Int. Acct. Ch. 2 - Pt. 3

When are adjusting entries recorded?

At the end of a period when preparing financial statements.

Which of the following are examples of prepayments?

Purchasing supplies that will be used later

Expenses incurred in one accounting period and paid for in a future accounting period are --- laibilities

accrued

The balance sheet account that depreciation is recorded to is:

accumulated depreciation

After the adjusting entries have been posted to the general ledger, the next step in the accounting processing cycle is to prepare an --- trial balance

adjusted

Accruals involve transactions where the cash outflow or inflow takes place in a period ______ expense or revenue recognition.

after

Recognizing revenue before cash flow is an example of:

an accrual adjusting entry

Interest earned, but not yet received is an example of:

an accrued receivable

Accrued receivables involve situations when the revenue is earned in a period ______ the cash receipt.`

before

Accrued liabilities are costs incurred in an accounting period:

before a cash payment

An accrued receivable occurs when revenue is earned:

before cash flow

Prepaid expenses are costs of assets acquired in an accounting period: when?

before they will be expensed

A deferred revenue liability appears on the balance sheet for:

cash received before revenue is earned

The purpose of estimating bad debts is to

comply with the accrual accounting model.

The adjusting journal entry required when deferred revenue is recognized includes a --- entry to revenue

credit

The normal balance in a contra asset account is what?

credit

An adjusting entry to record depreciation expense for the period will ______ total assets.

decrease

Accountants often have to make --- of future amounts to comply with the accrual accounting model. (Enter only one word.)

estimates

A situation that requires an adjusting entry that is not a prepayment or an accrual entry is

estimating bad debts

Carradine Company prepares an adjusting journal entry to accrue salaries at year-end. What effect will this entry have on the financial statements?

expenses will increase

True or false: The stated interest rate on debt instruments is always stated as an annual rate.

true

Adjusting entries are recorded when?

when the financial statements are prepared

On January 1, Poodle Company purchases equipment for $120,000. The equipment is expected to have a useful life of 4 years and will have no value a the end of that period. Poodle allocates the cost equally over the period of use so the depreciation expense that must be recognized for the year is

$30,000

On September 1, Year 1, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December Year 1?

$4000

Majerek Company accrues salaries at year-end. What is the financial statement effect of this adjusting entry? (Select all that apply.)

- RE is decreased -Net income is decreased - Expenses is increased

Which of the following is an example of an estimate?

- acct for depreciation and bad debts

Accruals occur when cash flow comes: (Select all that apply.)

- after reveneue and expense recognition

If a company fails to record depreciation expense for the year, what are the effects on the financial statements? (Select all that apply.)

- assets are overstated -expenses are understated

Accumulated depreciation is (Select all that apply.)

- contra asset account - balance sheet account

On May 1, Year 1, Garcia Company paid $1,200 for 12 months of rent and recorded the transaction in an income statement account. The adjusting journal entry required on December 31, Year 1, will require a

- credit rent expense - debit to prepaid rent

To record depreciation expense (Select all that apply.)

- debit depreciation expense - credit accumulated depreciation

Conner Corp. accrues interest on a note payable at year-end. The adjusting journal entry to record the accrual will include which of the following?

- debit to interest expense - credit to interest payable

On April 1, Larken Corp. pays $36,000 for 3 years of rent. The transaction is appropriately recorded as prepaid rent. The adjusting entry on December 31, of the same year, will require a (Select all that apply.)

- debit to rent expense - credit to prepaid rent

Revenue of $1,000 was collected in advance from customers for goods and was recorded as sales revenue. At year end, $600 of the revenue collected in advance is earned. The adjusting entry includes a:

- debit to revenue of $400 - credit to deferred revenue of $400

Longine Co. accrues 1 week of salaries at the end of November. The adjusting journal entry to record this accrual will include which of the following?

- debit to salary expense - credit to salary payable

The adjusting entry to record deferred revenue originally recorded as sales revenue includes a:

- debit to sales revenue

The adjusting entry to record deferred revenue originally recorded as sales revenue includes a:

- debit to sales revenue - credit to deferred revenue

Ragland Corp. purchases supplies on account for $1,000 and appropriately records the transaction in an asset account. A count of inventory at year-end indicates that $300 of supplies are remaining. The adjusting journal entry required at year-end includes (Select all that apply.)

- debit to supplies expense $700 - credit to supplies on hand $700

To record an adjusting entry when deferred revenue is recognized:

- deferred revenue is debited - revenue is credited

If a company fails to record an adjusting entry for accrued interest on a note payable, what are the financial statement effects? (Select all that apply.)

