Adjusting entries that represent accruals are needed to ___. (Select all that apply).
recognize expenses incurred before cash is disbursed
recognize revenue earned before cash is received
A cash expenditure that benefits more than one period represents the
deferral of an expense.
An
adjusting entry that has the effect of moving a portion of deferred
revenue liability from the balance sheet to the income statement has the
effect of: (Select all that apply).
increasing revenue.
decreasing liabilities.
The purpose of adjusting entries is to more accurately measure a company's periodic: (Select all that apply).
expenses
revenue
profitability
An expense incurred in the current period that will be paid in a future period represents the
accrual of an expense.
___ ___ are needed to make certain that appropriate amounts of revenue and expense are reported in the company's income statement.
Blank 1: Adjusting or adjusting
Blank 2: entries
Revenue earned in the current period that will be collected in a future period represents the
accrual of revenue.
Adjusting entries that represent deferrals are needed to ___. (Select all that apply).
convert a liability to revenue
convert an asset to an expense
The adjusting entry to record the expiration of one month of insurance coverage involves
debiting Insurance Expense.
crediting Unexpired Insurance.
For
a magazine publishing company, an adjusting entry to recognize one
month of revenue for a 2-year magazine subscription paid by a customer
in advance involves
crediting Revenue.
debiting Unearned Revenue.
Every adjusting entry affects: (Select all that apply).
either a revenue account or an expense account.
either an asset account or a liability account.
What is the balance sheet effect of making an adjusting entry to accrue an unpaid expense?
It increases a related liability.
Trial balances prepared before adjusting entries are prepared are referred to as ___ trial balances.
Blank 1: unadjusted
The
adjusting entry to record revenue earned in the current period that
will be collected in a future period involves: (Select all that apply).
debiting Accounts Receivable.
crediting Revenue.
A company rents its office
building. On February 1, it paid $36,000 for a one-year lease on this
particular office space. Adjusting entries are prepared monthly. The
balance amount in the Prepaid Rent account on December 31 after
adjusting entry is made is ___.
Blank 1: $3,000, 3,000, $3000, or 3000
In an accrual accounting system, there are often___ ___ between cash flows and the recognition of expenses or revenue.
Blank 1: timing
Blank 2: differences
An
adjusting entry to move a portion of an asset's cost from the balance
sheet to the income statement has the effect of: (Select all that
apply).
increasing expenses.
decreasing assets.
A
company purchased a 6-month insurance policy on October 1 for $3,000.
It recorded this transaction by debiting Insurance Expense for $3,000,
and by crediting Cash for $3,000. If the company prepares adjusting
entries only once each year on December 31, the related adjustment on
December 31 requires a debit to for $1,500 and a credit to for $1,500.
Blank 1: Unexpired or Prepaid
Blank 2: Insurance
Blank 3: Insurance
Blank 4: Expense
True or false: A bill or other source document indicates the need to prepare an adjusting entry.
False
True or false: The amount of Depreciation Expense reported in the income statement is an estimate.
True
Most companies prepare adjusting entries
monthly
A
company purchased a one-year insurance policy on September 1, 2020, for
$48,000. On September 1 of the following year, it purchased a
replacement one-year insurance policy for $60,000. Insurance expense in
2021 is $.
Blank 1: 52,000 or 52000
The most common method of computing depreciation expense is the - method.
Blank 1: straight
Blank 2: line
A
company purchased a piece of equipment for $768,000 on May 1. The
equipment had an estimated useful life of 8 years. Adjusting entries are
prepared monthly. After using the equipment for five full months, the
balance in the Accumulated Depreciation account on September 30 will be .
Blank 1: $40,000, 40000, 40,000, or $40000
A
company recorded the purchase of $3,200 of supplies on December 1 by
debiting Supplies Expense for $3,200, and by crediting Cash for the same
amount. On December 31, $850 of these supplies remain unused. The
balance in Supplies Expense at December 31 after the required adjusting
entry has been made, will be .
Blank 1: $2,350, $2350, 2350, or 2,350
Accumulated depreciation is classified in the balance sheet as
a contra-asset account.
