Question 1

On November 1, Phillips Tool and Die Company paid six months' insurance in advance totaling $9,000. An adjusted trial balance prepared on December 31 would include a balance in the Prepaid Insurance account of:

Accepted Answer

The insurance covers six months, so each month costs $1,500 ($9,000/6). By December 31, two months have passed, so $3,000 ($1,500 x 2) is used, leaving $6,000 in Prepaid Insurance.

Question 2

An expense incurred in 2008 is not paid until 2009. Using the accrual basis of accounting, the expense should appear on:

Accepted Answer

Under the accrual basis of accounting, expenses are recorded when they are incurred, regardless of when they are paid. Therefore, the expense should appear on the 2008 income statement.

Question 3

The operating cycle is the time required to:

Accepted Answer

The operating cycle refers to the time it takes for a company to purchase inventory, sell it to customers, and collect the cash from those sales.

Question 4

The requirement to report accounting information at regular intervals is known as the:

Accepted Answer

The time-period concept requires that accounting information be reported at regular intervals, such as monthly, quarterly, or annually. This allows users of financial statements to compare the company's performance over time and to make informed decisions.

Question 5

On November 1 of the current year, Prepaid Rent was debited $5,400 for three months of rent, in advance. The amount of the adjusting entry on December 31 is:

Accepted Answer

The rent is prepaid for three months, so each month costs $1,800 ($5,400/3). By December 31, two months have passed, so the adjusting entry should be for $3,600 (2 months x $1,800).

Question 6

A company has $800 in beginning supplies and supplies on hand at the end of the month of $150. The adjusting entry for this company is a debit to:

Accepted Answer

The supplies used during the month is $800 - $150 = $650. Therefore, the adjusting entry is to debit Supplies Expense for $650 and credit Supplies for $650.

Question 7

The following accounts are listed in order of liquidity. Which of the following is CORRECT?

Accepted Answer

Liquidity refers to how quickly an asset can be converted into cash. The correct order from most liquid to least liquid is: Cash, Accounts Receivable, Inventory, Furniture.

Question 8

An interim period is generally:

Accepted Answer

An interim period is typically a financial reporting period that is shorter than a full fiscal year, usually a quarter or half-year.

Question 9

Assume the beginning balance in the Retained Earnings account is zero. If a debit balance of $5,000 exists in Retained Earnings after closing out revenues and expenses at the end of the current period, it indicates:

Accepted Answer

A debit balance in Retained Earnings indicates that expenses exceeded revenues, resulting in a net loss of $5,000.

Question 10

On August 1 of the current year, Jamie Simmons received $5,400 for legal services to be performed evenly throughout the next six months. An adjusted trial balance prepared on December 31 of the current year will show a credit balance in Unearned Revenue in the amount of:

Accepted Answer

Jamie received $5,400 for services to be performed over six months, which means $900 is earned each month. By December 31, five months have passed, so $4,500 has been earned, leaving $900 as unearned revenue.

Question 11

An adjustment for which the business paid or received cash in advance is:

Accepted Answer

A deferral refers to the adjustment of an entry for which cash has been paid or received in advance, such as prepaid expenses or unearned revenue.

Question 12

Cash for merchandise to be delivered in 2009 is received in 2008. Using the accrual basis of accounting, the revenue should appear on:

Accepted Answer

Under the accrual basis of accounting, revenue is recognized when it is earned, not when cash is received. Since the merchandise is delivered in 2009, the revenue should be recognized in 2009.

Question 13

Associated Services Company paid twelve months' insurance in advance totaling $9,000. At the end of the first month, the adjusting entry would include a:

Accepted Answer

The insurance expense for one month is $750 ($9,000/12 months). The adjusting entry would debit Insurance Expense for $750 to recognize the expense for the month.

Question 14

On August 1 of the current year, Jamie Simmons received $5,400 for legal services to be performed evenly throughout the next six months. The adjusting entry on December 31 of the current year would include a:

Accepted Answer

The answer of On August 1 of the current year,...

Question 15

The book value of an asset at the beginning of the year was $17,000. The equipment originally cost $27,000. Depreciation expense for the year was $8,000. The book value of the asset at the end of the year is:

Accepted Answer

The book value at the end of the year is calculated by subtracting the depreciation expense from the book value at the beginning of the year: $17,000 - $8,000 = $9,000.

Question 16

On September 1, Boz sold to Skaggs prepaid maintenance for $6,000 for six months. As of December 31, what is the amount in the Unearned Revenue account?

Accepted Answer

Unearned Revenue = $6,000 * 4/6 = $4,000

Question 17

On August 1, 2008, Magic Carpet Entertainment received $4,800 for services to be performed evenly over the next twelve months. The adjusting entry on December 31, 2008, would include a:

Accepted Answer

By December 31, 2008, five months of services have been performed (August to December), so $2,000 of the $4,800 should be recognized as revenue. The adjusting entry would debit Unearned Service Revenue for $2,000 to recognize the revenue earned.

Question 18

Which account is debited in the adjusting entry to record salaries owed to employees but NOT paid until the next accounting period?

Accepted Answer

The answer of Which account is debited in the adjusting...

Question 19

How does an accrued expense adjustment affect the financial statements? The adjustment:

Accepted Answer

An accrued expense adjustment increases expenses because it recognizes expenses that have been incurred but not yet paid. It also increases liabilities because it records the obligation to pay these expenses in the future.

Question 20

At the beginning of the year, Megaron Company's balance sheet showed current assets of $16,000 and current liabilities of $10,000. During the current year, Megaron issued common stock for $5,000 for cash and purchased $3,000 of inventory on account. After these transactions were recorded, Megaron's current ratio was:

Accepted Answer

The answer of At the beginning of the year, Megaron...

Quiz 3: Accrual Accounting and Income