

Which of the following entries records the adjustment for income tax accrued, but not yet paid?

debit income tax expense and credit income tax payable

During the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account be _______ (debited or credited.)

debited

The closing process requires ______.

debiting the revenue accounts debiting retained earnings when there is a net loss Crediting the expense accounts crediting the retained earnings when revenues are greater than expenses

The _____________ recognition principle requires an adjustment for salaries and wages expense incurred during the accounting period that will be paid in the future accounting period.

expense

In the closing process, the closing entry zeros out each _______account by crediting it and zeros out each_______- account by debiting it, and records the difference in retained earnings.

expense revnenue

T or F: To calculate a company's income tax obligation, the income after tax is multiplied by the company's tax rate.

false

True or false: The term "defer" means "in advance."

false it means to postpone

As of December 31, the end of the accounting period, $700 of salaries and wages owed to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, Salaries and Wages Payable will ______ by $700 and Salaries and Wages ______ will increase by $700.

increase; expense

When making deferral adjustments to record the amount used during the period for items such as Prepaid Insurance or Supplies, the debit will ________ a(n) ________ account.

increase; expense

_____ expense accumulates or accrues throughout the accounting period on notes payable.

interest

After the adjustments have been completed, the adjusted balance in the Interest Payable account represents ________.

interest that has accrued, but has not been paid, at the end of the period

__________ is defined as "cost of borrowing money" since the account represents a cost incurred from borrowing money. It is classified as a _________ account under stockholders Equity.

interest; expense

interest; expense

is defined as the "cost of borrowing money." Since the account represents a cost incurred on borrowed money, it is classified as a(n) account under stockholders' equity.

Miss Take, the accountant, forgot to record the interest owed at the end of the accounting period. As a result of this error, ______.

liabilities will be understated stockholders' equity will be overstated

Adjustments ensure that liabilities are reported as all amounts ______ at the end of the accounting period.

owed

The adjusting entry for income taxed records income tax that is incurred and ________ by the company.

owed

After the adjustments have been completed the adjusted balance in the wages payable account represents wages earned by employees, but not yet ______ by the company.

paid

Select all accounts on an unadjusted trial balance that may require an adjusting entry.

prepaid expenses supplies unearned revenue

Adjustments to revenue accounts at the end of the accounting period are made to adhere to accrual accounting principles, specifically the ______ principle.

revenue recognition

Which of the following statements are correct regarding the adjustment for salaries and wages accrued but not paid at the end of the accounting period?

salaries and wages expense will increase by the amount of the unpaid salaries and wages

Miss Hap, the company's accountant, forgot to make the adjusting entry to record the amount of prepaid expenses used during the period. As a result ______.

stockholders' equity will be overstated assets will be overstated

The adjustment for supplies used during the period will result in a debit to the ______ account and a credit to the ________ account.

supplies expense; supplies

After the adjustments have been completed, the adjusted balance in the Accumulated Depreciation account represents the ______.

total depreciation taken on the long-lived assets since their purchase

After the adjustments have been completed, the adjusted balance in the Income Tax Expense account represents ______.

total income tax that has been paid or accrued during the period

T or F: The adjusting entry to record depreciation does not directly reduce the long-lived asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.

true

what is a good starting point for determining which accounts require adjustment?

unadjusted trial balance

which of the following account balances will typically be reduced as a result of adjusting entries?

unearned revenue; prepaid rent; supplies

After the adjustments have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies ______

used during the accounting period

Why is it necessary to make adjustments to revenue accounts at the end of the accounting period?

-Payments received in advance and originally recorded as a liability should be reduced for any portion earned during the current period. -Revenues earned at the end of the period that have not been billed two accounts receivable should be recorded as a revenue

Which of the following account balances will typically be reduced as a result of adjusting entries?

-Unearned Revenue -Supplies -Prepaid Rent

accrued expenses

Adjusted for amounts incurred, but not yet paid

deferred expense

Adjusted for amounts used that were paid for in advance

deferred expenses

Adjusted for amounts used that were paid for in advance

Which of the following adjusting entries will increase Net Income and hence may tempt management to misstate the estimated amount?

