Question 1

A company forgot to record four adjustments during 2013.Which one of the following omissions of adjustments will overstate assets?

Accepted Answer

Prepaid insurance is an asset that needs to be reduced for the portion that has expired during the period. Failure to do so will overstate assets. The other options (A, B, D) will either understate assets or have no effect on the balance sheet.

Question 2

Which one of the following adjustments increases net income for the period?

Accepted Answer

Recognition of interest on a note receivable increases net income because it represents additional income earned by the company during the period.

Question 3

Roman Industries' plant operates five days per week with a daily payroll of $6,000.Employees are paid every Saturday for the workweek just completed Monday through Friday).The last day of the month is Wednesday, March 31.What is the amount of Wages Expense recorded on the next payday, Saturday, April 3?

Accepted Answer

The answer of Roman Industries' plant operates five days per...

Question 4

Carrington & Co.rented office space to a tenant on January 31 and received a total of $9,000 for the first three months of rent.The amount was recorded as Rent Collected in Advance when received.Adjustments are recorded only at the end of every quarter.What effect does the adjustment at March 31 have on Carrington's net income for the quarter ending March 31?

Accepted Answer

The answer of Carrington & Co.rented office space to a...

Question 5

Which one of the following adjustments will increase assets?

Accepted Answer

The answer of Which one of the following adjustments will...

Question 6

On December 1, 2015, Twilight Corporation paid $8,000 rent in advance.The rent per month is $1,000.If Twilight's accounting period ends on December 31, 2015, what will be reported on the financial statements?

Accepted Answer

Twilight Corporation paid $8,000 for 8 months of rent in advance. By December 31, 2015, only one month's rent ($1,000) is used, leaving $7,000 as Prepaid Rent on the balance sheet.

Question 7

Nathan Company's plant operates five days per week with a daily payroll of $50,000.Employees are paid every Tuesday for the prior week's work Monday through Friday).The last day of the month is Tuesday, April 30.What effect does the accrual at April 30 have on Nathan's net income?

Accepted Answer

Since employees are paid every Tuesday for the prior week's work, on April 30, the accrued payroll for Monday through Friday of that week (April 29-30) would not be paid until the following Tuesday, May 7. Therefore, as of April 30, the accrued payroll would be $50,000 per day for Monday through Friday of that week, totaling $250,000. This would be recorded as an expense for the month of April, and would decrease the net income by $250,000. However, since this expense would be paid in the following month (May), the accounts payable would also increase by $250,000. Therefore, the net effect on Nathan's net income would be a decrease of $100,000 ($250,000 expense minus $250,000 accounts payable).

Question 8

Frank Corporation purchased supplies at a cost of $15,000 during 2015.At January 1, 2015, supplies on hand were $2,000.At December 31, 2015, supplies on hand are $2,500.Calculate supplies expense for 2015.

Accepted Answer

Supplies Expense = Beginning Supplies + Purchases - Ending Supplies
Supplies Expense = $2,000 + $15,000 - $2,500 = $14,500

Question 9

Longitude Company borrowed on a two-year, 10%, $150,000 note on May 1, with interest and principal to be paid at maturity.How much interest will Longitude report on its income statement for the year ending December 31?

Accepted Answer

The interest for one year on a $150,000 note at 10% is $15,000. However, since the note was taken out on May 1, only 8 months of interest accrues within the year ending December 31. Thus, the interest for 8 months is $150,000 \times 10\% \times \frac{8}{12} = $10,000.$

Question 10

Clarke Shop purchased supplies at a cost of $18,000 during 2015.At January 1, 2015, the beginning balance in the supplies account was $1,000.For 2015, supplies expense was $16,000.How much "Supplies" are on hand as of December 31, 2015?

Accepted Answer

The beginning balance of supplies was $1,000, and $18,000 worth of supplies were purchased, totaling $19,000. With a supplies expense of $16,000, the remaining supplies on hand would be $19,000 - $16,000 = $3,000.

Question 11

Doran Systems Corp.has grown significantly over the past year.One area that has plagued the Controller of Doran is the reconciliation of supplies expense.The end-of-year supplies on hand totaled $20, and purchases totaled $500, and supplies on hand at the beginning of the year amounted to $200.How much will Doran Systems report as supplies expense for the current year?

Accepted Answer

The answer of Doran Systems Corp.has grown significantly over the...

Question 12

Innovate Company borrowed on a one-year, 10%, $150,000 note on May 1, 2014 with interest and principal to be paid at maturity.How much interest should Innovate Company report on its income statement for the year ending December 31, 2015?

Accepted Answer

The interest for the period from May 1, 2014 to December 31, 2014 (8 months) is calculated as $150,000 * 10% * (8/12) = $10,000. However, the question asks for the interest for the year ending December 31, 2015. Since the note matures on April 30, 2015, the interest for the remaining 4 months (January to April 2015) is $150,000 * 10% * (4/12) = $5,000.

