Question 1

Which of the following accounts would most likely be depreciated?

Accepted Answer

Equipment is a long-term asset that is expected to lose value over time, so it is usually depreciated. Office supplies are considered short-term assets and are not depreciated. Cash and accounts payable are not assets at all and therefore cannot be depreciated.

Question 2

The entry to record the expiration of part of the prepaid rent will

Accepted Answer

The entry to record the expiration of part of the prepaid rent will decrease total assets (as the prepaid rent asset account is reduced) and increase total expenses (as rent expense is recognized for the period).

Question 3

Which of the following is most likely to result in an adjusting entry at the end of the period?

Accepted Answer

Payment of two months' insurance in advance would result in an adjusting entry because only one month's worth should be expensed in the current period and the other month's worth should be recorded as a prepaid expense to be used in the following period. The other options do not typically require adjusting entries at the end of the period.

Question 4

When making the adjustment for prepaid insurance, instead of writing off only the time that has passed the entire policy was written off. This would

Accepted Answer

Writing off the entire policy instead of only the time that has passed would result in an overstatement of expenses, which would ultimately lead to an understatement of net income.

Question 5

The accrual of an expense was not recorded. This would

Accepted Answer

Failing to record an accrual of an expense would result in expenses being reported as lower than they actually are (understated) and liabilities being reported as lower than they should be (understated), since the expense has not been recognized or recorded as owed.

Question 6

Historical cost is the same as

Accepted Answer

Historical cost refers to the original cost of an asset, including any costs incurred to get the asset ready for use. It does not include accumulated depreciation or residual value, and it may or may not be the same as the current book value.

Question 7

All of the following are reasons to adjust the account balances at the end of the period EXCEPT

Accepted Answer

Adjusting entries are made at the end of the accounting period to ensure that the financial statements accurately reflect the current status of the company's accounts. Adjusting entries are not made to correct errors made during the period; instead, errors are corrected using correcting entries.

Question 8

Which of the following transactions would result in an accrual?

Accepted Answer

An accrual occurs when an expense or revenue is recognized before cash is exchanged. Option A describes an expense that has been incurred but not yet paid, resulting in an accrual. Options B, C and D are all examples of expenses or revenues that have already been paid or received, and therefore are not accruals.

Question 9

The adjustment for accrued wages included the entire pay period, some of which occurs next month. This would

Accepted Answer

The adjustment for accrued wages includes wages that have been earned by employees during the current period but not yet paid or recorded. Including the entire pay period, some of which occurs next month, would overstate the liabilities because the company is not yet responsible for paying those wages. As a result, the adjustment would increase the liability balance on the balance sheet, making it appear as if the company owes more than it actually does. This would also result in an overstatement of expenses and understatement of net income on the income statement.

Question 10

Adjusting entries affect

Accepted Answer

Adjusting entries affect both the balance sheet and the income statement. The purpose of adjusting entries is to ensure that the financial statements accurately reflect the company's financial position and performance. Adjusting entries can impact accounts on both the balance sheet, such as prepaid expenses, and the income statement, such as accrued revenue or expenses. Therefore, both options A and B are correct.

Question 11

Adjusting the supplies on hand account will

Accepted Answer

Adjusting the supplies on hand account typically involves recognizing the supplies that have been used up as an expense. This decreases the total assets (since supplies are an asset) and increases the total expenses (since the used supplies are recorded as an expense).

Question 12

Bailey's received its electric bill for December on December 31 but did not pay nor record it in the general journal. This resulted in

Accepted Answer

Not recording an expense when it is incurred (in this case, the electric bill) results in not recognizing the expense in the financial statements for that period. This leads to overstated net income because expenses decrease net income, and if an expense is not recorded, net income will not be reduced as it should be.

Question 13

Depreciation of equipment was recorded twice this period. This would

Accepted Answer

Recording depreciation of equipment twice would result in overstating expenses since the same expense is being recorded twice. It would also result in understating assets since the equipment's value is being reduced twice instead of once.

Question 14

Equipment with a cost of $150,000 has an accumulated depreciation of $50,000. What is the book value of the equipment?

Accepted Answer

Book value is calculated by subtracting accumulated depreciation from the cost of the asset. So, the book value of the equipment is $100,000 ($150,000 - $50,000).

Question 15

Online Service received its telephone bill for January, but is not going to pay the bill until February. What adjustment is needed to record the receipt of the bill?

Accepted Answer

The receipt of the telephone bill but delay in payment means that the expense needs to be recorded for the month of January, but payment will not be made until February. Therefore, the account to be debited is Telephone Expense, and the account to be credited is Accounts Payable, indicating that the business owes the amount to the phone company. Choice A and D would be incorrect as they do not reflect that the payment has not yet been made. Choice B would also be incorrect as it would only be used if the bill had been paid immediately upon receipt.

Question 16

It's the end of the accounting period and no electric bill has been received (but the expense has been incurred); you should record an entry that

Accepted Answer

This situation requires an adjusting entry to record an expense that has been incurred but not yet paid, which increases liabilities (since you now owe money for the electricity) and increases expenses (reflecting the cost of electricity used). This is in line with the accrual basis of accounting, where expenses are recognized when incurred, not necessarily when paid.

Question 17

Equipment with a cost of $150,000 has an accumulated depreciation of $50,000, and an estimated remaining life of 8 years. What is the annual straight-line depreciation expense for the equipment?

Accepted Answer

To calculate the annual straight-line depreciation expense for the equipment, we need to subtract the accumulated depreciation from the original cost of the equipment and then divide by the estimated remaining life (in years). Here's the calculation:
($150,000 - $50,000) / 8 = $12,500

Question 18

The adjustment for depreciation was credited to Equipment and debited to Depreciation Expense. This would

Accepted Answer

The adjustment for depreciation involves debiting Depreciation Expense and crediting Accumulated Depreciation (not Equipment directly). This correct process does not overstate or understate assets directly nor does it overstate net income. The given statement is incorrect in its application, but none of the provided outcomes (A, B, C) directly result from the incorrect action described.

Question 19

Equipment with a cost of $150,000 has an accumulated depreciation of $50,000, and an estimated remaining life of 8 years. What is the historical cost of the equipment?

Accepted Answer

The historical cost of the equipment is its original purchase price, which is $150,000. Accumulated depreciation and estimated remaining life do not affect the historical cost.

Question 20

Which of the following accounts would most likely NOT need to be adjusted at the end of the year?

Accepted Answer

Cash is a permanent account and does not require adjusting entries at the end of the year as the balance will remain the same. Adjusting entries are made for accounts that have a temporary balance and need to be updated to reflect the true balance at the end of the accounting period. Office Supplies, Prepaid Rent, and Accumulated Depreciation are all examples of temporary accounts that require adjusting entries at the end of the year.

Quiz 4: The Accounting Cycle Continued: Preparing Worksheets and Financial Statements