- expenses are understated - retained earnings is overstated

Persimmon Company fails to record an accrual for salaries at year-end. What are the financial statement effects of this error? (Select all that apply.)

-Liabilities are understated. -Net income is overstated. -Expense is understated.

Adjusting entries help a company accurately measure (Select all that apply.)

-the company's financial performance. -revenues and expenses for the period.

Prepayments are: (Select all that apply.)

-transactions in which cash flow precedes revenue recognition. -transactions in which cash flow precedes expense recognition.

On October 1, Hill Corporation signed a 6-month note with principal of $10,000 and interest of $600 due in six months. The stated rate of interest on the note is

12%

On October 1, Company B records 1 year of prepaid rent in an income statement account then adjusts for the unexpired prepaid rent at the end of the period. Which of the following statements is true for Company B's financial statements at December 31 year-end?

Company B's assets and expense should be the same regardless of which account was used to record the original transaction.

Which transaction or event required the journal entry: debit Interest expense for $250 and credit Interest payable for $250?

Record interest at the end of the period.

A company paying rent in advance for the month of April records:

an asset

The normal balance of the contra asset accumulated depreciation account is a(n) ---

credit

An alternative approach to recording unearned revenue would be to ______ when cash is collected from a customer in advance of providing goods and services.

credit sales revenue

Green Pro accrues interest at year-end on a note receivable. The adjusting journal entry to record the accrual will include a

credit to interest revenue

On September 1, Gina accepts a 6-month interest bearing note receivable for $1,000. The note bears interest of 12%. Both principal and interest are received at maturity. The journal entry required on December 31 to accrue interest will include a

credit to interest revenue $40

On November 1, Year 1, Thomasson paid rent on its building for 2 years in the amount of $12,000. When the transaction was initially recorded, the full $12,000 was recorded as an expense using an alternative approach to record the prepayment. The adjusting journal entry on December 31, Year 1 requires a

credit to rent expense $11,000

To increase the accumulated depreciation account, you would ______ the account, and to increase depreciation expense, you would _____ the account.

credit, debit

On April 1, Gemini signs a 5-year interest-bearing note payable for $1,000. The note bears interest of 12%. The journal entry required on December 31 to accrue interest will include a

debit to interest expense $90

To accrue utilities expense at year-end that has not been paid,

debit utilities expense and credit utilities payable

To accrue interest earned on a note receivable that has not yet been collected, _____ interest receivable and ______ interest revenue.

debit, credit

Supplies expense is ______ and supplies is ______ for the amount of supplies used during the period that were originally recorded as an asset when purchased.

debited, credited

An accrual expense is recorded by:

debiting an expense and crediting a payable

Accruing a receivable ______ accounts receivable on the balance sheet and ______ revenues on the income statement.

increases, increases

Prepaid expenses are expense when?

later period than cash was paid

On August 1, 2017, Clerk Company receives $15,000 from a customer on account for work to be performed evenly over the next 18 months. Clerk records this transaction in the deferred revenue account. If Clerk fails to record the adjusting entry on December 31, 2017, what is the effect on the financial statements?

liabilities are overstated

Deferred revenue is a(n):

liability on the balance sheet

A company fails to accrue salaries at year-end. What is the financial statement effect of this error?

net income is overstated

The general formula used to calculate interest accrued on a note payable is principal times rate times

number of months outstanding in the current year/12.

Failure to record the adjusting entry for deferred revenue now earned causes liabilities on the balance sheet to be what?

overstated

If a company fails to record depreciation expense for the year, net income is

overstated

Accrued liabilities are:

p expenses incurred before cash was paid

On the last day of the period, a journal entry is made to record the amount of interest that has been accrued but not ---

paid

When rent is paid in advance for 2 years, it is appropriately recorded as a(n) --- , whereas when rent is paid and used during one month, it is appropriately recorded as a(n) ---.

prepayment, expense

Adjusting journal entries are necessary for three situations: deferrals, accruals, and ---

prepayments

Adjusting entries are recorded for (Select all that apply.)

prepayments, estimates, accruals

One of the purposes of adjusting entries is to

recognize all revenues earned during the period.`

When an adjusting entry is made to record depreciation expense, the effect on the balance sheet is to

reduce total assets

A prepayment may be recorded in prepaid rent, a balance sheet account. The alternative method to record the prepayment is to debit the --- --- account.

rent expense

To adjust for rent used up during the year that was recorded to the prepaid rent account when paid for,

rent expense is debited, prepaid rent is credited

The justification for a company initially recording prepaid rent in either an income statement or balance sheet account is that

the accounts are adjusted at year-end to reflect the correct balances.

True or false: It is acceptable accounting practice to initially record prepaid rent in either a balance sheet or income statement account.

true