chapter 4-accounting (not fully done)

At December 31, 2017, before any year-end adjustments, Macarty Company's Prepaid Insurance account had a balance of $2,700. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be $1,500 $1,900 $1,200 $2,700

$1,500

A net loss will appear in which column of the worksheet? A. Income Statement - Debit. B. Balance Sheet - Debit C. Adjustments - Debit. D. Adjusted Trial Balance - Credit

B.

Cash received before services are performed which is recorded as a debit to a Cash account and a credit to a liability account is called: A. an accrued revenue. B. an unearned revenue. C. an unrecorded revenue. D. None of these answer choices are correct.

B.

Which one of these statements about the accrual-basis of accounting is false? A. Companies record events that change a company's financial statements in the periods in which the events occur. B. Companies record revenue only when they receive cash, and record expense only when they pay out cash. C. Companies recognize revenue in the period in which the performance obligation is satisfied. D. This basis is in accord with generally accepted accounting principles.

B.

Which statement is incorrect concerning the adjusted trial balance? A. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. B. The adjusted trial balance lists the account balances segregated by assets and liabilities. C. The adjusted trial balance provides the primary basis for the preparation of financial statements. D. The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.

B.

On August 1 the Darius Co. purchased a photocopy machine for $8,000. The estimated annual depreciation on the machine is $1,680. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be

debit: Depreciation Expense $700 credit: Accumulated Depreciation $700

Accrued expenses are expenses that have already been paid. True or false

false

The expense recognition principle requires that expenses be recognized in the same period that they are paid. True or false?

false. The expense recognition principle matches expenses with revenues in the accounting period in which the company makes efforts to generate those revenues.

At the end of the accounting period, all balance sheet accounts are closed out. true or false

false. balance sheet accounts are permanent accounts which carry a balance from one period to the next. Only temporary accounts (revenues, expenses, dividends) are closed out at the end of the accounting pe

If the adjusting entry is not made for unearned revenues, then the result will be to...

overstate liabilities and understate revenues.

Which account will have a zero balance after a company has journalized and posted closing entries? Accumulated Depreciation. Prepaid Insurance. Service Revenue. Advertising Supplies.

service revenue

The difference between an asset's cost and its accumulated depreciation is called A. fair value. B. book value. C. market value. D. real value.

B. Book value is cost less accumulated depreciation.

Which of the following correctly describes the closing process? A. Net income or net loss is transferred to the Cash account. B. Net income or net loss is transferred to Retained Earnings. C. Permanent accounts become ready to accumulate data in the next accounting period. D. Each revenue and expense account is closed individually to Retained Earnings

B. Net income or losses are transferred to the Retained Earnings account through the closing process.

Book value is equal to cost minus accumulated depreciation True or false?

true. The formula for computing book value is cost minus accumulated depreciation. This is the value shown in the financial statements.

With the adjusted trial balance in hand, you see that the debit totals of the real accounts is $18,250 and the credit totals of the real accounts is $14,550. The debit total of the nominal or temporary accounts is $3,475 while the credit total of the nominal or temporary accounts is $7,175. From this you know that A. net loss is $3,700 for the fiscal period. B. net income is $3,700 for the fiscal period. C. retained earnings will increase by $3,700 through the closing process. D. there is an error in the adjusted trial balance.

C. The difference of nominal or temporary account debits and credits of a debit of $3,700 or ($18,250 - $14,550) indicates growth in the company for the fiscal period - an increase in retained earnings, not net income or loss since you do not know revenue and expense or dividend issues

In the closing process total revenues are determined to be $4,750 while total expenses are determined to be $3,875 and total dividends are $1,150. The retained earnings account will: A. increase by $275 due to net income. B. decrease by $275 due to net income. C. increase by $875 due to net income. D. decrease by $875 due to net income.

C. Retained earnings will increase by revenues of $4,750 less expenses of $3,875, or $875. Dividends do not affect net income.

In 2017, Costello Company performs work for a customer and bills the customer $10,000; it also pays expenses of $3,000. The customer pays Costello in 2018. If Costello uses the accrual-basis of accounting, then Costello will report A.expenses of $3,000 in 2018. B. net income of $7,000 in 2018. C. revenue of $10,000 in 2017. D. revenue of $10,000 in 2018.

C. The accrual-basis of accounting records revenues when the performance obligation is satisfied and expenses when incurred. Cash movement is not necessary.

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true? A. Stockholders' equity at the end of the year is understated. B. Salaries and Wages Expense for the year is overstated. C. Liabilities at the end of the year are understated. D. Assets at the end of the year are understated.

C. The adjusting entry would debit (increase) Salaries and Wages Expense and credit (increase) Salaries and Wages Payable, a liability. Not recording this entry will understate expenses and liabilities.

Which statement is correct? A. As long as a company consistently uses the cash-basis of accounting, generally accepted accounting principles allow its use. B. The cash-basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. C. The use of the cash-basis of accounting violates both the revenue recognition and expense recognition principles. D. As long as management is ethical, there are no problems with using the cash-basis of accounting.

C. The use of the cash-basis of accounting violates both the revenue recognition and expense recognition principles.

Which of the following is not a typical example of an accrued expense? A. Taxes B. Wages C. Depreciation D. Interest

C. While depreciation is an adjusting entry, it is not an accrued expense.

On August 1, Luang Corporation signed a $30,000, 14%, 2-year note to help finance renovations being made to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry for the first year would be......

debit: Interest Expense $1,750 credit: Interest Payable $1,750 mulitply 30,000 * .14 / 12 x 5

worksheet, used as an aid in the preparation of adjusting entries and the financial statements, consists of how many debit/credit columns? A.10 B.6 C.12 D.8

A

Adjustments for accrued revenues A. increase assets and increase revenues. B. increase assets and increase liabilities. C. decrease liabilities and increase revenues. D. decrease assets and decrease revenues.

A.

Adjustments for prepaid expenses A. decrease assets and increase expenses. B. decrease revenues and increase assets. C. decrease assets and increase revenues. D. decrease expenses and increase assets.

A.

Cash received before services are performed are recorded as A. liabilities. B. expenses. C. revenues. D. equity.

A.

Saira works for a sports franchise, which pays wages and salaries earned on a monthly basis. A new accountant was hired by the sports franchise in late May. Due to inexperience, the new accountant failed to accrue Saira's salary for May. What is the impact on the May 31 financial statements of the sports franchise A. Expenses are understated; net income is overstated. B. Liabilities are understated; assets are overstated. C. Liabilities are overstated; retained earnings is overstated. D. Revenues are overstated; net income is understated

A.

The final step in the accounting cycle is to prepare A. a post-closing trial balance. B. adjusting entries. C. closing entries. D. financial statements.

A.

Which is the correct order of steps in the accounting cycle? A. Journalize and post transactions, journalize and post adjusting entries, journalize and post closing entries. B. Post transactions, journalize transactions, prepare a trial balance, prepare financial statements. C. Journalize and post transactions, journalize and post closing entries, journalize and post adjusting entries. D. Prepare financial statements, prepare adjusting entries, prepare closing entries, prepare a post-closing trial balance.

A.

Which of the following is not a typical example of a prepaid expense? A. Wages B. Rent C. Supplies D. Insurance

A.

Which types of accounts will appear in the post-closing trial balance? A. Permanent accounts. B. Temporary accounts. C. Accounts shown in the income statement columns of a work sheet. D. None of these answer choices are corrrect.

A.

Which one of the following is not a justification for adjusting entries? A. Adjusting entries are necessary to bring the general ledger accounts in line with the budget. B. Adjusting entries are necessary to ensure that the revenue recognition principle is followed. C. Adjusting entries are necessary to ensure that the expense recognition principle is followed. D. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.

A. Adjusting entries are not made to comply with budgetary values.

The closing entry process consists of closing A. all temporary accounts. B. all asset and liability accounts. C. all permanent accounts. D. out the Retained Earnings account

A. The closing process closes all temporary or nominal accounts such as revenues, expenses, and dividends. Real or permanent accounts such as assets, liabilities, stock, and retained earnings accounts are not closed.

Which principle dictates that efforts (expenses) be matched with results (revenues)? A.Historical cost principle. B. Expense recognition principle. C. Periodicity principle. D. Revenue recognition principle

B.

Adjustments for unearned revenues A. decrease revenues and decrease assets. B. decrease liabilities and increase revenues. C. increase liabilities and increase revenues. D. increase assets and increase revenues.

B. *I guess adjustment means the unearned revenue was done*

All of the following are required steps in the accounting cycle except: A. preparing an adjusted trial balance. B. preparing a post-closing trial balance. C. preparing a worksheet. D. journalizing and posting closing entries.

C.

Each of the following is a major type (or category) of adjusting entry except A. prepaid expenses. B. accrued expenses. C. earned expenses. D. accrued revenues.

C.

Financial statements can be prepared directly from the A. reversing trial balance. B. trial balance. C. adjusted trial balance. D. post-closing trial balance.

C.

