Question 1

To calculate the company's income tax expense for the current period, it is necessary to know:

Accepted Answer

To calculate income tax expense for the current period, the company's income before income taxes and tax rate are required. Operating expenses and revenue only provide information for the calculation of the company's net income, not specifically for income tax expense. The company's tax bill from prior periods is not sufficient as tax laws and rates may have changed, and net income from the previous period may not accurately reflect the current period's income.

Question 2

Declared dividends:

Accepted Answer

Declared dividends are a way to distribute a company's profits to its stockholders. They are not an expense of doing business, nor are they a legal obligation that a company must pay. Dividends are recorded as a liability because they represent the company's obligation to pay its stockholders.

Question 3

Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate. Its net income should be reported as:

Accepted Answer

To find the net income, we must first find the amount of income tax Purrfect Pets owes, which is 34% of $164,000 or $55,760. To find the net income, we subtract the income tax from the income before tax: $164,000 - $55,760 = $108,240. Therefore, the net income should be reported as $108,240.

Question 4

Purrfect Pets had $6,000 of supplies at the end of October. During November, the company bought $2,000 of supplies. At the end of November, the company had $1,000 of supplies remaining. Which of the following statements is not true?

Accepted Answer

An asset should be credited, not debited, for the $1,000 of supplies remaining at the end of November.

Question 5

Your business purchased a certificate of deposit on April 1 that will pay $90 interest three months from that date. On April 30, which of the following adjusting journal entries would be made?

Accepted Answer

The interest for one month (April) is $30 ($90/3 months). Therefore, you debit Interest Receivable for $30 and credit Interest Revenue for $30 to recognize the earned interest for April.

Question 6

During the month, a company uses up $4,000 of supplies. At the end of the month, the related adjusting journal entry would result in:

Accepted Answer

Using up supplies represents a decrease in assets (supplies) and since it was used during the month, it represents an expense for the company. Therefore, the adjusting journal entry would result in a decrease in an asset (supplies) and an equal increase in expenses. There is no impact on liabilities or stockholders' equity in this scenario.

Question 7

A count of supplies revealed $400 worth on hand at 12/31/10. The adjusting entry would include

Accepted Answer

The adjusting entry should reflect the amount of supplies used up, not the amount on hand. If $400 worth of supplies are on hand, and assuming the initial supplies were $1,000, then $600 worth of supplies have been used, requiring a debit to supplies expense for $600.

Question 8

Recording an adjusting journal entry to recognize depreciation would cause which of the following?

Accepted Answer

Recording depreciation involves recognizing a decrease in the value of an asset over time, which results in a decrease in assets and stockholders' equity. At the same time, an expense is recognized as the cost of using the asset over its useful life. Therefore, the correct choice is B, which states that there is a decrease in assets and stockholders' equity, and an increase in expenses.

Question 9

At the end of the year, accrual adjusting journal entries could include a:

Accepted Answer

Accrual adjusting journal entries are made at the end of the accounting period to recognize revenues and expenses that have been earned or incurred but not yet recorded. One common type of entry is a debit to an expense and a credit to a liability, which represents expenses that have been incurred but not yet paid. This increases the liability on the balance sheet and records the expense on the income statement, matching revenues with their related expenses. Therefore, the best choice is D.

Question 10

A company has a loan that accrues interest at a rate of $20 a day. The company pays the interest once a quarter. Which of these would be an accurate adjustment for a month in which no payments are made?

Accepted Answer

During the month in which no payments are made, the interest expense still accrues. To reflect this, the company should debit Interest Expense (an expense account) and credit Interest Payable (a liability account) to record the increase in the amount owed for interest. Debiting Loans Payable and crediting Cash is an entry that would only be made when the company pays off a portion of the loan.

Question 11

An adjusting journal entry that includes an increase to an asset contra-account would include an increase in a(n):

Accepted Answer

The answer of An adjusting journal entry that includes an...

Question 12

Accumulated depreciation:

Accepted Answer

Accumulated depreciation is a contra-asset account which is subtracted from the related asset account in the balance sheet. It represents the total amount of depreciation expense claimed on an asset over its useful life. As it is a contra-account, it has an opposite balance to the related asset account. Therefore, it is considered an asset account but with a negative balance.

Question 13

Which of these accounts would normally not be affected by an adjustment?

Accepted Answer

Cash is typically not affected by adjustments. Adjustments are made to the accounts that reflect a company's financial transactions, such as supplies, revenues, and expenses. Cash is a balance sheet account that shows the amount of cash a company has on hand, and does not change based on adjustments.

Question 14

Your business declared a $200 dividend on August 31, payable in September. On August 31, which of the following journal entries would be made?

Accepted Answer

When a company declares dividends, it creates a liability on its books called dividends payable. The entry to record the declaration of dividends involves debiting retained earnings (a component of equity) and crediting dividends payable. Therefore, on August 31, the journal entry would be to debit dividends declared for $200 and credit dividends payable for $200. Option B is the correct answer as it reflects this journal entry. Option A is incorrect as dividends receivable would be debited only when the dividend payment is received, not when it is declared. Option C is incorrect as it would involve crediting dividends declared instead of debiting it, which would violate the basic accounting equation of maintaining balance. Option D is incorrect because dividends receivable account would be debited only when a dividend has been declared, however, not yet paid, which means the debit to dividends declared will be reflected in dividends payable rather than dividends receivable.

Question 15

The insurance policy covers four years and was purchased by Sneetch on 1/1/10. The adjusting entry on December 31 would include

Accepted Answer

The adjusting entry on December 31 would include a credit to prepaid insurance for $1,200 because one year of the four-year policy has expired, and the cost of the insurance for one year needs to be recognized as an expense. If the total policy cost is $4,800 ($1,200 per year), then $1,200 should be credited from prepaid insurance to reflect the expense incurred.

Question 16

On December 31, a decision is made to accrue an expense and report a current liability. How many accounts will be included in this journal entry?

Accepted Answer

Accruing an expense and reporting a current liability requires the inclusion of at least two accounts: an expense account and a liability account. Depending on the nature of the expense, additional accounts may also be involved such as prepaid expenses, inventory, or accounts payable. Therefore, the correct choice is C, Two.

Question 17

When a dividend has been declared but not yet paid,

Accepted Answer

When a dividend has been declared but not yet paid, a liability is created by the company to its shareholders. Therefore, liabilities will increase and stockholders' equity will decrease. The balance sheet will reflect this until the dividend is paid out.

Question 18

A company has an asset account, Prepaid Insurance, with a balance of $3,750 at the beginning of the month. The company used $980 of insurance during the month. Which of the following statements is true?

Accepted Answer

The use of insurance is an expense, which reduces net income and consequently decreases retained earnings and stockholders' equity.

Question 19

A company pays wages every two weeks. Wages amount to $100 a day. On March 31, the company pays wages for the two weeks ending March 24. At the end of the month, the related adjusting journal entry will include a

Accepted Answer

The adjusting entry recognizes the wage expense incurred from March 25 to March 31, which is 7 days at $100 per day, totaling $700. This is recorded as a debit to Wage Expense and a credit to Wages Payable.

Question 20

Contra-accounts:

Accepted Answer

Contra-accounts are accounts that offset the balance of another account. They always have opposite balances to the account they offset, meaning that they reduce the balance of the original account. For example, the contra-account to accounts receivable is allowance for doubtful accounts, which reduces the net value of accounts receivable.

Quiz 4: Adjustments, Financial Statements, and Financial Results