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Exam 3: The Adjusting Process

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Question 101

True/False

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The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.

A) True
B) False

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Question 102

Multiple Choice

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Prepaid expenses are eventually expected to become

A) expenses when their future economic value expires
B) revenues when services are performed
C) expenses in the period when they are paid
D) revenues when the liability is no longer owed

E) B) and D)
F) C) and D)

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Question 103

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Match the type of account a-e) with the business transactions that follow. -Annual depreciation on equipment, recorded on a monthly basis.

On December 31, the balance in the office supplies account is $1,385. A physical count shows $435 worth of supplies on hand. Prepare the adjusting entry for supplies.

Prepare the required entries for the following transactions: a) Austin Company pays daily wages of $645 Monday - Friday). Paydays are every other Friday. Prepare the Monday, January 31 adjusting entry, assuming that the previous payday was Friday, January 21. b) Prepare the journal entry to record the Austin Company's payroll on Friday, February 4. c) Annual depreciation expense on the company's fixed assets is $39,600. Prepare the adjusting entry to recognize depreciation for the month of January. d) The company's office supplies account shows a debit balance of $3,755. A count of office supplies on hand on January 31 shows $635 worth of supplies on hand. Prepare the January 31 adjusting entry for Office Supplies.

Gizmo Inc. purchased a one-year insurance policy on October 1 for $1,800. The adjusting entry on December 31 would be $\begin{array} { | c | c | c | c | c | } \hline \text { Date } & \text { Description } & \text { Post. Ref. } & \text { Debit } & \text { Credit } \\\hline & & & & \\\hline & & & & \\\hline\end{array}$

The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as an)

When is the adjusted trial balance prepared?

The net income reported on the income statement is $58,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $1,300. Net income, as corrected, is

Which of the following accounts would likely be included in a deferral adjusting entry?

For the year ending June 30, Island Clinical Services mistakenly omitted adjusting entries for 1) $1,500 of supplies that were used, 2) unearned revenue of $4,200 that was earned, and 3) insurance of $5,000 that expired. What is the combined effect of these errors on a) revenues, b) expenses, and c) net income for the year ending June 30?

At the end of the current year, $3,700 fees have been earned but have not been billed to clients. Journalize the adjusting entry to record the accrued fees.

Adjusting entries always include

A company depreciates its equipment $500 a year. The adjusting entry on December 31 is a debit to Depreciation Expense, $500, and a credit to Equipment, $500.

The prepaid insurance account had a beginning balance of $6,600 and was debited for $2,300 for premiums paid during the year. Journalize the adjusting entry required at the end of the year, assuming the amount of unexpired insurance related to future periods is $4,100.

A company receives $6,500 for two season tickets sold on September 1. If $2,500 is earned by December 31, the adjusting entry made at that time is a debit to Cash, $2,500, and a credit to Ticket Revenue, $2,500.

Indicate whether the following error would cause the adjusted trial balance totals to be unequal. If the error would cause the adjusted trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much. The entry for $975 of supplies used during the period was journalized as a debit to Supplies Expense for $795 and credit to Supplies for $975.

The difference between the balance of a fixed asset account and the related accumulated depreciation account is termed

On November 1, clients of Great Designs Company prepaid $4,250 for services to be provided in the future at a rate of $85 per hour. a) Journalize the receipt of cash. b) As of November 30, Great Designs shows that 15 hours of services have been provided on this agreement. Prepare the necessary journal entry. c) Determine the total unearned fees in hours and dollars at November 30.

List the four basic types of accounts that require adjusting entries and give an example of each.