Chapter 3 (accounting)

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following sentence. The required adjusting entry would be to debit the (1) (Unearned revenue/Accounts receivable/Cash/Service revenue) account and (2) (debit/credit) the (3) (Unearned revenue/Accounts receivable/Cash/Service revenue) account.

1. Accounts receivable 2. Credit 3. Service revenue

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) (1) account and (debit/credit) (2) the Interest (3) (expense/payable/receivable) account.

1. expense 2. credit 3. payable

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the next pay period. Demonstrate the required adjusting entry by completing the following sentence. To require adjusting entry would be to debit the salaries (1) (expense/payable) account and (2) (debit/credit) the Salaries (3)(payable/unearned/expense).

1. expenses 2. credit 3. payable

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the (1) (Unearned revenue/Accounts receivable/Cash/Interest receivable) account and (2) (debit/credit) the (3) (Cash/Accounts receivable/Interest revenue/Interest receivable) account.

1. interest receivable 2. credit 3. interest revenue

A post-closing trial balance is a list of (1) (permanent/temporary) accounts and their balances from the (2) (journal/ledger) (3) (after/before) all (4) (adjusting/closing) entries have been journalized and posted.

1. permanent 2. ledger 3. after 4. closing

Accrued (1) are earned in a period that are both unrecorded and not yet received in cash.

1. revenue

Accrual basis accounting recognizes (1) (equity/revenues/expenses) when earned and records (2) (revenues/expenses/liabilities) when (3) (incurred/paid) in order to adhere to the matching principle.

1. revenues 2. expenses 3. incurred

Rather than debiting an asset account, which of the following statements explains an alternate recording procedure to journalize prepaid expenses, such as prepaid rent or supplies. (Check all that apply.)

Any unused prepaids existing at end of period are transferred to asset accounts, Record all prepaid expenses with debits to expense accounts.

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December: (Select all that apply).

Debit accounts receivable, Credit services revenue

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

Debit to Insurance expense for $400, Credit to Prepaid insurance for $400.

The following categories are on a classified balance sheet. List them in the order that they would appear.

1. Current assets 2. Long-term investments 3. Plant assets 4. Intangible assets 5. Current liabilities 6. Long-term liabilities

The formula to figure out the profit margin of a company is (1) (Net income/Accounts receivable/Net sales) divided by (2) (Net income/Cash/Net sales).

1. Net income 2. Net sales

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance.

Which of the following describes accrued revenue? (Check all that apply)

Accounts receivable is usually increased when accruing revenues, They refer to revenues that are earned in a period, but have not been received and are unrecorded, The adjustment causes an increase in an asset account and an increase in a revenue account, They refer to earnings which have been earned but not yet billed.

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

McDarrel's records $500 of accrued salaries on December 31. Three days later, on January 3, total salaries of $4,000 (including the $500 accrued at year end) are paid. Demonstrate the required journal entry on January 3 by selecting from the choices below. (Check all that apply.)

Cash would be credited for $4,000, Salaries expense would be debited for $3,500, Salaries payable will be debited for $500.

Choose the statement below that explains what "closing" means.

Closing means to bring an account balance to zero.

Sheldon Company had $500 for one day of accrued salaries on December 31 of the prior year. On January 4 of the current year, total salaries for the five-day week are paid. The journal entry to record the payment of salaries on January 4 includes:

Debit to Salaries Payable for $500; Debit to Salaries Expense for $2,000.

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

Which of the following describe the Salaries payable account? (Check all that apply.)

It is a liability account, It reports amounts owed to employees, It is reported on the balance sheet, It is increased with a credit.

Define the Salaries payable account by selecting the appropriate statement below.

It reports amounts owed to employees and is a liability.

A plant asset can be defined by which of the following statements? (Check all that apply.)

Its original cost (minus any salvage value) is expensed over its useful life, It is a tangible long-term asset, It is reported on the balance sheet, It has a life within the business greater than one year.

A classified balance sheet has several categories for assets and liabilities including: (Check all that apply.)

Long-term investments, Current assets, Noncurrent (long-term) liabilities, Plant assets.

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Office supplies, Cash, Accounts receivable, Prepaid rent.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.)

Permanent accounts are reported on the balance sheet, Permanent accounts will appear on a post-closing trial balance, Temporary accounts have a balance for one period only, Retained Earnings is a permanent account, but Dividends is a temporary account, Temporary accounts are reported on the income statement.

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

Prepaid rent, Supplies, Prepaid insurance

Which of the following accounts is considered a prepaid expense?

Supplies

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Supplies expense would be debited for $300, Supplies would be credited for $300.

Describe the final step in the adjusting process.

The final step is to create an adjusting journal entry to get from step 1 to step 2.

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

The value of information is often linked to its timeliness, Useful information must reach decision makers frequently and promptly, Businesses report financial information at regular intervals to ensure timeliness of data.

