Question 1

The balance in the supplies account before adjustment at the end of the year is $6,250. The proper adjusting entry if the amount of supplies on hand at the end of the year is $1,500 would be
A) debit Supplies, $1,500; credit Supplies Expense, $1,500
B) debit Supplies Expense, $4,750; credit Supplies, $4,750
C) debit Supplies Expense, $1,500; credit Supplies, $1,500
D) debit Supplies, $4,750; credit Supplies Expense, $4,750

Accepted Answer

The correct adjusting entry is to debit Supplies Expense for the amount of supplies used ($6,250 - $1,500 = $4,750) and credit Supplies for the same amount, reflecting the decrease in supplies inventory.

Question 2

How will the following adjusting journal entry affect the accounting equation? $$\begin{array} { | c | r | r | } 
\hline \text { Unearned Subscription Revenue } & 11,500 & \
\hline \text { Subscription Revenue } & & 11,500 \
\hline
\end{array}$$
A) increase assets, increase revenues
B) increase liabilities, increase revenues
C) decrease liabilities, increase revenues
D) decrease liabilities, decrease revenues

Accepted Answer

This adjusting journal entry moves $11,500 from Unearned Subscription Revenue (a liability) to Subscription Revenue (increasing revenues). Thus, it decreases liabilities and increases revenues.

Question 3

The adjusting entry to adjust supplies was omitted at the end of the year. This would affect the income statement by having
A) expenses understated and therefore net income overstated
B) revenues understated and therefore net income understated
C) expenses understated and therefore net income understated
D) expenses overstated and therefore net income understated

Accepted Answer

When the adjusting entry for supplies is omitted, the supplies expense is not recorded, leading to expenses being understated. Consequently, net income is overstated because expenses are deducted from revenues to calculate net income.

Question 4

The net income reported on the income statement is $58,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $1,300. Net income, as corrected, is
A) $56,700
B) $58,000
C) $55,800
D) $54,500

Accepted Answer

The net income needs to be adjusted for the unrecorded expenses. Subtract the supplies expense ($2,200) and the accrued salaries ($1,300) from the reported net income ($58,000): $58,000 - $2,200 - $1,300 = $54,500.

Question 5

The difference between the balance of a fixed asset account and the related accumulated depreciation account is termed
A) historical cost
B) contra asset
C) book value
D) market value

Accepted Answer

The balance of a fixed asset account represents the original cost of the asset, while the accumulated depreciation account represents the total amount of depreciation charged against the asset since its acquisition. The difference between these two amounts is the book value of the asset, which represents the net amount that the asset is worth on the company's books. Therefore, the correct answer is C, book value.

Question 6

What effect will this adjustment have on the accounting records? $$\begin{array} { | c | r | r | } 
\hline \text { Unearned Fees } & 6,375 & \
\hline \text { Fees Earned } & & 6,375 \
\hline
\end{array}$$
A) increase net income
B) increase revenues reported for the period
C) decrease liabilities
D) All of these choices

Accepted Answer

This adjustment moves the amount from Unearned Fees (a liability account) to Fees Earned (a revenue account), which increases revenues for the period, decreases liabilities, and as a result, increases net income.

Question 7

The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as
A) stockholders' equity
B) an asset
C) a contra asset
D) a liability

Accepted Answer

The cost of office supplies to be used in future periods is an asset as it has future economic benefits that will be consumed or used up over time. Therefore, it is appropriately reported as an asset on the balance sheet.

Question 8

Which of the following is an example of a prepaid expense?
A) Supplies
B) Accounts Receivable
C) Unearned Subscription Revenue
D) Unearned Fees

Accepted Answer

Prepaid expenses are costs that have been paid but not yet consumed. Supplies fit this category because they are items that have been purchased in advance of their actual usage.

Question 9

The unearned rent account has a balance of $72,000. If $18,000 of the $72,000 is unearned at the end of the accounting period, the amount of the adjusting entry is
A) $18,000
B) $90,000
C) $54,000
D) $36,000

Accepted Answer

The adjusting entry for unearned rent involves decreasing the unearned rent account and increasing the rental revenue account, since the rent that was previously received as payment now belongs to the current accounting period. The unearned rent that remains at the end of the accounting period is $18,000, so the portion that was earned during the period is $72,000 - $18,000 = $54,000. Therefore, the adjusting entry should be a credit of $18,000 to the unearned rent account and a debit of $18,000 to the rental revenue account. The total amount of the adjusting entry would be $18,000 x 2 = $36,000.

