Chapter 3

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

Accumulated Depreciation and Depreciation Expense

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

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

Accumulated Depreciation has a normal balance which indicates that it reduces total assets.

Contra

On a classified balance sheet, total liabilities represent the sum of ---- and long-term liabilities. (Enter only one word.)

Current

Expense should be recorded to recognize the the cost of using long-lived assets, such as equipment, during the accounting period. (Enter one word per blank.)

Depreciation

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

Expense

Which of the following statements regarding the statement of cash flows are correct?

Reports cash receipts The final financial statement that is typically prepared Reports cash disbursements

Which activities are part of the operating cycle?

Selling goods and services Collecting cash from customers Paying cash to suppliers

Which of the following financial statements typically is prepared last?

Statement of cash flows

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

What are the effects on the accounting equation when an adjusting entry is made for goods or services provided during the accounting period related to an amount previously received in advance from a customer?

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

Which of the following statements is correct regarding a long-lived asset such as equipment?

When adjusting entries are recorded, the original cost in the Equipment account will not change.

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

cost of rent for the accounting period

Andy records an adjusting entry for deferred revenue. Andy should:

credit a revenue account debit a liability account

An adjusting entry for accrued expenses involves:

credit to a liability debit to an expense

The adjusting entry for prepaid rent requires a(n) BLANK to Rent Expense and a(n) BLANK to Prepaid Rent.

debit, dr, or increase credit, cr, or decrease

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

decreased

The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____.

depreciation expense; accumulated depreciation

Sabrina Company recorded an adjusting entry for salaries owed to employees at the end of the year. As a result of this entry, Sabrina Company's:

equity decreases liabilities increase

The adjusting entry to record salaries owed to employees at the end of the accounting period includes a debit to "Salaries" and a credit to "Salaries"

expense payable

The two major categories reported in the income statement are:

expense revenue

An adjusting entry is necessary to record interest expense at year-end because the interest:

has already been incurred

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as ---- expense

interest

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following? (Select all that apply.)

liability prepaid expense

The adjusting entry for a deferred revenue includes a debit to a(n) account and a credit to a(n) account.

liability revenue

The information reported in the statement of cash flows is organized by these activities:

operating financing investing

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period.

owed

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

A company may properly classify an asset that provides benefits for 15 months as a current asset if

the company's operating cycle is longer than one year.

With respect to current assets, refers to how quickly an asset can be converted to cash.

liquid

is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.

Depreciation

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

decreased; increased

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

Rent paid in advance

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

The adjusting entry for supplies used requires a BLANK to Supplies and a BLANK to Supplies Expense.

Credit Debit

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

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

A classified balance sheet shows subtotals for current and current

asset liability

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

debit credit

The statement of stockholders' equity includes these amounts:

dividends for the period ending balance retained earnings net income

Which of the following statements is correct regarding a long-lived asset such as a building?

The original cost in the building account will not change when an adjusting entry is recorded for depreciation.

Which of the following accounts should be classified as stockholders' equity?

common stock retained earnings

Munster Inc. debits Deferred Revenue and credits Service Revenue. As a result of this adjusting entry, Munster's:

equity will increase liabilities will decrease

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense; asset

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

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by

adjust

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

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

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as _____.

prepaid expenses; assets

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 Reason: (($53,520/24 months) x 7 months remaining)+(($34,800/24 months) x 14 months remaining). Note that the question is asking for the Prepaid rent on the balance sheet on December 31, 2020 and not the expense on the income statement.

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

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

Asset

Which of the following expressions correctly calculates "total assets?"

Current assets plus long-term assets

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

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.

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period.

Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings?

Statement of stockholders' equity

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

As the balance in the Accumulated Depreciation increases, total assets BLANK, because Accumulated Depreciation is a(n) BLANK account.

decrease contra, negative, contra-asset, or credit

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 adjusting entries have been completed, the ending balance in the Supplies account represents the cost of supplies.

remaining at the end of the accounting period

As of December 31, the end of the accounting period, $700 of salaries to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, which two of the following will occur?

salaries expense will increase by $700 salaries payable will increase by $700

The adjusting entry 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 adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer.

After the adjusting entries have been completed, the adjusted balance in the Supplies account represents:

the cost of supplies remaining at the end of the accounting period

The sum of current and long-term assets reported on the balance sheet is referred to as

total assets

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 Rent expense of $2,000

The post-closing trial balance helps to verify that:

we prepared and posted closing entries correctly the accounts are ready for next period's transactions