Current assets are:

cash and other resources that are expected to be sold, collected, or used within one year

Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply.)

one-month, six-month, one-year

Mouse Inc. uses the alternative method of accounting for prepayments and purchased a $1,200, 6-month insurance policy. The company immediately debited the Insurance expense account. By the end of the period, $400 of the policy had expired. Demonstrate the required adjustment needed at the end of the period.

Debit Prepaid insurance $800.

Mouse Inc. received a $2,500 prepayment of rent from one of its tenants and immediately credited the Rent revenue account. By the end of the period, $500 of the rent had not been earned by Mouse Inc.. Demonstrate the required adjustment needed at the end of the period.

Debit Rent revenue for $500.

A classified balance sheet can be described as a balance sheet that: (Check all that apply.)

Organizes assets and liabilities into important subgroups, Lists current assets in the order of how quickly they can be converted to cash, Is more useful to decision makers.

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

The adjusted trial balance includes all accounts and balances appearing in financial statements, Financial statements are prepared more easily using the adjusted trial balance than with the general ledger, The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings, The income statement is the first financial statement prepared after preparing the adjusted trial balance.

Which of the statements below is (are) correct regarding the accounting cycle? (Check all that apply.)

The cycle contains steps for adjusting and closing accounts, The accounting cycle is a series of steps repeated each reporting period, The accounting cycle refers to steps followed by a company to prepare its financial statements, The accounting cycle contains 10 steps.

Place the steps in the adjusting process in the correct order in which they would be performed.

1. Determine what the current account balance is. 2. Determine what the correct account balance should be. 3. Record an adjusting entry.

Cash received from a customer for unearned subscription revenue can initially be recorded as either a(n) (1) (revenue/expense) or a(n) (2) (liability/expense). No matter how an unearned revenue was initially recorded, after the adjusting entry, net income will be identical.

1. revenue 2. liability

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below.

Debit Unearned revenues for $400.

Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney's customers have not yet been billed. Chimney's customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction?

Debit accounts receivable and credit services revenue.

Which of the following statements describes the expense recognition (matching) principle? (Check all that apply.)

Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses, Matching of expenses with revenues is a major part of the adjusting process.

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

Closing means to transfer account balances from (1) (asset/liability/permanent/temporary) accounts so that they will start with a (2) (contra/larger/zero) balance at the beginning of the next period.

1. temporary 2. zero

Current items can be described as those expected to come due within one (1) (month/year) and are listed in the order of how (2) (quickly/slowly) they could be converted to or paid in cash.

1. year 2. quickly

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

1. Prepare an unadjusted trial balance. 2. Journalize and post adjusting entries. 3. Prepare and adjusted trial balance. 4. Prepare financial statements.

Accrual basis accounting is defined as: (Check all that apply.)

An accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred, An accounting system which is consistent with generally accepted accounting principles, An accounting system that uses the matching principle to determine when to recognize revenues and expenses.

Rather than crediting the Unearned rent account for $400 of prepaid rent received from a customer, which of the following statements explains an alternate recording procedure to journalize this receipt? (Check all that apply.)

Any unused portion of the prepayment still existing at the end of the period will be transferred to the Unearned rent account, Record receipt with a credit to the Rent revenue account.

Define "current" as it applies to assets and liabilities on a classified balance sheet.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer.

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Interest expense for $30.

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600.

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Debit Salaries expense for $500.

Determine which of the following transactions may require adjustments. (Check all that apply.)

Equipment was purchased in the middle of the year, Six months of rent were paid in advance, A 24-month insurance policy was prepaid, An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month, Supplies were purchased at the beginning of the year, but not all were used.

Select the statements below that describe the purpose of a post-closing trial balance. (Check all that apply.)

One purpose is to verify that total debits equal total credit for permanent accounts, One purpose is to verify that all temporary accounts have zero balances.

Which of the following statements correctly define(s) a profit margin? (Check all that apply.)

Profit margin is the ratio of a business's net income to its net sales, Profit margin is also called return on sales, Profit margin is a useful measure of a business's operating results.

Which of the accounts below would appear in the equity section of a classified balance sheet?

Retained Earnings

$1,000 of cash was received in advance of performing services. By the end of the period, $300 has not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Service revenue would be credited for $700, Unearned revenue would be debited for $700.

The revenue recognition principle states that revenue:

Should be recorded when goods or services are provided to customers at an amount expected to be received.

$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?

Supplies expense would be debited for $600.

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Supplies would be credited for $300, Supplies expense would be debited for $300.

Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

The adjusted trial balance is used to prepare financial statements, The adjusted trial balance generally has more accounts listed than the unadjusted trial balance, The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

They are a liability, They refer to cash received in advance of performing a service or product, They are reported on a balance sheet, They are also called deferred revenues.

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Unearned revenue would be debited for $700, Service revenue would be credited for $700.

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent

Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product.