Question 1

On July 1,a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date.What will be the insurance expense on the annual income statement for the first year ended December 31?
A)$1,200.
B)$2,400.
C)$1,000.
D)$400.
E)$1,400.

Accepted Answer

The insurance expense for the first year will be a portion of the $2,400 premium that was paid. Since the benefits of the insurance policy started on July 1st, there are only 6 months left in the year. Therefore, the insurance expense for the year will be half of the premium, which is $1,200.

Question 2

Accrued revenues:
A)At the end of one accounting period result in cash receipts in a future period.
B)At the end of one accounting period often result in cash payments in the next period.
C)Are also called unearned revenues.
D)Are listed on the balance sheet as liabilities.
E)Are recorded at the end of an accounting period because cash has already been received for revenues earned.

Accepted Answer

Accrued revenues are amounts earned but not yet received in cash or recorded at the end of the accounting period. They result in cash receipts in a future period, not in the period they are earned.

Question 3

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:
A)Is referred to as depreciation expense.
B)Is referred to as accumulated depreciation.
C)Is shown on the income statement of the final period.
D)Is only recorded when the asset is disposed of.
E)Is referred to as an accrued asset.

Accepted Answer

Accumulated depreciation is the total amount of depreciation recorded against an asset over the entire time the asset has been owned. It is a contra asset account that is subtracted from the asset's cost to determine its carrying value on the balance sheet. It is not an expense that appears on the income statement, and it is recorded throughout the asset's useful life, not just when it is disposed of. The term "accrued asset" does not apply to accumulated depreciation.

Question 4

161.On July 1 of the current calendar year,Olive Co.paid $7,500 cash for management services to be performed over a two-year period beginning July 1.Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.The adjusting entry on December 31 of the current year for Olive would include:
A)A debit to an expense and a credit to a prepaid expense for $5,625.
B)A debit to a prepaid expense and a credit to Cash for $5,625.
C)A debit to an expense and a credit to a prepaid expense for $1,875.
D)A debit to a prepaid expense and a credit to an expense for $1,875.
E)A credit to a liability and a debit to a prepaid expense for $1,875.

Accepted Answer

The total payment of $7,500 covers a two-year period, so the annual cost is $3,750. From July 1 to December 31 is six months, half of a year, so the expense for the current year is half of the annual cost: $3,750 / 2 = $1,875. Therefore, the adjusting entry should recognize $1,875 of the prepaid amount as an expense for the current year.

Question 5

On May 1,a two-year insurance policy was purchased for $18,000 with coverage to begin immediately.What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?
A)$750.
B)$5,270.
C)$6,000.
D)$6,750.
E)$18,000.

Accepted Answer

The total cost of the insurance policy is $18,000 for two years. To find the annual expense, divide the total cost by 2, which gives $9,000 per year. However, since the policy was purchased on May 1 and the first year ends on December 31, only 8 months of insurance expense should be recognized in the first year. Therefore, the expense for the first year is 8/12 of the annual expense: $9,000 * (8/12) = $6,000.

Question 6

Unearned revenue is reported in the financial statements as:
A)A revenue on the balance sheet.
B)A liability on the balance sheet.
C)An unearned revenue on the income statement.
D)An asset on the balance sheet.
E)A financing activity on the statement of cash flows.

Accepted Answer

Unearned revenue represents revenue that has been received but cannot be recognized as revenue until the goods or services have been delivered. Therefore, it is reported as a liability on the balance sheet. Once the goods or services are delivered, the unearned revenue is recognized as revenue on the income statement.

Question 7

A company pays each of its two office employees each Friday at the rate of $100 per day for a five-day week that begins on Monday.If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday,the month-end adjusting entry to record the salaries earned but unpaid is:
A)Debit Unpaid Salaries $600 and credit Salaries Payable $600.
B)Debit Salaries Expense $400 and credit Salaries Payable $400.
C)Debit Salaries Expense $600 and credit Salaries Payable $600.
D)Debit Salaries Payable $400 and credit Salaries Expense $400.
E)Debit Salaries Expense $400 and credit Cash $400.

Accepted Answer

Since each employee earns $100 per day and both worked for 2 days (Monday and Tuesday), the total unpaid salaries are 2 days * $100/day * 2 employees = $400. The correct entry is to debit Salaries Expense and credit Salaries Payable for $400.

Question 8

On May 1,Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 of the current year to April 30 of the following year.The Cash receipt was recorded as unearned fees and at year-end on December 31,$1,000 of the fees had been earned.Assuming adjustments are only made at year-end,the adjusting entry on December 31 would be:
A)A debit to Unearned Fees and a credit to Cash for $500.
B)A debit to Fees Earned and a credit to Unearned Fees for $500.
C)A debit to Unearned Fees and a credit to Fees Earned for $1,000.
D)A debit to Fees Earned and a credit to Cash for $1,000.
E)A debit to Fees Earned and a credit to Cash for $500.

