Accounting 201 Test 1

______ Expense accumulates or accrues throughout the accounting period on Notes Payable.

Interest

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

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

Taggert Company paid $1800 for a 6-month insurance premium on September 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?

Taggert will be debit Prepaid insurance for $1800 on sep 1; Taggert will debit insurance expense for $300 on sept 30; Taggert will credit Prepaid Insurance for $300 on Sept 30

How does the adjustment for depreciation differ from other defferal adjustments ?

The depreciation adjustment uses a contra-account rather than reducing the asset accounts directly

Notes Receivable

The right to collect from others under a formal agreement ("note")

Accounts Receivable

The right to collect interest from others

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

Unadjusted trial balance

As of December 31, the unadjusted trial balance in Unearned Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3200 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 the gift cards redeemed during the month. Sales revenue needs to be increased by the amount of gift cards redeemed during the month.

other liabilities

a variety of liabilities with smaller balances

A prepayment that is originally recorded as an asset will be

allocated to future accounting periods based on the value of the benefit used during the period

retained earnings

amount of accumulated earnings not distributed as dividends

prepaid rent

amount paid for rent relating to future periods

Prepaid insurance

amount paid to obtain insurance covering future periods

Unearned revenues

amounts (customers deposits) received in advance of providing goods or services to customers

salaries and wages payable

amounts owed to employees for salaries wages, and bonuses

Accrued liabilities

amounts owed to other for advertising, utilities, interest, etc

intangible assets

brand names, goodwill, and other assets that lack a physical presence

buildings

cost of buildings the business will use for operation

equipment

cost of equipment used to produce goods or provide services

land

cost of land to be used by the business

software

cost of purchased computer programs and code

Equity Accounts increase with a

credit

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

end

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

expense

In the closing process, _____ are zeroed out by crediting each account and ___ are zeroed out by debiting each account

expenses and dividends; revenues

Amortization is the concept that applies to the

expensing of long-term assets that lack physical substance over their useful lives

inventory

goods on hand that are being held for resale

cash

includes cash in the bank and in the cash register

As of December 31 (the end of the accounting period), ABC company has a profit before tax of $12,000. The company's tax rate is 25%. The adjustment will include a(n) ___ of $ ____ to Income Tax Expense (Income tax expense decreases stockholder's equity and thus is debited

increase; 3000

short-term investments

investments in government securities and certificates of deposit

supplies

items on hand that will be used to make goods or provide services

Why is it necessary to make adjustments to revenue accounts at the end of the 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, but not yet billed to accounts receivable, should be recorded as a revenue

asset account

requires credit entry to decrease the account

closing entries move the balances from the ____ accounts into the Retained Earnings account.

temporary

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

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

Temporary Accounts Include

Expenses, Revenues, dividends

Sonic gateway purchased $1,000 of app software that is estimated to have four years of usefulness. The adjusting entry to record the amortization includes a debit to ____ and a credit to ____

Amortization Expense; Accumulated Amortization

Interest payable

Amount due on loans as the cost of borrowing

Common stock

Amount of cash (or other property) contributed in exchange for the company's common stock

Bonds payable

Amounts borrowed from lenders; involves issuance of bonds

Notes Payable

Amounts borrowed from lenders; involves signing a promissory note

Accounts payable

Amounts owed to suppliers for good and services bought on credit

As of December 31, $2500 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 year?

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

How do temporary accounts differ from permanent accounts?

Only temporary accounts are closed at the end of the accounting period

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

debit