Chapter 3 Smartbook
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? (Select all that apply.) - Taggert will debit Insurance Expense for $1,800 on Dec. 1. - Taggert will credit Prepaid Insurance for $300 on Dec. 31. - Taggert will debit Insurance Expense for $300 on Dec. 31. - Taggert will debit Prepaid Insurance for $1,500 on Dec. 31. - Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.
- Taggert will credit Prepaid Insurance for $300 on Dec. 31. - Taggert will debit Insurance Expense for $300 on Dec. 31. - Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.
On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes: (Select all that apply.) - credit to Cash - debit to Insurance Expense - credit to Prepaid Insurance - debit to Prepaid Insurance - debit to Cash
- debit to Insurance Expense - credit to Prepaid Insurance
The adjusting entry to record the supplies used during the period will result in a(n) ______. - increase to Supplies and an increase to Supplies Expense - decrease to Supplies and an increase to Supplies Expense - increase to Supplies and a decrease to Supplies Expense - decrease to Supplies and a decrease to Supplies Expense
- decrease to Supplies and an increase to Supplies Expense
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.
How do adjusting entries for accrued expenses affect liabilities and expenses?
Adjusting entries for accrued expenses can increase liabilities and increase expenses.
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
During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?
December 31
Which of the following would be referred to as "accruals?" (Select all that apply.)
Expenses incurred, not yet paid; Goods and services provided, not yet collected
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 statements is correct regarding the adjusting entry to record interest accrued on a note payable?
Interest on the note payable is classified as an expense since it is a cost of borrowing.
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.
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: (Select all that apply.)
Rent expense of $2,000, Prepaid rent of $22,000
Which of the following transactions would normally be recorded as an asset when cash is paid?
Rent paid in advance
On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:
Service revenue for $1,800
True or false: The adjusting entry to record depreciation does not directly reduce the long-lived asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.
True
The adjusting entry for an accrued revenue always includes: (Select all that apply.)
a debit to an asset account, a credit to a revenue account
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
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
Reporting revenues when goods or services are provided and expenses in the period they are incurred to generate related revenues is referred to as _____________-basis accounting.
accrual
________ basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company
accrual
The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account. a decrease no change an increase
an increase
At the beginning of the accounting period, the balances of temporary accounts
are zero
A prepayment such as "Prepaid Insurance" is originally recorded as a(n) ____________ 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 a(n) expense revenue asset liability
asset
Supplies that are not used immediately are recorded as a(n) ______ when purchased. liability expense asset revenue
asset
Prepaid insurance is a(n) ______
asset in the balance sheet
permanent accounts
asset, liability, equity
a classified balance sheet shows totals for current ___ and current ____
assets and liabilities
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
The entries that transfer the balances of all temporary accounts to retained earnings are referred to as
closing entries
After the adjusting entries have been completed, the adjusted balance in the Rent Expense account represents:
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: (Select all that apply.)
credit to a liability, debit to an expense
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
evenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.
deferred
The process of allocating the cost of an asset to expense over the useful life of the asset is called
depreciation
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
The information reported in the statement of cash flows is organized by these activities:
financing, operating, and investing
A classified balance sheet ______.
groups asset and liabilities into current and long-term categories
A primary purpose of adjusting entries is to record events that
have occurred but that have not yet been recorded
The expense that relates to notes payable and accumulates or accrues throughout the accounting period is referred to as ________ expense.
interest
______ is the "cost of borrowing" money
interest
If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?
liability and prepaid expense
Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:
paid
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.)
prepaid expense, liability
At year-end, companies that utilize accrual-based accounting systems complete the measurement process through _____
recording of adjusting entries
The two major categories reported in the income statement are:
revenue and expenses
The post-closing trial balance checks that total _________ equal total _______ at the end of the period.
debits and credits
After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:
used during the accounting period
The post-closing trial balance helps to verify that: (Select all that apply.)
we prepared and posted closing entries correctly, the accounts are ready for next period's transactions
The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as
accrual basis accounting
The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as ________
accrual-basis accounting
___________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned
accruals
_____________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned
accruals
To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for ______ entries
adjusting
After the adjusting entries have been completed, the adjusted balance in the Rent Expense account represents:
amount of the prepayment that remains towards future rental periods
In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.
an asset is increased since cash will be collected at a later date
When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a:
debit to Deferred Revenue, credit to Revenue
The adjusting entry for prepaid rent requires a(n) _________ to Rent Expense and a(n) __________ to Prepaid Rent.
debit; credit
________ Expense should be recorded to recognize the cost of using long-lived assets, such as equipment, during the accounting period. (Enter one word per blank.)
depreciation
________ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used
depreciation
The statement of stockholders' equity includes these amounts:
dividends for the period, ending balance retained earnings, and net income
Adjusting entries are made at the __________ of the accounting period, while daily transactions are made throughout the accounting period
end
If an adjusting entry's credit is to a liability account, then the debit must be to ______.
expense
Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) _______ in the period the benefit expires
expense
Under cash-basis accounting, (Select all that apply.)
revenues are recorded when cash is received, expenses are recorded when cash is paid.
temporary accounts
revenues, expenses, dividends
Which of the following financial statements typically is prepared last?
statement of cash flows
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
Closing entries move the balances from the ______ accounts into the Retained Earnings account.
temporary
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
The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account. expense; asset revenue; liability asset; expense liability; revenue
expense; asset
Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred
expenses