SMARTBOOK 3 - ACCT 2013

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 true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period.

The adjusting entry for an accrued revenue always includes: (Select all that apply.)

a credit to a revenue account; a debit to an asset account

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for ___________ entries.

adjusting

The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____.

depreciation expense; accumulated depreciation

The process of allocating the cost of an asset to expense over the useful life of the asset is called

depreciation.

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

expense

Revenues and expenses are reported in the:

income statement

The expense that relates to notes payable and accumulates or accrues throughout the accounting period is referred to as ____________.

interest

A long-term liability:

is not due within the next year

An asset that can quickly be turned into cash has the characteristic of

liquidity

With respect to current assets, refers to how quickly an asset can be converted to cash. (Enter only one word.)

liquidity

Which of the following financial statements typically is prepared last?

statement of cash flows

accrual

-basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.

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.

after the adjusting entries have been completed, the balance in the Rent Expense account represents the:

cost of rent for the accounting period

The adjusting entry for a deferred revenue includes a debit to a(n) account and a credit to a(n) account. (Enter only one word per blank.)

liability, revenue

Under cash-basis accounting, (Select all that apply.)

revenues are recorded when cash is received.expenses are recorded when cash is paid.

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

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 rationale: Prepaid rent started with $24,000 on November 1. After 2 months of use (November 1 through December 31), Prepaid rent only has 22 months left with a balance of $22,000 (or $24,000/24 months times 22 months).

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

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

Which of the following statements is correct regarding a long-lived asset such as equipment?

When adjusting entries are recorded, the original cost in the Equipment account will not change.

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______.

amount of the prepayment that remains towards future rental periods

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

Depreciation is an allocation of the ______________ of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)

cost

Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.)

credit a rev. account; debit a liability account

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 Prepaid Insurance debit to Insurance Expense

As the balance in the Accumulated Depreciation increases, total assets ______________ because Accumulated Depreciation is a(n) ____________ account.

decrease; contra

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) ______ in the asset account and a(n) ______ in the expense account.

decrease; increase

Prepaid expenses should be ______ by the cost of the asset used during the accounting period.

decreased

D/R is a:

liab.

The statement of stockholders' equity includes these amounts:

net income, ending balance retained earnings, dividends for the period

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

The post-closing trial balance helps to verify that: (Select all that apply.)

the accounts are ready for next period's transactions; we prepared and posted closing entries correctly

The sum of current and long-term assets reported on the balance sheet is referred to as

total assets

After the adjusting entries have been completed, the adjusted balance in the Supplies account represents:

the cost of supplies remaining at the end of the accounting period

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

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 17840+21750

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.)

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.

When recording an adjustment for the cost of using equipment during the current accounting period, which two accounts are affected?

Accumulated Depreciation and Depreciation Expense

how do adjusting entries for accrued 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.

Which of the following expressions correctly calculates "total assets?"

Current assets plus long-term assets

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.)

Prepaid rent of $22,000 Rent expense of $2,000

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 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.

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 adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account.

an increase

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)

asset

Prepaid rent appears in the ______.

balance sheet because it is an asset

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a:

credit to Revenue debit to Deferred Revenue

An adjusting entry for accrued expenses involves: (Select all that apply.)

credit to a liability; debit to an expense

The adjusting entry for supplies used requires a __________ to Supplies and a ____________to Supplies Expense.

credit; debit

Accumulated Depreciation has a normal ___________ credit, balance which indicates that it ____________, total assets.

credit; decreases

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

Which of these is a long-term liability?

mortgage payable due in 20 years

After the adjusting entries have been completed, the ending balance in the Supplies account represents the cost of supplies ______.

remaining at the end of the accounting period

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 rationale: The reduction to the asset account is taken through the Accumulated Depreciation account rather than directly through the long-lived asset account. The long-lived asset account is not affected and, therefore, keeps its original balance until it is sold or discarded.

Which of the following would be referred to as "accruals?"

Goods and services provided, not yet collected Expenses incurred, not yet paid

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

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense; asset

The two major categories reported in the income statement are:

expense; revenue

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.

expenses

The adjusting entry for prepaid rent requires a(n) __________ to Rent Expense and a __________ to Prepaid Rent.

debit; credit

Adjusting entries: (Select all that apply.)

update the accounts to their proper balances.are needed before financial statement preparation.

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

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.