Adjusting both: accrued revenues deferred revenues

Which of the following adjusting entries will increase Net Income and hence may tempt management to misstate the estimated amount?

Adjusting deferred revenues Adjusting accrued revenues

update the accounts to their proper balances and are needed in order to measure the period's net income or loss

Adjusting entries ______.

Deferred Revenue Unearned Revenue A liability

Amounts collected in advance of being earned are recorded as _______.

Unearned Revenue A liability Deferred Revenue

Amounts collected in advance of being earned are recorded as _______.

If a company debits Unearned Revenue and credits Revenue, it must be recording ______.

Amounts earned that were collected in advance

In recording an accrual adjustment to account for revenues earned but not yet collected, _______.

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

decrease

Balance sheet accounts, such as Supplies or Prepaid rent, ?(increase/decrease) as a result of deferral adjustments.

50

Burrows, Inc. borrowed $10,000 on a 6-month note payable at 6% annually. The amount of interest incurred in one month equals $?

Interest Recievable

Chip & Dale, Inc. makes an adjusting entry at the end of the accounting period on investments it owns. As a result, it will show which account on its balance sheet?

Deferral Adjustment

Examples: -Supplies for office use were purchased during the year for $500, of which $100 remained on hand (unused) at year-end. -Redeemed a gift card for $600 services.

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest ____" and a credit to "Interest ____"

Expense; Payable

3400

For the current year ended, Textable, Inc.'s multi-step income statement reports gross profit of $80,000, operating income of $60,000 and a pretax income of $10,000. Textable's income tax rate is 34%. Income Tax Expense for the year equals $

Deferral adjustments decrease assets and increase expenses.

How do deferral adjustments for prepaid expenses—such as rent—that were initially recorded as assets affect assets and expenses?

Retained Earnings on the statement of stockholders' equity will be overstated Total stockholders' equity on the balance sheet will be overstated

If there is an error in recording an adjusting entry on the income statement causing Net Income to overstated, then ______.

Miss Step, the bookkeeper, forgot to record the adjusting entry for some accrued expenses during the period. This will cause which of the following items on the statement of stockholders' equity to be in error?

Net income will be overstated. Ending retained earnings will be overstated.

Which balance sheet account would most likely require an adjusting entry to avoid understating liabilities?

Notes Payable

net book value

Property and equipment, net is reported on the balance sheet at the ______.

Which of the following statements is incorrect regarding the need to make accrual adjustments at the end of the accounting period?

The Cash account should be adjusted for the effects or accrued revenues and expenses during the accounting period

Expense; Payable

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest " a credit to "Interest

Income statement Statement of stockholders' equity Balance sheet

The adjusting entry to record revenues earned, but not yet billed (accrued revenues), affects which of the following financial statements?

False

True or false: Wages Receivable is the account used to record wages owed to employees for work performed during the current period.

Total liabilities will increase and total stockholders' equity will decrease.

What are the effects on the accounting equation from the adjusting entry for interest expense accrued, but not paid, at the end of the accounting period?

Total assets will decrease and total stockholders' equity will decrease.

What are the effects on the accounting equation from the adjustment for depreciation?

Total liabilities will increase and total stockholders' equity will decrease.

What are the effects on the accounting equation from the adjustment for wages incurred, but not yet paid, during the accounting period?

Total assets will increase and total stockholders' equity will increase.

What are the effects on the financial condition of the business from the adjustment for revenues earned, but not yet collected, during the accounting period?

When a company provides services previously recorded as unearned revenue, it records a ______,

debit Unearned Revenue Credit Revenue

The adjusting entry to record depreciation on equipment includes a _________.

-debit to Depreciation Expense -credit to Accumulated Depreciation

As the revenue is earned, it is removed from the Unearned Revenue account and transferred into a revenue account.

Why is the Unearned Revenue account reduced during the adjustment process?

The adjusting entry to record the supplies used during the period will result in a(n) ______.

decrease to supplies and an increase to the Supplies Expense account

Which of the following transactions constitute an accrual adjustment involving an expense account?

-Wages incurred, but not yet paid to employees, at the end of the accounting period. -Taxes accrued, but not yet paid to the government, at the end of the accounting period.