Accepted Answer

The adjusting entry on December 31 would be a debit to Unearned Fees and a credit to Fees Earned for $1,000. This is because $1,000 of the original $1,500 has now been earned, leaving a remaining balance of $500 in unearned fees that will be earned during the remaining months of the marketing campaign.

Question 9

On January 1,a company purchased a five-year insurance policy for $1,800 with coverage starting immediately.If the purchase was recorded in the Prepaid Insurance account,and the company records adjustments only at year-end,the adjusting entry at the end of the first year is:
A)Debit Prepaid Insurance,$1,800; credit Cash,$1,800.
B)Debit Prepaid Insurance,$1,440; credit Insurance Expense,$1,440.
C)Debit Prepaid Insurance,$360; credit Insurance Expense,$360.
D)Debit Insurance Expense,$360; credit Prepaid Insurance,$360.
E)Debit Insurance Expense,$360; credit Prepaid Insurance,$1,440.

Accepted Answer

The correct adjusting entry at the end of the first year is to debit Insurance Expense and credit Prepaid Insurance for $360. This is because the annual expense ($1,800/5 years) is $360, reflecting the expense for one year of the policy.

Question 10

On April 1,a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date.What amount of the insurance expense will be reported on the annual income statement for the year ended December 31?
A)$1,350.00.
B)$450.00.
C)$1,012.50.
D)$337.50.
E)$37.50.

Accepted Answer

The annual insurance expense is calculated by dividing the total premium by the number of years the policy covers. $1,350 / 3 years = $450 per year. Since the policy starts on April 1, only 9 months of the insurance expense will be reported in the first year. Therefore, $450 * 9/12 = $337.50.

Question 11

Which of the following assets is not depreciated?
A)Store fixtures.
B)Computers.
C)Land.
D)Buildings.
E)Equipment.

Accepted Answer

Land is not depreciated because it is considered to have an indefinite useful life and its value may appreciate over time.

Question 12

A company had no office supplies available at the beginning of the year.During the year,the company purchased $250 worth of office supplies.On December 31,$75 worth of office supplies remained.How much should the company report as office supplies expense for the year?
A)$75.
B)$125.
C)$175.
D)$250.
E)$325.

Accepted Answer

The company started with zero supplies, purchased $250 worth of supplies, and ended with $75 worth of supplies. Therefore, the total amount of supplies used or consumed during the year was $250 - $75 = $175. This is the amount that should be reported as office supplies expense for the year. Choice C is the only option that reflects this calculation.

Question 13

Which of the following does not require an adjusting entry at year-end?
A)Accrued interest on notes payable.
B)Supplies used during the period.
C)Cash invested by stockholders.
D)Accrued wages.
E)Expired portion of prepaid insurance.

Accepted Answer

Cash invested by stockholders does not require an adjusting entry at year-end because it does not affect any accounts that require accrual accounting. It directly increases the cash account and the stockholders' equity accounts.

Question 14

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):
A)Accrued expense.
B)Contra account.
C)Accrued revenue.
D)Intangible asset.
E)Adjunct account.

Accepted Answer

This describes a contra account, which is linked with another account with an opposite normal balance (e.g. accumulated depreciation is a contra account linked to the asset account). It is subtracted from the balance of the related account to provide a net amount.

Question 15

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used,representing the expense of using the assets,is called:
A)Accumulated depreciation.
B)A contra account.
C)The expense recognition (matching)principle.
D)Depreciation expense.
E)An accrued account.

Accepted Answer

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used is referred to as depreciation expense. This represents the recognized expense of using the assets over time, as stated in the matching principle. Accumulated depreciation is not an expense but a contra asset account, and not an accrued account either. Therefore, the correct answer is D.

Question 16

Prior to recording adjusting entries,the Office Supplies account had a $359 debit balance.A physical count of the supplies showed $105 of unused supplies available.The required adjusting entry is:
A)Debit Office Supplies $105 and credit Office Supplies Expense $105.
B)Debit Office Supplies Expense $105 and credit Office Supplies $105.
C)Debit Office Supplies Expense $254 and credit Office Supplies $254.
D)Debit Office Supplies $254 and credit Office Supplies Expense $254.
E)Debit Office Supplies $105 and credit Supplies Expense $254.

