Question 1

Mattox Corporation had an unadjusted balance of $5,000 in Supplies. The actual balance was $190. The accountant failed to make the adjusting entry. What is the effect on the current year financial statements?

Accepted Answer

The failure to adjust the Supplies account means that the current assets are overstated by the difference between the unadjusted balance and the actual balance, which is $4,810 ($5,000 - $190).

Question 2

The adjusted trial balance is used to prepare the financial statements for an organization.

Accepted Answer

The adjusted trial balance includes all account balances after adjustments, providing accurate figures for preparing financial statements.

Question 3

St. Augustine Properties collected advance rentals of $350,000 from its customers during the year. The balance in the unearned rent revenue account increased from $20,000 on January 1 to $35,000 on December 31. Rents earned during the year totaled ________.

Accepted Answer

The answer of St. Augustine Properties collected advance rentals of...

Question 4

To ensure that all economic events are properly reflected in the financial statements ________.

Accepted Answer

Adjusting entries are necessary to ensure that all economic events are accurately reflected in the financial statements, as they account for accrued and deferred items.

Question 5

Johnson Company neglected to accrue interest expense of $2,000 on its year-end trial balance. This results in an ________.

Accepted Answer

Neglecting to accrue interest expense results in an overstatement of net income because the expense is not recorded, leading to higher reported profits.

Question 6

The adjusted trial balance includes only permanent accounts.

Accepted Answer

The adjusted trial balance includes both permanent accounts (assets, liabilities, and equity) and temporary accounts (revenues, expenses, and dividends) to ensure that all accounts are balanced before preparing financial statements.

Question 7

The adjusted trial balance proves the accuracy of the financial statements.

Accepted Answer

The adjusted trial balance ensures that total debits equal total credits after adjustments, but it does not verify the accuracy of the financial statements themselves.

Question 8

The first financial statement to be prepared is the statement of net income.

Accepted Answer

The first financial statement to be prepared is the income statement, which shows the revenues and expenses of a company over a period of time. The statement of net income is prepared after the income statement and shows the net income or loss of a company for a period of time.

Question 9

Wesley Foundation had $27,000 in supplies inventory at the beginning of the year. The company purchased $50,000 in supplies throughout the year and used $60,000. What is the ending balance in the supplies inventory?

Accepted Answer

The answer of Wesley Foundation had $27,000 in supplies inventory...

Question 10

Jackson Company records all insurance premiums as prepaid insurance. Additional information for the current year is presented below: $$\begin{array} { | l | r | } 
\hline \text { Prepaid Insurance, January 1 } & \$ 50,000 \
\hline \text { Insurance premiums paid } & \$ 210,000 \
\hline \text { Prepaid Insurance, December 31 } & \$ 83,000 \
\hline
\end{array}$$ What was the total amount of insurance expense incurred during the year?

Accepted Answer

Insurance expense incurred during the year = Prepaid Insurance, January 1 + Insurance premiums paid - Prepaid Insurance, December 31= $50,000 + $210,000 - $83,000= $177,000

Question 11

On November 1, Fisher and Sons Music Center loaned a customer $17,000 at a 2% annual interest rate for six months. What is the interest receivable on the note at December 31? (Do not round intermediary calculations. Only round your final answer to the nearest dollar.)

Accepted Answer

The interest for two months (November and December) is calculated as $17,000 * 2% * (2/12) = $56.67, which rounds to $57.

Question 12

Olympic Equipment borrowed $500,000 on November 1. The note matures in one year and the interest rate is 10%. What amount of interest expense will be accrued on December 31? (Do not round intermediary calculations. Only round your final answer to the nearest dollar.)

Accepted Answer

The interest expense for two months (November and December) is calculated as $500,000 * 10% * (2/12) = $8,333.

Question 13

Thunderball Sports Club collected $328,000 unearned revenue from its clients during the year. If unearned revenue at the beginning of the year was $69,000 and revenue earned during the year was $380,000, what was unearned revenue at the end of the year?

Accepted Answer

Unearned revenue at the end of the year is calculated as: Beginning unearned revenue ($69,000) + Collected unearned revenue ($328,000) - Revenue earned ($380,000) = $17,000.