As of December 31, the un-adjusted balance in unearned revenue contains $5,600 for un-redeemed gift cards. An analysis of the monthly sales indicates that $3,200 gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period?

-Unearned Revenue needs to be decreased by the amount of gift cards redeemed during the month. -Sales Revenue needs to be increased by the amount of gift cards redeemed during the month.

200;200;600

Bristol, Inc. paid $800 for a 4-month insurance policy on August 1 of the current year. On August 31, Bristol, Inc. made an adjusting entry to account for the insurance that expired during the month of August. The adjusting entry contained a debit to Insurance Expense in the amount of $? and a credit to Prepaid Insurance in the amount of $?. The remaining balance in the Prepaid Insurance account after the adjustment was $?

10

Burrows, Inc. borrowed $1,000 on a 12%, 1-year note payable. The amount of interest incurred in one month equals $?

Accrual Adjustment

Examples: -Interest of $250 on a note receivable was earned at year-end, although collection of the interest is not due until the following year. -At year-end, salaries and wages payable of $3,600 had not been recorded or paid. -At year-end, one-half of a $2,000 advertising project had been completed for a client, but nothing had been billed or collected.

the liability recorded when cash was received is decreased by the adjustment for the revenue being earned

In a deferral adjustment for revenues collected in advance that are now earned, ______.

postpone

In accrual accounting, to defer means to ? recording the other side of the cash transaction as a revenue or expense. Instead the other side of the cash entry is recorded as liability or prepaid.

The adjusting entry to record revenues earned, but not yet billed (accrued revenues), affects which of the following financial statements?

Income statement Statement of stockholders' equity Balance sheet

stockholders' equity will be overstated liabilities will be understated

Miss Take, the accountant, forgot to record the interest owed at the end of the accounting period. As a result of this error, ______. (Select all that apply.)

Debit Rent Expense

Which action will be taken in the adjusting entry to record rent expense that has expired during the month? (Assume that the rent was paid in advance and previously recorded as an asset.)

equipment buildings

Which of the following depreciate over time and require an adjusting entry at the end of the accounting period?

The original cost in the Equipment account will not change during the adjustment process.

Which of the following statements is correct regarding a noncurrent asset such as equipment?

Interest is classified as an expense since it is a cost of borrowing.

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

Sterling Company paid $1,200 for 3 months of rent on April 1 of the current year. On April 30 Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry included a debit to Rent Expense in the amount of __________ and a credit to Prepaid Rent in the amount of ____________. The remaining balance on Prepaid Rent account after the adjustments is____________.

$400 (The rent used during April is $1,200/3 months) $400 (The asset account is reduced by one month's rent which equals $1,200/3 months) $800 (The rent used during April is $1,200/3 months leaving only 2 months of unexpired rent in the asset account)

Which of the following accounts found on an unadjusted balance typically require adjusting entries?

-supplies -prepaid rent -interest payable

For a note receivable that was created on November 1, 2018 and is due for repayment on October 31, 2019, what is the time fraction needed to compute interest revenue for the year ended December 31, 2018?

2/12

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

22000

____ is the process of allocating the cost of buildings, vehicles, and equipment to the accounting periods in which they are used.

depreciation

The adjusting entry to record the amount earned that previously had been collected in advance will ______.

decrease liabilities and increase revenues

The deferral adjustment to record the amount of unearned service revenue that is now earned includes a ______.

-Credit to service revenue -Debit to unearned revenue

balance sheet and statement of cash flows

What statements is cash listed on

After the adjustments have been completed, the balance in the Rent Expense account represents the ______.

cost of rent for the accounting period

Accumulated Depreciation has a normal _______ balance which indicated that it _______ Total Assets.

credit; decreases

Adjusting entries are made at the _____ of the accounting period, while daily transactions are made throughout the accounting period.

end

Which type of adjusting entry recorded last because the amount is calculated after taking into account effect on net income of all other adjustments recorded at the end of the period?

income tax incurred

The balance in the Prepaid Insurance account after the adjusting entries have been recorded represents the _____.

value of the insurance prepayment that remains to benefit future periods

Total liabilities will decrease and total stockholders' equity will increase.

What are the effects on the accounting equation from the adjustment for revenue earned during the accounting period that had previously been recorded as a liability?

