Question 1

Net income is recorded on the net income line in the ___________________ column of the Balance Sheet section of the worksheet.

Accepted Answer

The answer of Net income is recorded on the net...

Question 2

On January 1,2016,a firm purchased machinery for $17,000.Depreciation expense for the year ending December 31,2016,given the straight-line method,a 5-year useful life,and a salvage value of $3,000,is

Accepted Answer

First, we need to calculate the depreciation expense per year using the straight-line method:
Depreciation per year = (Cost - Salvage value) / Useful life
Depreciation per year = ($17,000 - $3,000) / 5 years = $2,800
Therefore, the depreciation expense for the year ending December 31, 2016 is $2,800.

Question 3

On May 1,2016,a firm purchased a 1-year insurance policy for $3,600 and paid the full premium in advance.The insurance expense associated with this policy for the year ending December 31,2016,is

Accepted Answer

Since the insurance policy was purchased on May 1st, there are only 8 months left in the year (May 1st to December 31st). Therefore, the insurance expense for the year ending December 31st is calculated as follows:

($3,600 / 12 months) x 8 months = $2,400.

So the correct answer is B) $2,400.

Question 4

The adjusting entry to record accrued interest on a note receivable increases the Interest Receivable account and ____________________ the Interest Income account.

Accepted Answer

The answer of The adjusting entry to record accrued interest...

Question 5

On the financial statements prepared at the end of an accounting period,the merchandise inventory is shown as

Accepted Answer

Merchandise inventory is a current asset and is shown on the balance sheet under the assets section.

Question 6

Accrued expenses are

Accepted Answer

Accrued expenses are expenses that have been incurred in one period but have not been paid for until a later period. For example, if a company receives a service in December but does not receive the invoice until January, the expense is considered accrued in December even though it's not paid until January.

Question 7

Which of the following statements is not correct?

Accepted Answer

Uncollectible Accounts Expense is not a contra asset account; it is an expense account. The contra asset account related to uncollectible accounts is Allowance for Doubtful Accounts.

Question 8

On June 1,2016,Mighty Fast Flooring issued a 10-month,9 percent note for $4,000.The note was recorded in the Notes Payable-Trade account.The adjusting entry on December 31 to record the interest accrued (owed)on the note is:

Accepted Answer

To accrue interest expense for the 10-month, 9 percent note, the following calculation is used:
Interest expense = principal x annual interest rate x time
Time = number of days between note issuance and December 31, divided by 365
Time = 213 days / 365 = 0.5849
Interest expense = $4,000 x 0.09 x 0.5849 = $210
The adjusting entry is a debit to Interest Expense for $210 and a credit to Interest Payable for $210. This correctly records the interest expense that has accrued but not yet been paid, and establishes a liability for future payment.

Question 9

If a company uses the periodic inventory system,purchases of merchandise are

Accepted Answer

In the periodic inventory system, purchases of merchandise are debited to the Purchases account rather than Merchandise Inventory. The Merchandise Inventory account is only updated at the end of the accounting period using a physical count of inventory on hand.

Question 10

Allowance for Doubtful Accounts is

Accepted Answer

Allowance for Doubtful Accounts is a contra asset account that is subtracted from Accounts Receivable in the Assets section of the balance sheet. It represents the estimated amount of accounts receivable that may not be collected from customers.

Question 11

On Oct 1,2016,a firm purchased a 1-year insurance policy for $2,400 and paid the full premium in advance.The adjustment needed on December 31,2016,to report the amount of insurance that had expired,would be:

Accepted Answer

The adjustment needed on December 31, 2016, would be to report the amount of insurance that had expired. As of December 31, 2016, three months of the policy have expired (October, November, December). Therefore, the amount of insurance expense that should be recognized for the year ending December 31, 2016, is $600 ($2,400/12 months x 3 months). To record this adjustment, we would debit the Insurance Expense account for $600 and credit the Prepaid Insurance account for $600, reducing the prepaid amount by the amount that has expired. Therefore, the correct choice is B.

