Chapter 3: The Adjusting Process

Which fixed assets has no contra asset account?

Land

There is no depreciation on the asset:

Land; Land does not lose its economic value over time

If the year-end adjusting entry for unearned revenue is omitted, then:

Liabilities are overstated, and Stockholders' Equity, Revenue, and Net Income would be understated

The actual adjustment for an unearned revenue converts a:

Liability into a Revenue

If prepaid supplies were $500 at the beginning of the period, and the only transaction was a purchase for $600 during the year, what is the likely unadjusted prepaid supplies balance?

$1,100

If beginning prepaid supplies were $50, purchases were $80, and the ending inventory of supplies is $10, what is the amount of the adjustment to supplies expense?

$50 + $80 - $10 = $120

If $950 in wages paid on January 2 include $450 in wages for the current period, what are the expected wages payable at the prior year end?

$950 - $450 = $500

When accountants assume that the economic life of a business can be divided into time periods, this illustrates the:

Accounting Period Concept

The purpose of the adjusting trial balance is to verify:

Equality in debit and credit balances BEFORE preparing financial statements

What is initially recorded as a liability but is expected to become revenues over time?

Unearned Revenues or Deferred Revenues (such as Unearned Magazine Subscriptions)

When comparisons are made within a current statement to determine significant interrelationships btw accounts, it is known as:

Vertical Analysis

Adjusting entries:

1) Affect at least one Income Statement account 2) Affect at least one Balance Sheet account 3) Involve at least one revenue or expense account 4) Involve prepaid expenses or accruals

The adjusting entry for an unearned revenue debits:

A liability and credits a revenue

The adjusting entry for depreciation expense debits:

An expense and credits a contra asset

If the year-end adjusting entry for accrued revenue is omitted, then:

Assets, Stockholders' Equity, Revenue, and Net Income would be understated

Because an adjusting entry involves the income statement, it must include:

At least one expense or revenue account

The actual adjustment for fixed assets creates a:

Contra asset with an offsetting expense

To increase a revenue, the revenue is:

Credited

If unearned rent of $600 consists of December, January, and February rents, to properly adjust the accounts each month, you would:

Debit Unearned Rent $200 and Credit Rent Revenue $200

To reduce a liability, the asset is:

Debited

The accounting concept that supports the reporting of revenues and related expenses in the same time periods is the:

Matching Principle

All adjusting entries affect at least:

One Balance Sheet and Income Statement account

What is originally recorded as an asset but is expected to become expenses over time?

Prepaid Expenses or Deferred Expenses (such as Prepaid Insurance)

Unadjusted Prepaid Supplies is determined by:

The Opening Balance for Prepaid Supplies + Supplies Purchased