Question 1

The balance in the Prepaid Rent account before adjustment at the end of the year is $15,000, which represents three months' rent paid on December1. The adjusting entry required on December 31 is to
A) debit Rent Expense, $5,000; credit Prepaid Rent, $5,000.
B) debit Rent Expense, $10,000; credit Prepaid Rent $10,000.
C) debit Prepaid Rent, $5,000; credit Rent Expense, $5,000.
D) debit Prepaid Rent, $10,000; credit Rent Expense, $10,000.

Accepted Answer

The adjusting entry required on December 31 is to reduce Prepaid Rent account by the amount of rent that has been used up during the year and record that amount as Rent Expense. Since three months' rent has been paid in advance and the company has used only one month's rent during the year, the amount of rent that has been used up during the year is $5,000 ($15,000/3). Therefore, the entry needed is to debit Rent Expense, $5,000; credit Prepaid Rent, $5,000.

Question 2

At December 31, 2010, before any year-end adjustments, Cable Car Company's Insurance Expense account had a balance of $1,450 and its Prepaid Insurance account had a balance of $3,800. It was determined that $3,000 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be
A) $3,000.
B) $1,450.
C) $4,450.
D) $2,250.

Accepted Answer

The adjusting entry for the expired insurance is to debit Insurance Expense for $3,000 and credit Prepaid Insurance for $3,000. Thus, the adjusted balance for Insurance Expense is $1,450 + $3,000 = $4,450.

Question 3

Depreciation is the process of
A) valuing an asset at its fair market value.
B) increasing the value of an asset over its useful life in a rational and systematic manner.
C) allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
D) writing down an asset to its real value each accounting period.

Accepted Answer

Depreciation is the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner. This is done to match the expense of the asset with the revenue generated by the asset over its useful life. Option A is incorrect because fair market value is not necessarily related to depreciation. Option B is incorrect because the value of an asset typically decreases over its useful life, not increases. Option D is incorrect because an asset is not necessarily written down every accounting period.

Question 4

The balance in the office supplies account on June 1 was $5,200, supplies purchased during June were $2,500, and the supplies on hand at June 30 were $2,000. The amount to be used for the appropriate adjusting entry is
A) $4,500.
B) $2,500.
C) $9,700.
D) $5,700.

Accepted Answer

The answer of The balance in the office supplies account...

Question 5

An asset-expense relationship exists with
A) liability accounts.
B) revenue accounts.
C) prepaid expense adjusting entries.
D) accrued expense adjusting entries.

Accepted Answer

Prepaid expense adjusting entries establish an asset-expense relationship because they involve recording expenses that have been paid in advance and are recognized as assets until the benefit is actually consumed or the service period lapses, at which point they are expensed.

Question 6

Bee-In-The-Bonnet Company purchased office supplies costing $6,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2,400 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be
A) Debit Office Supplies Expense, $2,400; Credit Office Supplies, $2,400.
B) Debit Office Supplies, $3,600; Credit Office Supplies Expense, $3,600.
C) Debit Office Supplies Expense, $3,600; Credit Office Supplies, $3,600.
D) Debit Office Supplies, $2,400; Credit Office Supplies Expense, $2,400.

Accepted Answer

The office supplies purchased were initially debited to the Office Supplies account. However, after the physical count, it is found that $2,400 worth of supplies are still on hand. Therefore, the cost of supplies that have been used up during the accounting period is $6,000 - $2,400 = $3,600. This amount should be expensed as Office Supplies Expense. The appropriate adjusting journal entry would be to debit Office Supplies Expense for $3,600 and credit Office Supplies for the same amount. Choice C is the only option that correctly reflects this adjustment.

Question 7

The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the
A) market value of the asset.
B) blue book value of the asset.
C) book value of the asset.
D) depreciated difference of the asset.

Accepted Answer

The difference between the cost of a depreciable asset and its related accumulated depreciation is the book value of the asset. It represents the amount of value that the asset still holds on the company's books after accounting for the depreciation expense. The market value of the asset may be higher or lower than the book value, and the blue book value is a term typically used for valuing automobiles or other vehicles. Depreciated difference of the asset is not a commonly used term in accounting.

Question 8

If a company fails to make an adjusting entry to record supplies expense, then
A) owner's equity will be understated.
B) expense will be understated.
C) assets will be understated.
D) net income will be understated.