Question 12

The adjusting entry to record accrued interest on a note payable requires a debit to

Accepted Answer

Under the accrual basis of accounting, interest on a note payable is recognized and recorded as an expense in the period it is incurred, even if it has not yet been paid. Therefore, the adjusting entry required to record accrued interest on a note payable is a debit to Interest Expense and a credit to Interest Payable. The other answer choices are incorrect because they do not appropriately reflect the recognition and recording of accrued interest as an expense and liability.

Question 13

During the year,Spirit Fun had net credit sales of $500,000.Past experience shows that 1.5 percent of the firm's net credit sales result in uncollectible accounts.Determine the adjusting entry needed to recognize the estimated expense for these uncollectible accounts.

Accepted Answer

The adjusting entry needed to recognize the estimated expense for uncollectible accounts is to debit Uncollectible Accounts Expense and credit Allowance for Doubtful Accounts. This will increase the expense and decrease the asset by the same amount, resulting in a more accurate representation of the financial statements. Option A is incorrect because it directly reduces the Accounts Receivable account which is not appropriate as it is only an estimation at this stage. Option B and D are incorrect because they incorrectly account the expense for uncollectible accounts without setting up the allowance account.

Question 14

An adjusting entry is usually not required for a revenue item when it is

Accepted Answer

When a revenue item is paid for by the customer, recorded, and earned in one period, no adjusting entry is needed because the revenue has already been earned and the transaction has been properly recorded.

Question 15

Which of the following statements is correct?

Accepted Answer

A) Accrued income refers to income that has been earned but not yet received.
B) Unearned Subscription Income is a liability account because it represents revenue that has not yet been earned.
C) Under the accrual basis of accounting, revenue is recognized and recorded in the period when it is earned, regardless of when cash related to the transaction is received. This is because revenue is considered earned when goods or services are provided, not when cash is received.

Therefore, all three statements are correct.

Question 16

Allowance for Doubtful Accounts is reported in the

Accepted Answer

Allowance for Doubtful Accounts is a contra-asset account that is used to reduce the reported value of Accounts Receivable on the balance sheet. Therefore, it is reported in the Assets section of the balance sheet.

Question 17

If an account has a debit balance in the Trial Balance section and a debit entry in the Adjustments section,_______________ the two amounts.

Accepted Answer

The answer of If an account has a debit balance...

Question 18

The adjusting entry for uncollectible accounts requires a debit to

Accepted Answer

The adjusting entry for uncollectible accounts requires a debit to Uncollectible Accounts Expense and a credit to Allowance for Doubtful Accounts. This is because Uncollectible Accounts Expense represents the estimated amount of accounts receivable that will not be collected, while Allowance for Doubtful Accounts is a contra-asset account that reduces the amount of Accounts Receivable to reflect the estimated amount that will not be collected. By crediting Allowance for Doubtful Accounts, we are increasing the amount of the allowance to match the estimated amount of uncollectible accounts, and by debiting Uncollectible Accounts Expense, we are recognizing the expense associated with those uncollectible accounts.

Question 19

On January 2,2016,a firm purchased equipment for $8,500.Depreciation expense for the year ending December 31,2016,given the straight-line method,a 5-year useful life,and a salvage value of $1,500,is

Accepted Answer

Depreciation expense = (Cost - Salvage value) / Useful life= (8,500 - 1,500) / 5= $1,400

Question 20

On July 1,2016,a firm purchased a 1-year insurance policy for $1,800 and paid the full premium in advance.The insurance expense associated with this policy for the year ending December 31,2016,is

Accepted Answer

The insurance expense for the year ending December 31, 2016, is $900 because the policy covers 12 months, and only 6 months (July to December) fall within 2016. Therefore, $1,800/12 months * 6 months = $900.

Quiz 12: Accruals, Deferrals, and the Worksheet