Question 1

Unearned revenue was not adjusted to show $3,000 of revenue earned during the current period. What is the effect of this error on the balance sheet?

Accepted Answer

Unearned revenue is a liability that represents revenue received but not yet earned. If $3,000 of revenue was actually earned during the period but not adjusted, it means the liability (unearned revenue) is still recorded as higher than it should be. Therefore, liabilities are overstated.

Question 2

A company accepted $6,000 on August 1 for services to be performed evenly over the next 12 months. The adjusting entry on December 31 would include a:

Accepted Answer

Unearned revenue is a liability account that represents services that have been paid for but not yet performed. As services are performed, the unearned revenue account is reduced and the service revenue account is increased. On December 31, six months of services have been performed, so the unearned revenue account should be reduced by $2,500 and the service revenue account should be increased by $2,500.

Question 3

Compute the amounts indicated for each of the following independent situations. $\begin{array}{|l|c|c|c|c|}
\hline & \text { Situation } & & & \
\hline & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} \
\hline \text { Beginning supplies balance } & ? & \$ 1,550 & \$ 2,600 & \$ 2,595 \
\hline \begin{array}{l}
\text { Payments for supplies } \
\text { during the year }
\end{array} & \$ 3,800 & ? & \$ 3,500 & \$ 1,600 \
\hline \begin{array}{l}
\text { Ending supplies balance }
\end{array} & \$ 2,500 & \$ 2,370 & ? & \$ 2,600 \
\hline \begin{array}{l}
\text { Supplies expense on the } \
\text { income statement }
\end{array} & \$ 1,400 & \$ 1,900 & \$ 3,150 & ? \
\hline
\end{array}$

Accepted Answer

The answer of Compute the amounts indicated for each of...

Question 4

A liability that arises from an expense that the business has incurred but has not yet paid is called a(n):

Accepted Answer

An accrued expense is a liability that represents an expense that has been incurred but not yet paid, reflecting the company's obligation to pay for goods or services that have been received but not yet billed.

Question 5

An accrued expense adjustment has the following effect on the financial statements:

Accepted Answer

An accrued expense adjustment increases expenses on the income statement, which decreases net income, and increases liabilities on the balance sheet to reflect the obligation to pay the expense in the future.

Question 6

Net income is reported on the income statement at $75,000. Adjusting entries for accrued revenues of $6,000 and unearned revenue earned during the current period of $2,500 were accidentally omitted. The correct net income is:

Accepted Answer

The correct net income should include the omitted accrued revenues and unearned revenue that was earned. Adding $6,000 (accrued revenues) and $2,500 (unearned revenue earned) to the reported net income of $75,000 results in a correct net income of $83,500.

Question 7

The type of account and normal balance of accumulated amortization is:

Accepted Answer

Accumulated amortization is a contra asset account, meaning it has a normal credit balance and is used to reduce the value of the asset it is associated with on the balance sheet.

Question 8

The January 1, 2019, balance in the Prepaid Insurance account was $3,150 and represented the unexpired portion of a two-year policy purchased October 1, 2018. What is the required year-end adjusting journal entry on December 31, 2019?

Accepted Answer

The policy is for two years, costing $3,150. The annual expense is $1,575 ($3,150 / 2). By December 31, 2019, one year has expired, so the adjusting entry is to debit Insurance Expense and credit Prepaid Insurance for $1,575.

Question 9

The balance in unearned revenue after adjustment represents:

Accepted Answer

Unearned revenue after adjustment represents a liability on the balance sheet because it is money received by a company for goods or services yet to be provided.

Question 10

Assume the cash was received in the last accounting period. If the adjusting entry to record revenue earned during the current period is not recorded:

Accepted Answer

If the adjusting entry to record revenue earned is not made, the liability (unearned revenue) will remain on the books, overstating liabilities since the revenue has actually been earned.

Question 11

Net income is reported on the income statement at $40,000. Adjusting entries for accrued revenues of $5,000 and unearned revenue earned during the current period of $2,000 were accidentally omitted. The correct net income is:

Accepted Answer

Accrued revenues increase net income, while unearned revenues earned during the current period decrease net income. Therefore, the correct net income is $40,000 + $5,000 - $2,000 = $47,000.

Question 12

Compute the amounts indicated for each of the following independent situations. $\begin{array} { | l | c | c | c | c | } 
\hline & \text { Situation } & & & \
\hline & \mathrm { A } & \mathrm { B } & \mathrm { C } & \mathrm { D } \
\hline \begin{array} { l } 
\text { Beginning prepaid } \
\text { insurance balance }
\end{array} & ? & \$ 1,300 & \$ 600 & \$ 3,300 \
\hline \begin{array} { l } 
\text { Cash payments for } \
\text { insurance during the year }
\end{array} & \$ 2,500 & ? & \$ 4,300 & \$ 2,600 \
\hline \begin{array} { l } 
\text { Ending prepaid insurance } \
\text { balance }
\end{array} & \$ 1,400 & \$ 4,250 & ? & \$ 600 \
\hline \begin{array} { l } 
\text { Insurance expense on the } \
\text { income statement }
\end{array} & \$ 2,600 & \$ 1,700 & \$ 1,150 & ? \
\hline
\end{array}$

Accepted Answer

The answer of Compute the amounts indicated for each of...

Question 13

Net income is reported on the income statement at $25,000. Adjusting entries for accrued revenues of $4,000 and unearned revenue earned during the current period of $1,500 were accidentally omitted. The correct net income is:

Accepted Answer

The correct net income should include the adjustments for accrued revenues ($4,000) and the unearned revenue that was earned ($1,500), both of which increase net income. Therefore, the corrected net income is $25,000 + $4,000 + $1,500 = $30,500.