Accepted Answer

Failing to record supplies expense means the expense account is too low, which in turn means that net income (revenues minus expenses) is overstated because expenses are understated.

Question 9

If an adjustment is needed for unearned revenues, the
A) liability and related revenue are overstated before adjustment.
B) liability and related revenue are understated before adjustment.
C) liability is overstated and the related revenue is understated before adjustment.
D) liability is understated and the related revenue is overstated before adjustment.

Accepted Answer

The answer of If an adjustment is needed for unearned...

Question 10

From an accounting standpoint, the acquisition of productive facilities can be thought of as a long-term
A) accrual of expense.
B) accrual of revenue.
C) accrual of unearned revenue.
D) prepayment for services.

Accepted Answer

The acquisition of productive facilities is considered a prepayment for services because it represents an upfront investment in assets that will provide economic benefits over a long period. This is not an immediate expense, revenue, or unearned revenue, but rather a capital investment in the business's operational capacity.

Question 11

What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $15,500, and unexpired amounts per analysis of policies of $4,500?
A) Debit Insurance Expense, $4,500; Credit Prepaid Insurance, $4,500.
B) Debit Insurance Expense, $15,500; Credit Prepaid Insurance, $15,500.
C) Debit Prepaid Insurance, $11,000; Credit Insurance Expense, $11,000.
D) Debit Insurance Expense, $11,000; Credit Prepaid Insurance, $11,000.

Accepted Answer

To adjust the prepaid insurance account, the unexpired amounts per analysis of policies (in this case, $4,500) must be subtracted from the balance before adjustment ($15,500). The difference ($11,000) represents the amount of insurance expense that was incurred during the period but has not yet been recognized. Therefore, the proper adjusting entry is to debit Insurance Expense for $11,000 and credit Prepaid Insurance for $11,000.

Question 12

A new accountant working for Unitas Company records $800 Depreciation Expense on store equipment as follows:  The effect of this entry is to
A) adjust the accounts to their proper amounts on December 31.
B) understate total assets on the balance sheet as of December 31.
C) overstate the book value of the depreciable assets at December 31.
D) understate the book value of the depreciable assets as of December 31.

Accepted Answer

The answer of A new accountant working for Unitas Company...

Question 13

A company usually determines the amount of supplies used during a period by
A) adding the supplies on hand to the balance of the Supplies account.
B) summing the amount of supplies purchased during the period.
C) taking the difference between the supplies purchased and the supplies paid for during the period.
D) taking the difference between the balance of the Supplies account and the cost of supplies on hand.

Accepted Answer

The amount of supplies used during a period is determined by taking the difference between the balance of the Supplies account at the beginning of the period (plus any purchases during the period) and the cost of supplies on hand at the end of the period. This method accounts for any supplies used during the period.

Question 14

Depreciation expense for a period is computed by taking the
A) original cost of an asset - accumulated depreciation.
B) depreciable cost ÷ depreciation rate.
C) cost of the asset ÷ useful life.
D) market value of the asset ÷ useful life.

Accepted Answer

Depreciation expense is typically calculated by dividing the cost of the asset by its useful life, which is option C. This method is known as the straight-line method of depreciation.

Question 15

Accumulated Depreciation is
A) an expense account.
B) an owner's equity account.
C) a liability account.
D) a contra asset account.

Accepted Answer

Accumulated Depreciation is a contra asset account, which means it has a credit balance and is used to reduce the balance of the related fixed asset account on the balance sheet. It is not an expense account, an owner's equity account, or a liability account.

Question 16

Which of the following reflect the balances of prepayment accounts prior to adjustment?
A) Balance sheet accounts are understated and income statement accounts are understated.
B) Balance sheet accounts are overstated and income statement accounts are overstated.
C) Balance sheet accounts are overstated and income statement accounts are understated.
D) Balance sheet accounts are understated and income statement accounts are overstated.

Accepted Answer

Prepayment accounts represent payments for expenses that have not yet been incurred or revenue that has not yet been earned. Prior to adjustment, these accounts are overstated on the balance sheet because the full amount of the prepayment has not yet been earned or incurred. As a result, income statement accounts will also be affected since the expenses or revenue that are tied to the prepayment will be understated. Therefore, balance sheet accounts are overstated and income statement accounts are understated. Choice C reflects this relationship.