Question 14

Lucid Solutions Inc. has the following selected account balances from its unadjusted trial balance as of December 31, 2018, the company's year-end:
• Prepaid Insurance: $75,000
• Prepaid Rent: $50,000
• Buildings: $3,600,000
• Wages Payable: $420,000
• Note Payable: $360,000
• Wage Expense: $1,120,000
• Insurance Expense: $120,000
• Interest Expense: $234,000
• Rent Expense: $260,000
At year-end, Lucid makes the necessary adjusting journal entries to properly record revenues and expenses for the year. The following information applies to the adjusting journal entries:
a.
The prepaid insurance balance relates to a two-year insurance policy purchased on June 1 that covers the period of 7/1/18-6/30/20.
b. The prepaid rent balance relates to rent that was paid in January 2018 to cover the company's facilities for the year 2018.
c. Wages for the last week of 2018 amount to $33,000 and will be paid after year-end and have not yet been recorded.
d. Lucid purchased the buildings on January 1, 2018 and depreciates them on a yearly basis. It must record a full year of depreciation at the end of 2018. The buildings have no residual value, a 30-year estimated useful life, and will be depreciated on a straight-line basis.
e. Lucid has not yet recorded accrued interest expense for 2018 on the note payable in the amount of $16,000. It will not be paid until 2019.

Accepted Answer

The answer of Lucid Solutions Inc. has the following selected...

Question 15

Which of the following errors would cause the adjusted trial balance to not balance?

Accepted Answer

Failure to post one side of a journal entry would cause the adjusted trial balance to not balance because it would result in an unequal number of debits and credits.

Question 16

Heartland Corporation records all insurance premiums as prepaid insurance. Additional information for the current year is presented below: $$\begin{array} { | l | r | } 
\hline \text { Prepaid Insurance, January 1 } & \$ 62,000 \
\hline \text { Insurance expense for year } & \$ 200,000 \
\hline \text { Prepaid Insurance, December 31 } & \$ 80,000 \
\hline
\end{array}$$ What were the total amount of insurance premiums paid during the year?

Accepted Answer

The answer of Heartland Corporation records all insurance premiums as...

Question 17

True North Real Estate Management failed to adjust its Unearned Rent Revenue account for the $25,000 that had been earned during the current year. What effect does this omission have on the current year financial statements?

Accepted Answer

The omission means that the Unearned Rent Revenue, a liability, was not reduced by the $25,000 that was earned, thus overstating liabilities.

Question 18

Bay Meadows Real Estate collected rentals of $600,000 during the year. The beginning balance in its rent receivable account was $60,000 and its ending balance was $40,000. What was total rent revenue for the year?

Accepted Answer

The answer of Bay Meadows Real Estate collected rentals of...

Question 19

Selected transactions for Rosewood Industries are presented below. The fiscal year end for the company is April 30. Net income prior to these adjustments is $43,670.
a. The company had purchased a 2-year insurance policy for $2,400 on January 1 and debited the prepaid insurance account. Insurance coverage begins on January 1.
b. Depreciation on equipment for the month was $600. Equipment was purchased on January 1 of the current year.
c. The company borrowed $15,000 on February 1 at 12% interest. Principal and interest are due on February 1 of the following year.
d. The unadjusted trial balance showed a balance in Supplies of $2,650. A month-end inventory showed $900 on hand.
e. The company loaned $8,000 to a customer on April 1. The note has an annual interest rate of 12% and is due along with accrued interest on March 31 of the following year.
f. Employees had earned $5,600 in salaries as of April 30. These salaries will be paid on May 3.
g. The unadjusted trial balance showed unearned revenues of $7,200. During April, $1,200 of these revenues were earned.
Required:
1. Prepare the necessary adjusting entries for Rosewood Industries as of April 30. Please include explanations.
2. Compute net income after these adjustments have been made.

Accepted Answer

The answer of Selected transactions for Rosewood Industries are presented...

Question 20

Which of the following is not a reason for why adjusting journal entries are necessary?

Accepted Answer

Adjusting journal entries are necessary because U.S. GAAP requires financial information to be reported using the accrual basis of accounting, not the cash basis.

Quiz 4: Review of the Accounting Cycle