Acounting- Chapter 4 and 5

adjustments can be grouped into two categories:

(1) deferrals and (2) accruals.

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to: Interest Payable and credit to Interest Expense. Interest Expense and credit to Interest Payable. Interest Receivable and credit to Interest Receivable. Interest Expense and credit to Notes Payable.

A company incurs interest each month on its unpaid note payable. An adjustment is needed to record the Interest Expense relating to the current accounting period and, because this interest has not yet been paid, the adjustment also must record a liability called Interest Payable. The entry includes a debit to Interest Expense and a credit to Interest Payable.

The annual depreciation taken on a vehicle totals $4,700. The vehicle has been in service for two full years and the adjusting entries have been completed for the year. At the end of the second year, the balance in the Depreciation Expense account is $__________ and the balance in the Accumulated Depreciation account is $__________. $4,700; $4,700 $4,700; $9,400 $9,400; $4,700 $9,400; $9,400

Accumulated Depreciation is a balance sheet account and Depreciation Expense is an income statement account. As a balance sheet account, Accumulated Depreciation will increase over time as it accumulates the depreciation of each period since the asset was purchased. At the end of the second year, that account balance will equal $9,400 (or $4,700 × 2 years). As an income statement account, Depreciation Expense will include only the depreciation of the current accounting year, which is $4,700.

Deferred Revenue, which represents the company's obligation to honor gift cards previously issued to customers, totaled $6,700 at the beginning of the year and $9,900 at the end of the year. Customers purchased gift cards amounting to $54,000 during the year. What was the amount of gift cards redeemed by customers during the year? $50,800 $57,200 $70,600 $37,400

Ending Deferred Revenue = Beginning Deferred Revenue + Gift cards sold − Gift cards redeemedGift cards redeemed = Beginning Deferred Revenue + Gift cards sold − Ending Deferred Revenue= $6,700 + $54,000 − $9,900 = $50,800

Ridge Crest Company has beginning Retained Earnings of $29,000, ending Retained Earnings of $36,200, and net income of $18,500. What was the amount of dividends declared during the year? $11,300 $10,500 $7,200 $18,500

Ending Retained Earnings = Beginning Retained Earnings + Net income − DividendsDividends = Beginning Retained Earnings + Net income − Ending Retained Earnings= $29,000 + $18,500 − $36,200 = $11,300

Grizzly Company had Retained Earnings at December 31, 2022 of $219,000. During 2023, the company had revenues of $419,000 and expenses of $359,500, and the company declared and paid dividends of $12,900. Retained earnings on the balance sheet as of December 31, 2023 will be: $46,600. $265,600. $325,100. $278,500.

Net income = Revenues − Expenses= $419,000 − $359,500 = $59,500Ending retained earnings = Beginning retained earnings + Net income − Dividends= $219,000 + $59,500 − $12,900 = $265,600

On December 1, 2022, Shamrock Company received $4,200 from Destiny, Incorporated for rent of an office owned by Shamrock Company. The payment covers the period from December 1, 2022 through February 28, 2023. Shamrock Company recorded this as Deferred Rent Revenue when it was received on December 1. The adjusting entry on December 31 would include a: credit to Rent Revenue of $1,400. credit to Deferred Rent Revenue of $1,400. debit to Rent Revenue of $2,100. debit to Deferred Rent Revenue of $2,100.

One month of the three months covered by the rent payment has elapsed. The adjusting entry will include a debit to Deferred Revenue and a credit to Rent Revenue for $1,400 [($4,200 ÷ 3 months).

Deferral adjustments are needed when the business:

Pays cash before the expense has been incurred, and receives cash before the revenue has been generated. Explanation: The word defer means to postpone until later. In accounting, we say an expense or revenue has been deferred if we have postponed reporting it on the income statement until a later period. Previously deferred amounts exist on the balance sheet because the company paid cash before incurring the expense or received cash before earning revenue. When revenues are generated (as defined by the revenue recognition principle) or expenses incurred (as defined by the expense recognition principle), the previously deferred amounts are adjusted and amounts are transferred to the income statement using a deferral adjustment.