Question 17

Hercules Company purchased a computer for $4,800 on December 1. It is estimated that annual depreciation on the computer will be $960. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:
A) Debit Depreciation Expense, $960; Credit Accumulated Depreciation, $960.
B) Debit Depreciation Expense, $80; Credit Accumulated Depreciation, $80.
C) Debit Depreciation Expense, $3,840; Credit Accumulated Depreciation, $3,840.
D) Debit Office Equipment, $4,800; Credit Accumulated Depreciation, $4,800.

Accepted Answer

The adjusting entry should debit Depreciation Expense and credit Accumulated Depreciation for the estimated annual depreciation of $960 ($4,800 / 5 years of useful life). Since the computer was purchased on December 1, only one month of depreciation needs to be recognized, which is $80 ($960 / 12 months). Therefore, option B is the best choice. Option A is incorrect because it recognizes the entire annual depreciation instead of only one month. Option C is also incorrect because it recognizes the total estimated depreciation over the useful life of the computer. Option D is incorrect because it is a purchase entry, not an adjusting entry for depreciation.

Question 18

An accumulated depreciation account
A) is a contra-liability account.
B) increases on the debit side.
C) is offset against total assets on the balance sheet.
D) has a normal credit balance.

Accepted Answer

An accumulated depreciation account has a normal credit balance, meaning that it is increased on the credit side and offset against the related asset account on the balance sheet.

Question 19

Action Real Estate received a check for $18,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $18,000. Financial statements will be prepared on July 31. Action Real Estate should make the following adjusting entry on July 31:
A) Debit Unearned Rent, $3,000; Credit Rental Revenue, $3,000.
B) Debit Rental Revenue, $3,000; Credit Unearned Rent, $3,000.
C) Debit Unearned Rent, $18,000; Credit Rental Revenue, $18,000.
D) Debit Cash, $18,000; Credit Rental Revenue, $18,000.

Accepted Answer

The adjusting entry recognizes one month's worth of rent as earned revenue. Since the rent is for 6 months, $18,000 / 6 = $3,000 is earned in July. Therefore, Unearned Rent is debited and Rental Revenue is credited for $3,000.

Question 20

As prepaid expenses expire with the passage of time, the correct adjusting entry will be a
A) debit to an asset account and a credit to an expense account.
B) debit to an expense account and a credit to an asset account.
C) debit to an asset account and a credit to an asset account.
D) debit to an expense account and a credit to an expense account.

Accepted Answer

Prepaid expenses are initially recorded as assets because they represent future benefits to be received by the company. However, as time passes, these benefits are consumed or used up, and the prepaid expense becomes an actual expense incurred by the company. Therefore, the correct adjusting entry is to debit the expense account and credit the asset account. This reduces the asset account to its correct amount and recognizes the expense in the income statement. Option A (debit to an asset account and a credit to an expense account) is incorrect, as this would increase the asset account and decrease the expense account, which is not correct. Option C (debit to an asset account and a credit to an asset account) is also incorrect, as this would not reflect the use of the prepaid expense and would leave the asset account over-stated. Option D (debit to an expense account and a credit to an expense account) is not logical, as it would have no effect on the asset account and would only increase the expense account, which is not correct.

Quiz 3: Adjusting the Accounts

The balance in the Prepaid Rent account before adjustment at the end of the year is $15,000, which represents three months' rent paid on December1. The adjusting entry required on December 31 is to

Depreciation is the process of

The balance in the office supplies account on June 1 was $5,200, supplies purchased during June were $2,500, and the supplies on hand at June 30 were $2,000. The amount to be used for the appropriate adjusting entry is

An asset-expense relationship exists with

The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the

If a company fails to make an adjusting entry to record supplies expense, then

If an adjustment is needed for unearned revenues, the

From an accounting standpoint, the acquisition of productive facilities can be thought of as a long-term

What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $15,500, and unexpired amounts per analysis of policies of $4,500?

A new accountant working for Unitas Company records $800 Depreciation Expense on store equipment as follows: The effect of this entry is to

A company usually determines the amount of supplies used during a period by

Depreciation expense for a period is computed by taking the

Accumulated Depreciation is

Which of the following reflect the balances of prepayment accounts prior to adjustment?

Hercules Company purchased a computer for $4,800 on December 1. It is estimated that annual depreciation on the computer will be $960. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

An accumulated depreciation account

As prepaid expenses expire with the passage of time, the correct adjusting entry will be a