Question 10

What effect will this adjusting journal entry have on the accounting records? $$\begin{array} { | c | r | r | } 
\hline \text { Supplies Expense } & 760 & \
\hline \text { Supplies } & & 760 \
\hline
\end{array}$$
A) increase income
B) decrease net income
C) decrease expenses
D) increase assets

Accepted Answer

This adjusting journal entry records the use of supplies by debiting Supplies Expense and crediting Supplies, which increases expenses and therefore decreases net income.

Question 11

Prepaid rent, representing rent for the next six months' occupancy, would be reported on the tenant's balance sheet as a (n)
A) asset
B) liability
C) owner's equity account
D) contra liability

Accepted Answer

Prepaid rent is an asset because it represents a future economic benefit to the tenant in the form of rent paid for the next six months' occupancy. It is not a liability because the tenant has already paid for the future rent and does not owe any obligation to the landlord for that amount. It is not an owner's equity account or a contra liability because it does not represent any investment made by the owner or any reduction in a liability.

Question 12

Supplies are recorded as assets when purchased. Therefore, the credit to Supplies in the adjusting entry is for the amount of supplies
A) still on hand
B) purchased
C) used
D) required for the next accounting period

Accepted Answer

The credit to Supplies in the adjusting entry reflects the amount of supplies used during the period, as the entry adjusts the Supplies account to represent the current amount of supplies on hand by recognizing the expense of the supplies that have been consumed.

Question 13

Which of the following pairs of accounts could not appear in the same adjusting entry?
A) Fees Earned and Unearned Fees
B) Interest Income and Interest Expense
C) Rent Expense and Prepaid Rent
D) Salaries Payable and Salaries Expense

Accepted Answer

Adjusting entries are made to record internal transactions that are not initiated by an external transaction. They typically involve one income statement account (revenue or expense) and one balance sheet account (asset or liability). Interest Income and Interest Expense represent two different types of transactions: one is revenue earned from investments or lending, and the other is the cost incurred from borrowing. They would not be adjusted against each other in the same entry as they relate to different transactions and would not directly affect each other's balances.

Question 14

The following adjusting journal entry does not include an explanation. Select the best explanation for the entry. 
A) Record payment of fees earned.
B) Record fees earned at the end of the month.
C) Record fees that have not been earned at the end of the month.
D) Record payment of fees to be earned.

Accepted Answer

This adjusting journal entry records fees earned at the end of the month.

Question 15

For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for $1,500 of supplies that were used, (2) unearned revenue of $4,200 that was earned, and
(3) insurance of $5,000 that expired. For the year ending December 31, what is the effect of these errors on revenues, expenses, and net income?
A) Revenues are overstated by $4,200.
B) Net income is overstated by $2,300.
C) Expenses are overstated by $6,500.
D) Expenses are understated by $3,500.

Accepted Answer

The adjusting entries for supplies and insurance would increase expenses, while the adjusting entry for unearned revenue would increase revenues. Therefore, the net effect of these errors is to overstate net income by $2,300 ($1,500 + $5,000 - $4,200).

Question 16

Prepaid advertising, representing payment for the next quarter, would be reported on the balance sheet as
A) an asset
B) a liability
C) a contra asset
D) owner's equity

Accepted Answer

Prepaid advertising represents a future economic benefit for the company, as it has already paid for advertising that will be used in the next quarter. Therefore, it is classified as an asset on the balance sheet.

Question 17

The adjusting entry to record the depreciation of a building for the fiscal period is
A) debit Depreciation Expense; credit Building
B) debit Depreciation Expense; credit Accumulated Depreciation
C) debit Accumulated Depreciation; credit Depreciation Expense
D) debit Building; credit Depreciation Expense

Accepted Answer

Depreciation is recorded by debiting Depreciation Expense and crediting Accumulated Depreciation. Option A debits the wrong account, Option C debits the wrong account and credits the wrong account, and Option D credits the wrong account.