The term refers to the systematic allocation of a noncurrent asset's cost to an expense over the asset's useful life.
Blank 1: depreciation
Trial balances prepared before adjusting entries are prepared are referred to as trial balances.
unadjusted
The largest cause of the difference between net income and cash flow from operations is typically
depreciation expense.
Under the straight-line method of depreciation, depreciation expense is computed by dividing an asset's by its .
Blank 1: cost
Blank 2: estimated or expected
Blank 3: useful
Blank 4: life
A
company purchased an automobile for $60,000 on August 1, 2021. The
estimated useful life of the automobile was 5 years. Adjusting entries
for depreciation are prepared monthly. The automobile's monthly
depreciation expense computed using the straight-line method was .
Blank 1: $1,000, 1,000, $1000, or 1000
Which type of business typically has little, if any, unearned revenue?
fast food restaurants offering drive-through services
The Accumulated Depreciation account: (Select all that apply).
has a normal credit balance.
is increased by crediting it.
The expiration of a portion of a depreciable asset's usefulness is recorded as
depreciation expense.
Assume that net income is $45,000 and depreciation expense is $15,000,
and assume no other differences between net income and cash flow. Would
net income be more or less than cash flow from operations? less
Blank 1: less
On
April 1, a company sold numerous 2-year magazine subscriptions to
customers totaling $4,800. If the company records adjusting entries
quarterly, the Subscription Revenue account pertaining to these
subscriptions will be credited every three months for .
Blank 1: $600 or 600
Which liability account is typically settled by providing goods or services rather than by paying cash?
Unearned Revenue
Examples of common accruals for unpaid expenses involve which of the following types of accounts? (Select all that apply).
salaries
interest
Examples of depreciable assets include: (Select all that apply).
equipment.
buildings.
On
November 1 of the current year, a health spa sold numerous 3-year
memberships totaling $7,200. After 14 months, the balance in the spa's
Unearned Revenue account on December 31 of the following year will $.
Blank 1: 4,400 or 4400
A
company's weekly payroll of $14,000 is paid every Friday (an average
salary expense of $2,000 per day for 7 days). The company operates on a
calendar-year basis, and the last Friday of December, 2021, was December
25. The entry on January 1, 2022, to pay employee salaries involves a
debit to Salaries Payable of .
Blank 1: $12,000 or 12000
On
April 1 of the current year, a company issued a one-year note payable
with a face value of $500,000. The note pays interest semiannually on
April 1 and October 1, and has an annual interest rate of 3%. The first
interest payment is due on October 1 of the current year. If the company
prepares adjusting entries monthly, the adjusting entry made on
December 31 of the current year will include: (Select all that apply).
a credit to Interest Payable of $1,250.
a debit to Interest Expense of $1,250.
Adjusting entries to record expenses incurred in the current period, that will be paid in a future period, is described as
accruing unpaid expenses
True
or false: The term "accrued revenue" is used to describe cash that has
been received from customers that has not yet been recorded or earned.
False
A
company makes adjusting entries monthly. Its unadjusted trial balance
on December 31 reports Income Taxes Expense of $130,000 and Income Taxes
Payable of $40,000. The company's Tax Department estimates Income Taxes
Expense for the entire year as $150,000. Following the necessary
adjustment, the company's adjusted trial balance will report a: (Select
all that apply).
debit balance in Income Taxes Expense of $150,000.
credit balance in Income Taxes Payable of $60,000.
A
company's weekly payroll of $14,000 is paid every Friday. The company
operates on a calendar-year basis, and the last Friday in December is
December 25. The entry on December 31 to accrue unpaid salaries involves
a debit to Salaries Expense of $.
Blank 1: 12,000 or 12000
On
April 1 of the current year, a company issued a one-year note payable
with a face value of $500,000. The note pays interest semiannually on
April 1 and October 1, and has an annual interest rate of 3%. The first
interest payment is due on October 1 of the current year. If the company
prepares adjusting entries monthly, Interest Payable associated with
this note will be reported in the current year's balance sheet on
December 31 at:
$3,750
A
company makes adjusting entries monthly, at which time it records
accrued, but unrecorded and uncollected, revenue for services it has
provided to its clients. On December 31 of the current year, it recorded
an adjusting entry for unrecorded and uncollected revenue amounting to
$90,000. This adjustment: (Select all that apply).
increased assets by $90,000.
increased owners' equity by $90,000
If Income Taxes Payable has a debit balance at the end of the year resulting from excessive losses, it is often reclassified as
an asset.
Tax Refunds Receivable
In
order to implement the matching principle, costs are matched against
revenue in which of the following ways? (Select all that apply).
Direct association of costs with revenues.
Systematic allocation of costs over time
The amount of income taxes accrued in any given month is only an . The actual amount is not determined until a company prepares its annual income tax return.
Blank 1: estimate
A
company's weekly payroll of $14,000 is paid every Friday (an average
salary expense of $2,000 per day for 7 days). The company operates on a
calendar-year basis, and the last Friday of December, 2021, was December
25. The entry on January 1, 2022, to pay employee salaries involves a
debit to Salaries Payable of .
Blank 1: $12,000 or 12000
Which of the following factors are considered when evaluating whether or not an item is material? (Select all that apply).
nature of the item
dollar amount of the item
size of the organization
On
April 1 of the current year, a company issued a one-year note payable
with a face value of $500,000. The note pays interest semiannually on
April 1 and October 1, and has an annual interest rate of 3%. The first
interest payment is due on October 1 of the current year. If the company
prepares adjusting entries monthly, the journal entry to record the
first interest payment made on October 1 of the current year will
include: (Select all that apply).
a credit to Cash of $7,500.
a debit to Interest Payable of $7,500.
How does converting liabilities to revenue affect the elements of financial statements? (Select all that apply).
The conversion increases revenue.
The conversion increases net income.
The conversion increases owners' equity.
The conversion decreases liabilities.
Which account is credited to recognize the income tax consequences of operating at a loss?
Income Tax Expense
The financial statements are prepared from the company's balance.
Blank 1: adjusted
Blank 2: trial
Which
of the following are examples of expenditures that are charged to
expense based on a systematic allocation over time? (Select all that
apply).
depreciation
insurance
A
company makes adjusting entries monthly. Its unadjusted trial balance
on December 31 reports Income Taxes Expense of $130,000 and Income Taxes
Payable of $40,000. The company's Tax Department estimates Income Taxes
Expense for the entire year as $150,000. Following the necessary
adjustment, the company's adjusted trial balance will report a: (Select
all that apply).
credit balance in Income Taxes Payable of $60,000.
debit balance in Income Taxes Expense of $150,000.
True or false: Materiality is determined by a strict formula.
False
How does a failure to accrue unpaid expenses affect the elements of financial statements?
The failure understates expenses.
Financial statements are prepared directly from the
adjusted trial balance.
Materiality refers to the of an item or event.
Blank 1: relative
Blank 2: importance
The financial statements are prepared from the company's balance.
Blank 1: adjusted
Blank 2: trial
Listed as follows are nine technical accounting terms.
Unrecorded revenue
Adjusting entries
Accrued expenses
Book value
Matching principle
Accumulated depreciation
Unearned revenue
Materiality
Prepaid expenses
Each of the following statements may (or may not) describe one of these
technical terms. For each statement, indicate the accounting term
described, or answer “None” if the statement does not correctly describe
any of the terms.
The net amount at which an asset is carried in the accounting records as distinguished from its market value. - Book Value
An accounting concept that may justify departure from other accounting principles for purposes of convenience and economy. - Materiality
The offsetting of revenue with expenses incurred in generating that revenue. - Matching Principles
Revenue earned during the current accounting period but not yet recorded
or billed, which requires an adjusting entry at the end of the period. - Unrecorded Revenue
Entries made at the end of the period to achieve the goals of accrual
accounting by recording revenue when it is earned and by recording
expenses when the related goods and services are used. - Adjusting entries
A type of account credited when customers pay in advance for services to be rendered in the future. - Unearned revenue
A balance sheet category used for reporting advance payments of such items as insurance, rent, and office supplies. - Prepaid expenses
An expense representing the systematic allocation of an asset's cost over its useful life. - None
The Rockford Rollers, a professional roller derby team, prepares
financial statements on a monthly basis. The roller derby season begins
in February, but in January, the team engaged in the following
transactions:
Paid $33,000 to the Sunbury
Skating Rink as advance rent for use of the facilities for the 6-month
period from February 1 through July 31. This payment was initially
recorded as Prepaid Rent.
