Accounting Chapter 4 Individual Review

the closing entry process consists of closing:

all temporary accounts

depreciation is the process of:

allocating the cost of an asset to expense over its useful life in rational and systematic manner

Can financial statements be prepared directly from the adjusted trial balance?

yes, adjusting entries have been recorded in teh general ledger adn posted to the ledger accounts

the revenues recognition principle dictates that revenue should be recognized in the accounting records:

when the performance obligation is satisfied

if a company fails to adjust an unearned rent revenue account for rent that has been earned, what effect will this have on that month's financial statements?

liabilities will be overstated and revenues will be understated

Accounts often need to be adjusted because

many transactions affect more than one time period

at december 31, 2014, before any year-end adjustments, Dallis Company's prepaid insurance account has a balance of $2,900. it was determined that $1,300 of the prepaid insurance had expired. The adjusted balance for insurance expense for the year would be

$1,300

Amos Real Estate signed a four-month note payable in the amount of $16,000 on September 1. The note requires interest at an annual rate of 9%. The amount of interest to be accrued at the end of September is

$120

La More Company had the following transactions during 2013: • Sales of $4,500 on account • Collected $2,000 for services to be performed in 2014 • Paid $1,875 cash in salaries for 2013 • Purchased airline tickets for $250 in December for a trip to take place in 2014 What is La More's 2013 net income using accrual accounting?

$2,625

given the data below for a firm in its first year of operation, determine net income under the cash basis of accounting -revenue earned: $16,000 -accounts receivable: $3,000 -Expenses incurred: $7,250 -accounts payable: $750 -supplies purchased with cash: $1,800

$4,700

given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting -revenue earned: $16,000 -accounts receivable: $3,000 -Expenses incurred: $7,250 -accounts payable: $750 -supplies purchased with cash: $1,800

$8,750

Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?

August 31

unearned revenues are:

a. received and recorded as liabilities before they are recognized

Adjusting entries can be classified as:

accruals and deferrals

the general item employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is:

accrued

if a company fails to adjust a prepaid rent account for rent that has expired, what effect will this have on that months financial statements?

assets will be overstates and net income and stockholders equity will be overstated

Why was Apple required to spread their iPhone revenues over a two year period?

because they were required to provide software updates over that 2 year period

the difference between the balance of a plant asset account and the related accumulated depreciation account is termed:

book value

a gift shop signs a 3-month note payable to help finance increases in inventory for the Christmas shopping season. the note was signed on November 1 in the amount of $30,000 with annual interest of 6%. what is the adjusting entry to be made on december 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?

debit interest income: 300 credit interest payable: 300

The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $1,000 on hand. The adjusting entry that should be made by the company on June 30 is:

debit laundry expense: 5,500 credit laundry supplies: 5,500

an adjusting entry can include a:

debit liability, credit revenue

on july 1 the fisher shoe store paid $18,000 to acme realty for 6 months rent beginning july 1. prepaid rent was debited for the full amount. if financial statements are prepared on July 31, the adjusting entry to be made by the fisher shoe store is:

debit rent expense: 3000 credit prepaid rent: 3000

if a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be:

debit unearned service revenue, credit service revenue

If a company fails to make an adjusting entry to record supplies expense, then:

expense will be understated

Adjusting entries are made to ensure that:

expenses are recognized in the period in which they are incurred -revenues are recorded in the period in which the performance obligation is satisfied -balance sheet and income statement accounts have correct balances at the end of an accounting period

if a company fails to adjust for accrued expenses, what effect will this have on that month's financial statements?

expenses will be understated and net income and stockholder's equity will be overstated

accrued expenses are:

incurred but not yet paid or recorded

adjusting entries are:

needed to ensure that the expense recognition principle is followed:

Masterfalls Corporation purchased a one-year insurance policy in January 2013 for $30,000. The insurance policy is in effect from March 2013 through February 2014. If the company neglects to make the proper year-end adjustment for the expired insurance

net income and assets will be overstated by $25,000

At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?

net income will be overstated for the current year

a company spends $20 million for an office building. Over what period should the cost be written off? -when the 20 million is expended in cash -all in the first year -after 20 million in revenue is earned -none of these answer choices are correct

none of these answer choices are correct

adjusting entries affect at least:

one income statement account and one balance sheet account

a post-closing trial balance will show

only balance sheet accounts

An adjusted trial balance

proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made

which of the following would be unethical?

recording backdated revenue

which of the following accounts will reflect the accounts beginning balance on the adjusted trial balance?

retained earnings

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause

revenues to be understated