When recording closing entries, temporary accounts with debit balances are ______ and those with credit balances are ______.

credited; debited

jounral

Entries are first recorded in the general ? and then summarized in the ledger.

assets and stockholders equity to be overstated

Miss Hap, the bookkeeper, forgot to record the depreciation for the year. This error will cause ______.

Net income and ending retained earnings will be overstated

Miss Step, the bookkeeper, forgot to record the adjusting entry for some accrued expenses during the period. This will cause which of the following items on the statement of stockholders' equity to be in error?

Balance Sheet

Which financial statement reports the amount of supplies on hand at the end of the accounting period?

Supplies Expense; Supplies

The adjustment for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.

Adjusting entries are made at the _______ of the accounting period, while daily transactions are made throughout the accounting period.

end

After the adjustments have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies _______.

used during the accounting period

Sales Revenue needs to be increased by the amount of gift cards redeemed during the month. Unearned Revenue needs to be decreased by the amount of gift cards redeemed during the month.

As of December 31, the unadjusted balance in Unearned Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 worth of gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period?

liquidity; due dates

Assets are listed in order of ______ and liabilities are in order of ______ on the balance sheet

When are adjusting entries recorded?

At the end of the accounting period prior to preparing the financial statements

which of the following line items are found on a statement of retained earnings?

-net income -dividends

At the end of the accounting period, adjusting entries are required. Place the steps in the adjustment process in the correct order.

1. using the unadjusted trial balance, determine the accounts requiring adjustment 2. record and post adjusting entries 3. prepare an adjusted trial balance to check the equality of the debits and credits 4. prepare financial statements 5. record and post-closing journal entries 6. prepare a post-closing trial balance

the same amount for both notes

Burrows, Inc. borrowed $1,000 on a 3-month note payable and $1,000 on a 6-month note payable both at 12% annually. The amount of interest incurred in one month will be ______.

deferred; accrued; accrued; deferred

1. ? revenues result in Unearned Revenue when cash is collected in advance of being earned. 2. ? revenues result in Accounts Receivable when revenue is earned prior to collection. 3. ? expense result in a liability when an expense is incurred prior to being paid. 4. ? expense result in an asset when cash is paid in advance. (Enter one word per blank.)

Depreciation

? Expense should be recorded to recognize the use of and benefit received from long-lived assets, such as equipment, during the accounting period.

accrued; deferred

? adjustments are used when cash has not been exchanged in a prior transaction, and ? adjustments are used when cash has been exchanged in a prior transaction.

accrued

? adjustments involve adjusting entries where the revenue has been earned or the expense has been incurred, and the cash will be collected or paid in the future.

expenses the amount used during the period

A deferral adjusting entry that adjusts assets (such as Prepaid Insurance) ______.

revenue

Accrual adjustments to record amounts earned but not yet collected include a debit to an asset account and a credit to a(n) ? accountRe

deferred revenue

Adjusted for amounts earned that were collected in advance

deferred revenues

Adjusted for amounts earned that were collected in advance

accrued revenue

Adjusted for amounts earned, but not yet collected

accrued revenues

Adjusted for amounts earned, but not yet collected

accrued expense

Adjusted for amounts incurred, but not yet paid

end

Adjusting entries are made at the ? of the accounting period, while daily transactions are made throughout the accounting period. (Enter one word per blank.)

asset

Adjustments ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.

Supplies expense on the income statement reports the amount of supplies used during the accounting period. Supplies on the balance sheet reports the amount of supplies on hand at the end of the accounting period.

After adjusting entries have been recorded, select which statements are true regarding supplies.

on hand at the end of the accounting period

After the adjustments have been completed, the Supplies account on the balance sheet represents the cost of supplies ______.

the sales or services still owed to the customer

After the adjustments have been recorded, Unearned Revenue on the balance sheet reports the amount of ______.

Interest receivable

Chip & Dale, Inc. makes an adjusting entry at the end of the accounting period on investments it owns. As a result, it will show which account on its balance sheet?

Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.

How does the timing of adjusting entries differ from the accounting for daily transactions?

amounts earned from its investments but not yet collected

If a company debits Interest Receivable and credits Interest Revenue, it must be recording ______.