Question 14

On October 1 of the current year, Wood Services received $15,000 for services to be performed evenly over the next 12 months. Wood Services initially recorded the $15,000 as unearned service revenue. The adjusting entry on December 31 of the current year will include a:

Accepted Answer

The correct adjusting entry involves debiting (reducing) unearned service revenue by the amount of revenue that has been earned during the period. Since the service is to be performed evenly over 12 months and the payment covers a period from October 1 to September 30 of the next year, by December 31 (3 months into the service period), 3/12 of the service has been provided. Therefore, 3/12 of $15,000, which is $3,750, has been earned, and unearned service revenue should be debited by this amount to reflect that it is no longer a liability but has been earned.

Question 15

On April 1 of the current year, Wood Services received $15,000 for services to be performed evenly over the next 12 months. Wood Services initially recorded the $15,000 as unearned service revenue. The adjusting entry on December 31 of the current year will include a:

Accepted Answer

By December 31, 9 months of the 12-month service period have passed, so $11,250 ($15,000 * 9/12) should be recognized as earned revenue. The adjusting entry will credit service revenue for $11,250.

Question 16

Net income is reported on the income statement at $63,000. Adjusting entries for accrued salaries of $600 and amortization on equipment of $1,500 were accidentally omitted. The correct net income is:

Accepted Answer

The answer of Net income is reported on the income...

Question 17

The balance in prepaid rent after adjustment represents:

Accepted Answer

The balance in prepaid rent after adjustment represents an asset on the balance sheet because it is a payment made in advance for rent that has not yet been incurred as an expense.

Question 18

Net income is reported on the income statement at $30,000. Adjusting entries for accrued revenues of $2,000 and unearned revenue earned during the current period of $5,500 were accidentally omitted. The correct net income is:

Accepted Answer

The correct net income should include the adjustments for accrued revenues and unearned revenue that were earned during the period but omitted. Adding these amounts to the initially reported net income ($30,000 + $2,000 + $5,500) gives a corrected net income of $37,500.

Question 19

Employees of Ajax Renovations work Monday through Friday and are paid every Friday for work done that week. The daily payroll is $1,200 and the last payday was Friday December 28. What is the required adjusting journal entry, if any, on December 31?

Accepted Answer

The adjusting entry is to record the wages expense for the three days worked from December 29 to December 31. The daily payroll is $1,200, so the total wages expense for the three days is $1,200 x 3 = $3,600. The entry is:Dr. Wages Expense $3,600Cr. Wages Payable $3,600

Question 20

Compute the amounts indicated for each of the following independent situations. $\begin{array} { | l | c | c | c | c | } 
\hline & \text { Situation } & & & \
\hline & \mathrm { A } & \mathrm { B } & \mathrm { C } & \mathrm { D } \
\hline \text { Beginning supp lies balance } & ? & \$ 2,100 & \$ 1,500 & \$ 1,400 \
\hline \begin{array} { l } 
\text { Payments for supp lies } \
\text { during the year }
\end{array} & & & & \
\text { Ending supplies balance } & \$ 2,500 & \$ 4,500 & ? & \$ 1,700 \
\hline \begin{array} { l } 
\text { Supp lies expense on the } \
\text { income statement }
\end{array} & \$ 1,600 & \$ 1,600 & \$ 1,800 & ? \
\hline
\end{array}$

Accepted Answer

The answer of Compute the amounts indicated for each of...

Quiz 3: Measuring Business Income: The Adjusting Process

Unearned revenue was not adjusted to show $3,000 of revenue earned during the current period. What is the effect of this error on the balance sheet?

A company accepted $6,000 on August 1 for services to be performed evenly over the next 12 months. The adjusting entry on December 31 would include a:

A liability that arises from an expense that the business has incurred but has not yet paid is called a(n) :

An accrued expense adjustment has the following effect on the financial statements:

Net income is reported on the income statement at $75,000. Adjusting entries for accrued revenues of $6,000 and unearned revenue earned during the current period of $2,500 were accidentally omitted. The correct net income is:

The type of account and normal balance of accumulated amortization is:

The January 1, 2019, balance in the Prepaid Insurance account was $3,150 and represented the unexpired portion of a two-year policy purchased October 1, 2018. What is the required year-end adjusting journal entry on December 31, 2019?

The balance in unearned revenue after adjustment represents:

Assume the cash was received in the last accounting period. If the adjusting entry to record revenue earned during the current period is not recorded:

Net income is reported on the income statement at $40,000. Adjusting entries for accrued revenues of $5,000 and unearned revenue earned during the current period of $2,000 were accidentally omitted. The correct net income is:

Net income is reported on the income statement at $25,000. Adjusting entries for accrued revenues of $4,000 and unearned revenue earned during the current period of $1,500 were accidentally omitted. The correct net income is:

On October 1 of the current year, Wood Services received $15,000 for services to be performed evenly over the next 12 months. Wood Services initially recorded the $15,000 as unearned service revenue. The adjusting entry on December 31 of the current year will include a:

On April 1 of the current year, Wood Services received $15,000 for services to be performed evenly over the next 12 months. Wood Services initially recorded the $15,000 as unearned service revenue. The adjusting entry on December 31 of the current year will include a:

Net income is reported on the income statement at $63,000. Adjusting entries for accrued salaries of $600 and amortization on equipment of $1,500 were accidentally omitted. The correct net income is:

The balance in prepaid rent after adjustment represents:

Net income is reported on the income statement at $30,000. Adjusting entries for accrued revenues of $2,000 and unearned revenue earned during the current period of $5,500 were accidentally omitted. The correct net income is:

Employees of Ajax Renovations work Monday through Friday and are paid every Friday for work done that week. The daily payroll is $1,200 and the last payday was Friday December 28. What is the required adjusting journal entry, if any, on December 31?