Question 18

The adjusting entry for gym memberships earned that were previously recorded in the unearned gym memberships account is
A) debit Unearned Gym Memberships; credit Gym Memberships Revenue
B) debit Gym Memberships Revenue; credit Unearned Gym Memberships
C) debit Unearned Gym Memberships; credit Prepaid Gym Memberships
D) debit Gym Memberships Expense; credit Unearned Gym Memberships

Accepted Answer

The correct adjusting entry for recognizing gym memberships that have been earned but were previously recorded as unearned (or deferred) revenue involves debiting (decreasing) the Unearned Gym Memberships liability account and crediting (increasing) the Gym Memberships Revenue account. This reflects the recognition of revenue as the service obligation is fulfilled.

Question 19

At the end of the fiscal year, the usual adjusting entry to prepaid insurance to record expired insurance was omitted. Which of the following statements is true?
A) Total assets at the end of the year will be understated.
B) Owner's equity at the end of the year will be understated.
C) Net income for the year will be overstated.
D) Insurance expense will be overstated.

Accepted Answer

If the adjusting entry to record expired insurance is not made, it means that the expense of the insurance has not been recognized in the current fiscal year. Thus, the net income for the year will be overstated as expenses are understated. Neither total assets nor owner's equity will be affected by the omission of the adjusting entry.

Question 20

The following adjusting journal entry does not include an explanation. Select the best explanation for the entry. $$\begin{array} { | c | r | r | } 
\hline \text { Supplies Expense } & 730 & \
\hline \text { Supplies } & & 730 \
\hline ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? & & \
\hline
\end{array}$$
A) Adjust supplies inventory to actual.
B) Record purchase of supplies.
C) Reduce supplies expense.
D) Record sale of supplies.

Accepted Answer

This adjusting journal entry is made to adjust the supplies inventory to the actual amount used. The debit to Supplies Expense increases the expense for the period, reflecting the cost of supplies used, while the credit to Supplies decreases the asset account, adjusting the balance to reflect the remaining supplies on hand.

Quiz 3: The Adjusting Process

The balance in the supplies account before adjustment at the end of the year is $6,250. The proper adjusting entry if the amount of supplies on hand at the end of the year is $1,500 would be

How will the following adjusting journal entry affect the accounting equation? $\begin{array} { | c | r | r | } \hline \text { Unearned Subscription Revenue } & 11,500 & \\\hline \text { Subscription Revenue } & & 11,500 \\\hline\end{array}$

The adjusting entry to adjust supplies was omitted at the end of the year. This would affect the income statement by having

The net income reported on the income statement is $58,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $1,300. Net income, as corrected, is

The difference between the balance of a fixed asset account and the related accumulated depreciation account is termed

What effect will this adjustment have on the accounting records? $\begin{array} { | c | r | r | } \hline \text { Unearned Fees } & 6,375 & \\\hline \text { Fees Earned } & & 6,375 \\\hline\end{array}$

The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as

Which of the following is an example of a prepaid expense?

The unearned rent account has a balance of $72,000. If $18,000 of the $72,000 is unearned at the end of the accounting period, the amount of the adjusting entry is

What effect will this adjusting journal entry have on the accounting records? $\begin{array} { | c | r | r | } \hline \text { Supplies Expense } & 760 & \\\hline \text { Supplies } & & 760 \\\hline\end{array}$

Prepaid rent, representing rent for the next six months' occupancy, would be reported on the tenant's balance sheet as a (n)

Supplies are recorded as assets when purchased. Therefore, the credit to Supplies in the adjusting entry is for the amount of supplies

Which of the following pairs of accounts could not appear in the same adjusting entry?

The following adjusting journal entry does not include an explanation. Select the best explanation for the entry.

Prepaid advertising, representing payment for the next quarter, would be reported on the balance sheet as

The adjusting entry to record the depreciation of a building for the fiscal period is

The adjusting entry for gym memberships earned that were previously recorded in the unearned gym memberships account is

At the end of the fiscal year, the usual adjusting entry to prepaid insurance to record expired insurance was omitted. Which of the following statements is true?

The following adjusting journal entry does not include an explanation. Select the best explanation for the entry. $\begin{array} { | c | r | r | } \hline \text { Supplies Expense } & 730 & \\\hline \text { Supplies } & & 730 \\\hline ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? & & \\\hline\end{array}$