Accepted Answer

The correct adjusting entry is to debit Office Supplies Expense for $254 and credit Office Supplies for $254. This adjusts the Office Supplies account to its actual ending balance of $105 (the physical count) by recognizing the $254 ($359 - $105) of supplies that have been used.

Question 17

Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:
A)Intangible expenses.
B)Prepaid expenses.
C)Unearned expenses.
D)Net expenses.
E)Accrued expenses.

Accepted Answer

Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are known as accrued expenses. Accrued expenses are expenses that have been incurred but not yet paid or recorded, so they need to be recorded at the end of the accounting period to accurately reflect the company's financial situation. Examples of accrued expenses include salaries or wages owed to employees, interest on loans, and utilities used but not yet paid for.

Question 18

Fragmental Co.leased a portion of its store to another company for eight months beginning on October 1,at a monthly rate of $800.Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue.Assuming adjusting entries are only made at year-end,the adjusting entry made by Fragmental Co.on December 31 would be:
A)A debit to Rent Revenue and a credit to Cash for $2,400.
B)A debit to Rent Revenue and a credit to Unearned Rent for $2,400.
C)A debit to Cash and a credit to Rent Revenue for $6,400.
D)A debit to Unearned Rent and a credit to Rent Revenue for $2,400.
E)A debit to Unearned Rent and a credit to Rent Revenue for $4,000.

Accepted Answer

Since adjusting entries are only made at year-end, an adjusting entry needs to be made as of December 31.

The $6,400 cash received on October 1 was recorded as unearned revenue. As of December 31, two months have passed (November and December). Therefore, Fragmental Co. has earned 2 months of the rent and needs to account for it.

The adjusting entry on December 31 would be to debit Unearned Rent for $2,400 (2 months at $800 per month) and credit Rent Revenue for $2,400. The entry reduces the liability of unearned rent and recognizes the revenue earned.

Therefore, the correct answer is option D.

Question 19

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees,the end-of-period adjusting entry to record the portion of those fees that has been earned is:
A)Debit Cash and credit Legal Fees Earned.
B)Debit Cash and credit Unearned Legal Fees.
C)Debit Unearned Legal Fees and credit Legal Fees Earned.
D)Debit Legal Fees Earned and credit Unearned Legal Fees.
E)Debit Unearned Legal Fees and credit Accounts Receivable.

Accepted Answer

The end-of-period adjusting entry to record the portion of the fees that has been earned would include debiting the Unearned Legal Fees account to reduce the liability and crediting Legal Fees Earned account to recognize the revenue earned. Therefore, the correct option is to "Debit Unearned Legal Fees and credit Legal Fees Earned." Options A, B, D, and E are incorrect because they do not follow the principles of accrual accounting and would result in an incorrect representation of the company's financial statements.

Question 20

The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is:
A)Debit Unpaid Salaries and credit Salaries Payable.
B)Debit Salaries Payable and credit Salaries Expense.
C)Debit Salaries Expense and credit Cash.
D)Debit Salaries Expense and credit Salaries Payable.
E)Debit Cash and credit Salaries Expense.

Accepted Answer

The adjusting entry at the end of the accounting period to record the unpaid salaries of employees for work provided is to debit Salaries Expense and credit Salaries Payable. This entry increases the Salaries Expense account, which reflects the cost of the salaries earned by employees during the period, and creates a liability in the form of Salaries Payable, which represents the amount owed to employees for their work but not yet paid. This is in accordance with the accrual accounting principle whereby expenses are recognized when incurred and not necessarily when paid.

Quiz 3: Adjusting Accounts for Financial Statements

On July 1,a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date.What will be the insurance expense on the annual income statement for the first year ended December 31?

Accrued revenues:

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

On May 1,a two-year insurance policy was purchased for $18,000 with coverage to begin immediately.What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?

Unearned revenue is reported in the financial statements as:

On January 1,a company purchased a five-year insurance policy for $1,800 with coverage starting immediately.If the purchase was recorded in the Prepaid Insurance account,and the company records adjustments only at year-end,the adjusting entry at the end of the first year is:

On April 1,a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date.What amount of the insurance expense will be reported on the annual income statement for the year ended December 31?

Which of the following assets is not depreciated?

A company had no office supplies available at the beginning of the year.During the year,the company purchased $250 worth of office supplies.On December 31,$75 worth of office supplies remained.How much should the company report as office supplies expense for the year?

Which of the following does not require an adjusting entry at year-end?

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n) :

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used,representing the expense of using the assets,is called:

Prior to recording adjusting entries,the Office Supplies account had a $359 debit balance.A physical count of the supplies showed $105 of unused supplies available.The required adjusting entry is:

Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees,the end-of-period adjusting entry to record the portion of those fees that has been earned is:

The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is: