ACCT- Chapter 3

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ____.

$22,000

On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?

$35,910

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?

A company pays for 4 months of advertising in the Wall Street Journal on November 1. A company pays a 6-month insurance premium at the beginning of October.

When do prepayments involve cash flows?

Before the revenues and expenses are recognized.

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

False

Which of the following would be referred to as "accruals"?

Goods and services provided, not yet collected Expenses incurred, not yet paid

When should supplies be recorded as an expense?

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

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months.

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show:

Prepaid rent of $22,000 and Rent expense of $2,000

Which of the following transaction would normally be recorded as an asset when cash is paid?

Rent paid in advance

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?

Taggert will debit Insurance Expense for $300 on Dec. 31. Taggert will credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.

True or false: Accruals involved cash flows occurring after the revenues and expenses are recognized.

True

Consistent with the ______-basis of accounting, we record revenue when we provide goods and services to customers, and we record expenses in the period that costs are used to provide those goods and services.

accrual

A prepayment that is originally recorded as an asset will be ____.

allocated to future accounting periods on the cost of the asset used during the period

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the _____.

amount of the prepayment that remains towards future rental periods

The adjusting entry for supplies used during the period will result in ____ to the Supplies Expense account.

an increase

A prepayment such as "Prepaid Insurance" is originally recorded as an ____ when an insurance policy is purchased and will later be expensed in the period used.

asset

Adjusting entries ensure that ____ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset

Neumann Corporation purchases supplies that will be used during the following quarter, At the time of purchase, the supplies should be recorded as an

asset

Supplies that are not used immediately are recorded as an ____ when purchased.

asset

A prepayment such as "Prepaid Insurance" is originally recorded as an _____ when an insurance policy is purchased and will later be expenses in the period used.

asset or debit

Prepaid rent appears in the _____.

balance sheet because it is an asset

Reporting revenues only when cash is received and expenses only when cash is paid is called the ____ basis of accounting.

cash

Reporting revenues only when cash is received and expenses only when cash is paid is called the _____ basis of accounting.

cash

After the adjusting entries have been completed, the balance in the Rent Expense account represents the:

cost of rent for the accounting period

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes:

debit to Insurance Expense credit to Prepaid Insurance

The adjusting entry for prepaid rent requires an ____ to Rent Expense and an ____ to Prepaid Rent.

debit; credit

Prepaid expenses should be ____ by the cost of the asset used during the accounting period.

decreased

Supplies should be _____ and Supplies Expense should be ____ for the cost of supplies used up during the period.

decreased; increased

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

end

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as an ______ in the period the benefit expires.

expense

The adjusting entry for a prepaid expense includes a debit to an _____ account and a credit to an ______ account.

expense; asset

Adjusting entries help to ensure that all ____ are recorded in the period in which they are incurred.

expenses

Under cash-basis accounting,

expenses are recorded when cash is paid. revenues are recorded when cash is received.

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid