COMM 2010 UVA Chapter 4 Learn Smart

Which two accounts are used to record the adjusting entry for the amortization of long-term assets that lack physical substance?

1) Accumulated Amortization 2) Amortization Expense

Which is true regarding the depreciation of equipment?

1) Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet 2) Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the balance sheet 3) Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date

What statements are correct regarding Dividends?

1) Dividends have a normal debit balance 2) Dividends are closed into retained earnings by crediting Dividends 3) Dividends are closed into retained earnings by debiting Retained Earnings

What are the reports made available to the public?

1) Income Statement 2) Statement of Retained Earnings 3) Statement of Cash Flows 4) Notes to the financial statements 5) Balance Sheet

Which of the following accounts found on an unadjusted balance typically require adjusting entries?

1) Interest Payable 2) Prepaid Rent 3) Supplies

Which of the following may require an accrual adjusting entry that is recorded with a debit to an expense and a credit to a liability?

1) Interest owed on notes payable 2) Utilities to be paid in later accounting period

What adjusting entry is recorded with a debit to an expense and a credit to a liability?

Accruing for services received that have not yet been paid

The adjusting entry to record the amortization of a long-term asset that lacks physical substance includes a debit to _____ _____ and a credit to ______ _____

Amortization Expense, Accumulated Amortization

What type of transaction could be an accrual adjustment?

An increase to an asset account and an increase to a revenue account (Each accrual adjustment involves one asset and one revenue account for amounts not yet collected or one liability and one expense account for expenses incurred but not yet paid)

When are adjusting entries recorded?

At the end of the accounting period, prior to the preparation of financial statements

Which line item on the adjusted trial balance reports its beginning balance but on the balance sheet reports its ending balance?

Retained Earnings

Supplies Expense Supplies Accounts Payable

Supplies Expense: Amount used and reported on the income statement Supplies: Amount remaining and reported on the balance sheet Accounts Payable: Amount owed for supplies purchased on account

How does the adjustment for depreciation differ from other deferral adjustments?

The depreciation adjustment uses a contra-account rather than reducing the asset accounts directly.

What is the purpose of the closing entries?

To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings

True or False: Cash is never involved in end-of-period deferral or accrual adjustments

True

True or false: Dividends paid are not reported on the Income Statement because they are not classified as expenses

True (Dividends paid are considered a return on the stockholders' investment)

True or false: After the closing entries have been posted, the new balance in the retained earnings account will equal the retained earnings reported on the balance sheet

True (The amount on the balance sheet was taken from the statement of retained earnings. The statement of retained earnings had added net income and subtracted dividends to the beginning retained earnings balance. This calculation summarizes the effects of the closing entries on the retained earnings account.)

The two categories of adjusting entries include _____ adjustments and _____ adjustments

accrual, deferral

If an adjusting entry decreased an asset on the balance sheet, then one can conclude that....

an expense was increased on the income statement

A deferral adjustment reduces the balance in an _____ account on the balance sheet and transfers that reduction into an ____ account on the income statement

asset, expense

Adjusting entries never affect the asset account called _____

cash

The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the _____ process

closing

The adjusting entry to record the amount of revenue for which the seller has fulfilled its obligation to its buyers which had been collected in advance requires a ______ to Deferred Revenue and a _____ to Sales Revenue

debit, credit (When a company receives cash in advance of the seller fulfilling its obligation to its buyers, it debits Cash (A) and credits Deferred Revenue (L). It defers recording the revenue until it actually fulfills its obligation. Later, when the seller satisfies the sales obligation, it will debit Deferred Revenue (-L) and credit Revenue (+SE).

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

debits, credits

As the balance in the Accumulated Depreciation increases, total assets ______ because Accumulated Depreciation is a _____-account

decrease, contra

Prepaid expenses, such as Prepaid Rent, should be _______ by the benefits that were used up during the accounting period

decreased

In the closing process, ______ and ______ are zeroed out by crediting each account and ______ are zeroed out by debiting each account

expenses and dividends, revenues

The adjusting entry that debits Interest Receivable and credits Interest Revenue records interest...

generated but not yet collected

The accrual adjustment recorded to adjust for expenses incurred but not yet paid will cause...

liabilities to increase

An adjusting entry affects...

one balance sheet account and one income statement account

Permanent accounts are found on...

only the balance sheet (Permanent accounts include assets, liabilities, and equity accounts which are found only on the balance sheet)

The Equipment account balance in a company's ledger equals its

original cost (In accordance with the historical cost principle, equipment is reported at its original cost and is not allowed to be increased despite an increase in its fair value)

Preparing a _____ ______ trial balance is the last step in the accounting cycle

post-closing

The closing entry for dividends involves a debit to Retained Earnings and a credit to Dividends. The debit to Retained Earnings causes a ______ in the balance of the account

reduction

Net income (or loss) is recorded in the retained earnings account when _____ and _____ accounts are closed and transferred into retained earnings

revenue, expense

The balance in Retained Earnings prior to the closing process equals...

the balance at the end of the previous accounting period

After the adjustments have been completed, the adjusted balance in the Interest Expense account represents...

total interest that has been paid or accrued during the period

After all closing process, which accounts will have zero balances?

1) All temporary accounts 2) Dividends 3) Expenses 4) Revenues

Identify the entries needed for the closing process

1) Debit each revenue, credit each expense, and record the difference in Retained Earnings 2) Credit Dividends and debit Retained Earnings

Which is true about the closing process?

1) Permanent accounts are not closed and are reported on the balance sheet 2) Temporary accounts, which include revenues, expenses, and dividends, are closed into Retained Earnings

On June 30, Planet of the Crepes paid $12,000 in advance for insurance coverage beginning July 1 through December 31. Which of the following are correct regarding the July financial statements?

1) Prepaid Insurance of $10,000 is on the balance sheet 2) Insurance Expense of $2,000 is on the Income Statement

Adjusting entries to adjust Supplies or Prepaid Rent have which of the following effects?

1) The carrying value of the assets are decreased 2) Total expenses on the income statement are increased 3) Total assets is decreased on the balance sheet

What is the correct order of the steps in the adjustment process?

1) Use the unadjusted trial balance to determine the accounts requiring adjustment 2) Record and post adjusting entries 3) Prepare an adjusted trial balance to check the equality of the debits and credits 4) Prepare financial statements 5) Record closing journal entries and post to the accounts 6) Prepare a post-closing trial balance

On September 1, Taggert company paid $1,800 for a 6-month insurance premium beginning September 1. Which are correct for accounting over the six-month period?

1) debit Prepaid Insurance for $1,800 on September 1 2) debit Insurance Expense for $300 on September 30 2) credit Prepaid Insurance for $300 on September 30

How can accrual adjustments for the interest on loans to other that have not been collected affect the balance sheet and the income statement?

Accrual adjustments can increase assets and increase revenues (The adjusting entry requires a debit to Interest Receivable (A) and a credit to Interest Revenue (SE))