Which of the following is not a type of adjusting entry? A. Accrued expenses B. Prepaid expenses C. Earned revenues D. Accrued revenues

C.

Adjusting entries are made to ensure that A. expenses are recognized in the period in which they are incurred. B. revenues are recorded in the period in which the performance obligation is satisfied. C. balance sheet and income statement accounts have correct balances at the end of an accounting period. D. All of these answer choices are correct.

D.

Employees at the Waco Waffle House were paid on Friday, December 27 for the five days ending on December 27. The next payday is Friday, January 3. Employees work 5 days a week. The weekly payroll amounts to $3,800. The appropriate adjusting journal entry on December 31 would be to credit Salaries and Wages Payable for A. $2,280 B. $760 C. $3,800 D. $1,520

D.

The generally accepted accounting principle which dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied is the A. expense recognition principle. B. accrued revenues principle. C. periodicity assumption. D. revenue recognition principle

D.

What is the periodicity assumption? A. Companies should match expenses with revenues. B. The fiscal year should correspond with the calendar year. C. Companies should recognize revenue in the accounting period in which the performance obligation is satisfied. D. The economic life of a business can be divided into artificial time periods

D.

During the adjusting process two transactions were missed. The first is for unearned rent revenue of which $450 was earned during the period, the second was for accrued interest payable of which $275 is owed for the period. As a result of these omissions A. revenue is overstated by $725. B. liabilities are overstated by $725. C. assets are overstated by $725. D. net income is understated by $175.

D. The omission associated with unearned rent revenues increases net income by $450 while the omission of accrued expenses, interest expense and interest payable, increases expenses and liabilities by $275. As a result, revenues are understated by $450 while expenses are understated by $275 so net income is understated by $175. Assets are not affected by these errors but liabilities are overstated by $175. *remember net income is revenue-expenses*

If revenues are recognized only when a customer pays, what method of accounting is being used? A. Matching basis B. Recognition basis C. Accrual-basis D. Cash-basis

D. Under the cash-basis of accounting, revenues are recognized when cash is received, not when performance obligation is satisfied.

The cash-basis of accounting is in accordance with generally accepted accounting principles. True or false?

False. Since cash- basis accounting does not match revenues and expenses in the proper accounting period, cash-basis accounting does not meet GAAP requirements.

The revenue recognition principle dictates that revenue is recognized in the period in which the cash is received. True or false?

false. Revenue should be recognized in the accounting period in which the performance obligation is satisfied

On July 1, Mesa Verde, Inc. purchased a 6-month insurance policy for $12,600. Prepaid Insurance was debited for the entire amount. The adjusting entries to recognize the expired cost were made each month. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be

debit: Insurance Expense $2,100 credit: Prepaid Insurance $2,100 This entry correctly adjusts the accounts to recognize for the 6-month policy. Insurance Expense needs to be debited to recognize the expense and Prepaid Insurance needs to be credited to reduce the asset accordingly for $2,100 ($12,600 / 6).

Ignatenko Company purchased office supplies costing $5,000 and debited Supplies for the full amount. Supplies on hand at the end of the accounting period were $1,300. The appropriate adjusting journal entry to be made would be

debit: Supplies Expense $3,700 credit: Supplies $3,700

On September 1 the Petite-Sizes Store paid $12,000 to the Mega-Mall Co. for 3-month rent beginning September 1. Prepaid Rent was debited for the payment. If Petite-Sizes Store prepares financial statements on September 30, the appropriate adjusting journal entry to make on September 30 would be

debit: rent expense 4,000 credit: prepaid insuracne 4,000

Bonita Realty Management Co. received a check for $30,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited for the full $30,000. Financial statements are prepared on December 31. The appropriate adjusting journal entry to make on December 31 of the first year would be

debit:Unearned Rent Revenue $7,500 credit: Rent Revenue $7,500

The accounting cycle requires that closing entries be prepared on a monthly basis true or false

false. Closing entries usually take place only at the end of a company's annual accounting period.

The worksheet is part of the permanent record of the company as it documents how the company prepared its financial statement. true or false

false. It is neither a journal nor part of the general ledger. It is merely a supplemental device used by accountants to make it easier to prepare adjusting entries and the financial statements.

An Adjusted Trial Balance is prepared after the books of a company are closed at the end of the accounting period. true or false

false. The Adjusted Trial Balance is used to prepare the company's financial statements. The final step in the accounting cycle is the closing process.

Prior to an accrual adjustment, the revenue account (and the related asset account) or the expense account (and the related liability account) is understated true or false?

true