The asset account Office Supplies has a balance of $810 at the beginning of the year. The amount on hand at the end of the year is $520. The company has calculated the Supplies Expense for the year to be $3,700. Based on this information, what amount of office supplies was purchased during the year? 3,410 $0 $3,180 $4,220

Supplies expense (used) = Beginning balance + Supplies purchased − Supplies on hand at end of periodSupplies purchased = Supplies expense (used) − Beginning balance + Supplies on hand at end of period= $3,700 − $810 + $520 = $3,410.

The Prepaid Insurance account has a normal balance of $5,625 at the beginning of the month. The company used $1,470 of insurance coverage during the month. Which of the following statements is correct? Multiple Choice The company should credit Insurance Expense for $1,470 and debit Prepaid Insurance for $1,470. Retained earnings will decrease and stockholders' equity will increase. The company should debit Insurance Expense for $1,470 and credit Prepaid Insurance for $1,470. Retained earnings and stockholders' equity will both increase.

The adjusting entry will include a debit to Insurance Expense and a credit to Prepaid Insurance for $1,470, the amount of insurance coverage used. Insurance Expense will increase as a result of this adjusting entry, which means that net income will decrease and, as a result, Retained Earnings will decrease. Retained Earnings is a component of stockholders' equity, so stockholders' equity will also decrease.

Bakersfield Corporation pays income tax at an average rate of 40 percent. This year its revenue is $104,000 and its expenses are $72,000. The adjusting entry to record the income tax expense will: decrease net income by $32,000. increase stockholders' equity by $12,800. decrease stockholders' equity by $12,800. decrease liabilities by $12,800.

The related adjusting entry will increase liabilities (Income Tax Payable) and also increase expenses (Income Tax Expense) by $12,800 [or ($104,000 − $72,000) × 40%]. The increase to expenses will decrease net income and, as a result, stockholders' equity.

Which of the following statements about accrual adjustments are true?

There are two key things to remember when preparing accrual adjustments to recognize an expense or a revenue. First, accrual adjustments are used to increase balance sheet accounts and increase corresponding income statement accounts. Second, each accrual adjustment involves one liability and one expense account or one asset and one revenue account.

Which of the following statements about deferral adjustments are true?

They are used to decrease balance sheet accounts and increase corresponding income statements accounts and each deferral adjustment involves one asset and one expense account or one liability and one revenue. There are two key things to remember when preparing deferral adjustments. First, deferral adjustments are used to decrease balance sheet accounts and increase corresponding income statement accounts.Second, each deferral adjustment involves one asset and one expense account or one liability and one revenue account.

Why are adjustments made to the accounting records at the end of the period?

To ensure assets and liabilities are reported at appropriate amounts and, To ensure the related revenues and expenses are reported in the proper period. Explanation: Adjustments are made at the end of every accounting period to report revenues and expenses in the proper period and assets and liabilities at appropriate amounts.

On January 1, the Sleepy Monk Coffee Shop paid $15,000 for a full year of rent beginning on January 1. The rent payment was appropriately recorded in the Cash and Prepaid Rent accounts. If financial statements are prepared on January 31, the journal entry to record the adjustment would be: Debit Rent Expense and credit Prepaid Rent for $1,250. Debit Rent Expense and credit Prepaid Rent for $15,000. Debit Prepaid Rent and credit Rent Expense for $15,000. Debit Prepaid Rent and credit Rent Expense for $1,250.

When the company first made the payment, it provided an economic resource to the company (building space for twelve months), so it was initially recorded as an asset called Prepaid Rent. At January 31, one month has passed. The adjusting entry will include a debit to Rent Expense (to increase this expense account) and a credit to Prepaid Rent (to decrease this asset account) for $1,250 [or ($15,000 ÷ 12 months) × 1 month].

Accrual adjustments are needed when the business:

pays cash after expenses have been incurred and receives cash after the revenue has been generated Accrual adjustments are needed when a company has generated revenue or incurred an expense in the current period but has not yet recorded it because the related cash will not be received or paid until a later period.