$1,000 of revenue should be recorded in June.

In May, Sea the World Cruises, Inc. collected $1,000 cash from a customer for services to be performed in June. Which of the following is true assuming accrual accounting?

Stockholders' equity is understated. Assets are understated.

Miss Take, the bookkeeper, forgot to record the adjusting entry for revenues earned during the period, but not yet collected. What is the effect of this error on the accounting equation?

39500

On January 1, Squid Roe, Inc. had a supplies balance of $1,500. During the year, it purchased $40,000 of supplies on credit, of which $30,000 was paid. At the end of the year, it had $2,000 of supplies on hand. The amount of Supplies Expense for the year end December 31 equals $

On July 31, an adjusting entry should be recorded that debits Unearned Revenue and credits Service Revenue for $1,000.

On July 1, Squid Roe, Inc., collected cash in advance from a customer in July for services to be performed in July, August and September and recorded a debit to Cash and credit to Unearned Revenue for $3,000. Which of the following is the proper treatment of this event assuming monthly financial statements are prepared?

Assets increase and stockholders equity increases

Show the effect of the adjusting entry for interest earned on a note receivable.

subtracting the supplies on hand from the beginning supplies plus supplies purchased during the period

Supplies Expense can be calculated by ______.

decrease; increased

Supplies should be ______ and Supplies Expense should be ______ for supplies used during the period.

is where transactions are first recorded does not provide account balances is where the effects of each transaction is recorded chronologically

The general journal, also known as the journal, ______.

False

True or false: When referring to supplies, the term "on hand" refers to supplies that have been used up during the accounting period.

balance sheet as a liability

Unearned revenue appears on the ______.

Income Statement

Which financial statement reports the amount of supplies used during the accounting period?

Adjusting for depreciation on equipment Adjusting for amounts used that were paid in advance

Which of the following adjusting entries will decrease assets and stockholders' equity?

Decrease to Supplies and increase to Supplies Expense Decrease to Prepaid Insurance and increase to Insurance Expense

Which of the following types of transactions represent deferral adjustments that are recorded to adjust for amounts expired or used during the period?

Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes. Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results. Adjustments ensure that the revenues earned and expenses incurred during the period are reflected in the income statement.

Why are the adjustments important to the preparation of the financial statements?

Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.

Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account?

400

On May 1, Buy & Large, Inc. had a supplies balance of $100. During May, it purchased $500 of supplies on credit. At the end of May, there were $200 of supplies on hand. The amount of Supplies Expense for the month of May equals

1. Prepare an unadjusted trail balance to determine if debits equal credits 2. Record the adjusting entries in the journal 3. Post the adjusting journal entries to the ledger 4. Prepare the financial statements 5. Record the closing entries in the journal 6. Post the closing entries to the ledger

Place the steps in the adjustment process at the end of the accounting period in the correct order.

balance sheet as an asset

Prepaid expenses appear on the ______.

an asset and represents rent paid for in advance

Prepaid rent is ______.

credit to Investment Income debit to Interest Receivable

The adjusting entry for interest earned on a note receivable includes a ______.

credit; debit

The adjusting entry for supplies used during the period requires a (debit or credit) to Supplies and a (debit or credit) to Supplies expense.

debit; credit

The adjusting entry to record the amount of prepaid insurance used during the period requires a to Insurance Expense and a to Prepaid Expenses.

debit; credit

The adjusting entry to record the amount of revenue earned that had been collected in advance requires a(n) (debit/credit) to Unearned Revenue and a(n) (debit/credit) to Sales Revenue

decrease to Supplies and an increase to Supplies Expense

The adjusting entry to record the supplies used during the period will result in a(n) ______.

increase

The adjustment for supplies used during the period will result in a(n) ______ to the Supplies Expense account.

True

True or false: The adjusting entry to record depreciation does not directly reduce the noncurrent asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.

Depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company.

What is the purpose of the depreciation adjustment for long-lived assets?

Accumulated Depreciation and Depreciation Expense

When recording an adjustment for the use of equipment during the current accounting period, which two accounts are affected?

called Accounts Receivable is increased since cash will be received in the future

When recording revenue earned during the period but not yet collected, an asset ______.

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

When should supplies be recorded as an expense?