Collected $45,000 cash from the
sale of season tickets for the team’s home games. The entire amount was
initially recorded as Unearned Ticket Revenue. During the month of
February, the team skated several home events at which $7,000 of the
season tickets sold in January were used by fans.
Prepare the two adjusting entries required at the end of February. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
- Rent expense 5,500
- prepaid rent 5,500
- unnamed ticket revenue - 7,000
- ticket revenue earned - 7,000
Ken Hensley Enterprises, Inc., is a small recording studio in St.
Louis. Rock bands use the studio to mix high-quality demo recordings
distributed to talent agents. New clients are required to pay in advance
for studio services. Bands with established credit are billed for
studio services at the end of each month. Adjusting entries are
performed on a monthly basis. Below is an unadjusted trial balance dated
December 31 of the current year. (Bear in mind that adjusting entries
have already been made for the first 11 months, but not for December.)
Records show that $5,280 in studio revenue had not yet been billed or recorded as of December 31.
Studio supplies on hand at December 31 amount to $8,280.
On
August 1 of the current year the studio purchased a six-month insurance
policy for $1,800. The entire premium was initially debited to Unexpired
Insurance.
The
studio is located in a rented building. On November 1 of the current
year the studio paid $7,200 rent in advance for November, December, and
January. The entire amount was debited to Prepaid Studio Rent.
The
useful life of the studio’s recording equipment is estimated to be five
years (or 60 months). The straight-line method of depreciation is used.
On
May 1 of the current year the studio borrowed $19,200 by signing a
12-month, 9 percent note payable to First Federal Bank of St. Louis. The
entire $19,200 plus 12 months’ interest is due in full on April 30 of
the upcoming year.
Records show that $4,320 of cash receipts originally recorded as Unearned Studio Revenue had been earned as of December 31.
Salaries earned by recording technicians that remain unpaid at December 31 amount to $648.
The
studio’s accountant estimates that income taxes expense for the entire
year ended December 31 is $23,520. (Note that $21,480 of this amount has
already been recorded.)
. For each of the numbered paragraphs, prepare the necessary adjusting entry.
b. Using figures from the company’s unadjusted trial
balance in conjunction with the adjusting entries made in part a,
compute net income for the year ended December 31.
c. Was the studio’s monthly rent for the last 2
months of the current year more or less than during the first 10 months
of the year?
d. Was the studio’s monthly insurance expense for
the last five months of the current year more or less than the average
monthly expense for the first seven months of the year?
e. If the studio purchased all of its equipment when it first began operations, for how many months has it been in business?
f. Indicate the effect of each adjusting entry prepared in part a
on the major elements of the company’s income statement and balance
sheet. Organize your answer in tabular form using the column headings
shown. Use the symbols I for increase, D for decrease, and NE for no effect. The answer for the adjusting entry number 1 is provided as an example.
Carnival Corporation & PLC is one of the world’s largest cruise
line companies. Its printing costs for brochures are initially recorded
as Prepaid Advertising and are later charged to Advertising Expense when
they are mailed. Passenger deposits for upcoming cruises are considered
unearned revenue and are recorded as Customer Deposits as cash is
received. Deposited amounts are later converted to Cruise Revenue as
voyages are completed.
a. Where in its financial statements does Carnival
Corporation & PLC report Prepaid Advertising? Where in its financial
statements does it report Customer Deposits?
b. & c. Prepare the adjusting entry necessary
when brochures costing $3.5 million are mailed. In its most recent
annual report, Carnival Corporation & PLC reported Customer Deposits
of $4.0 billion. Prepare the adjusting entry necessary in the following
year as $60 million of this amount is earned.
A )
B)
Author
WatchOnOdysee1
ID
359474
Card Set
Williams: Financial and Managerial Accounting Smartbook & Homework