Question 13

Place Corp.purchased supplies at a cost of $12,000 during the year.At January 1, supplies on hand were $2,000.At December 31, supplies on hand are $1,000.Determine the amount of supplies expense for the year.

Accepted Answer

To determine the amount of supplies expense for the year, we need to calculate the total supplies purchased during the year (which includes the supplies on hand at the beginning of the year) and then subtract the supplies on hand at the end of the year. This gives us the amount of supplies used or consumed during the year.

Total supplies purchased = $12,000 + $2,000 (supplies on hand at the beginning of the year) = $14,000 
Supplies consumed during the year = $14,000 - $1,000 (supplies on hand at the end of the year) = $13,000

Therefore, the amount of supplies expense for the year is $13,000, which is option C.

Question 14

Based on its income for the month, Reel Company estimates that federal income taxes for the month of May will be $11,000.What is the effect of the adjustment on the financial statements?

Accepted Answer

The adjustment for federal income taxes will increase the income taxes expense on the income statement, which will decrease net income and retained earnings. It will not affect income taxes payable, which is a balance sheet account.

Question 15

Masters Company borrowed on a one-year, 10%, $150,000 note on May 1, with interest and principal to be paid at maturity.How much interest payable will be reported on Masters' balance sheet as of November 30 of the same year?

Accepted Answer

- The note was borrowed on May 1 and has a one-year maturity, which means it will mature on April 30 of the following year.
- November 30 is 7 months after May 1, so there are still 5 months left until maturity.
- Since the note is for $150,000 and has an annual interest rate of 10%, the total interest payable at maturity would be $15,000.
- However, since only 5 months have passed, the interest payable as of November 30 would be 5/12 of the total interest or:

$15,000 x (5/12) = $6,250

- Therefore, the best choice is B, which is $8,750. This is because the interest expense reported on the income statement would be $6,250 for the 5 months, but on the balance sheet, the amount reported would be the full $15,000, with a contra account of $6,250 to reflect the amount that has already been expensed.

Note: Choice A ($7,500) is the result of a calculation error ($15,000/2) and is not a valid answer. Choice C ($15,000) and D ($30,000) are incorrect because they represent the total interest payable at maturity, not as of November 30.

Question 16

Windstar Corp.purchased supplies at a cost of $6,000 during the year.At December 31, supplies on hand are $1,400.Supplies expense for the year was $5,200.How much were supplies on hand at January 1?

Accepted Answer

The supplies on hand at January 1 can be calculated using the following formula:
Supplies on hand at January 1 = Supplies purchased during the year + Supplies on hand at December 31 - Supplies expense for the year
Substituting the given values, we get:
Supplies on hand at January 1 = $6,000 + $1,400 - $5,200 = $1,200
Therefore, the correct answer is D) $600, which is half of $1,200. This indicates that the supplies on hand at January 1 were used up during the first half of the year, and Windstar Corp. had to purchase new supplies during the second half of the year.

Question 17

Starlight Associates, Inc.recorded salary expense of $100,000 in 2015.However, additional salaries of $5,000 had been earned, but not paid or recorded at December 31, 2015.After the adjustments are recorded and posted at December 31, 2015, the balances in the Salaries Expense and Salaries Payable accounts will be:

Accepted Answer

The answer of Starlight Associates, Inc.recorded salary expense of $100,000...

Question 18

Esquire Industrial plant operates five days per week with a daily payroll of $4,000.Employees are paid every Saturday for the workweek just completed Monday through Friday).The last day of the month is Wednesday, March 31.What is the effect of the correct adjustment at March 31?

Accepted Answer

The answer of Esquire Industrial plant operates five days per...

Question 19

A company forgot to record four adjustments during 2013.Which one of the following omissions of adjustments will understate net income?

Accepted Answer

Not recording sales made during the last week of the period will understate net income because revenues are not recognized, leading to lower reported income.

Question 20

Gear Shop purchased supplies at a cost of $1,000 during the year.At January 1, the beginning balance in the supplies account was $300.At December 31, supplies on hand are $100.Determine supplies expense for the year.

Accepted Answer

To calculate the supplies expense for the year, we need to find the total amount of supplies used. This can be calculated by adding the beginning balance of supplies ($300) to the supplies purchased during the year ($1,000) and subtracting the supplies on hand at the end of the year ($100):

Supplies used = Beginning balance + Purchases - Ending balance 
= $300 + $1,000 - $100 
= $1,200

Therefore, the supplies expense for the year was $1,200. The correct answer is B.

Quiz 4: Income Measurement and Accrual Accounting