Question 1

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 interest payable for a six-month period (from May 1 to November 30) can be calculated as follows: 
Interest = Principal x Rate x Time 
= $150,000 x 10% x 6/12 
= $7,500 
Therefore, option B is the correct answer.

Question 2

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 answer of Innovate Company borrowed on a one-year, 10%,...

Question 3

Winston Corp. had $1,800 of supplies on hand at January 1. During the year, supplies with a cost of $4,000 were purchased. At December 31, the actual supplies on hand amount to $1,300. After the adjustments are recorded and posted at December 31, determine the balances in the Supplies and Supplies Expense accounts.

Accepted Answer

The answer of Winston Corp. had $1,800 of supplies on...

Question 4

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

Supplies expense can be calculated by finding the change in supplies from January 1 to December 31: 
Beginning supplies + Purchases − Ending supplies = Supplies expense 
$300 + $1,000 − $100 = $1,200 
Therefore, the answer is choice B, $1,200.

Question 5

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

The answer of On December 1, 2015, Twilight Corporation paid...

Question 6

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

Supplies on hand at the beginning of the year can be calculated using the following formula: 
Beginning supplies + Purchases - Supplies Expense = Ending supplies

Substituting the given values, we get: 
Beginning supplies + $6,000 - $5,200 = $1,400 
Simplifying, we get: 
Beginning supplies = $1,400 - $800 = $600

Therefore, the supplies on hand at January 1 was $600.

Question 7

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
Supplies expense = $14,500

Question 8

Which one of the following adjustments will increase assets?

Accepted Answer

Recording rent revenue increases assets as it represents money owed by a tenant yet to be received by the company. Interest accrued, recording supplies usage, and recording depreciation decreases assets.

Question 9

A company forgot to record four adjustments during 2015. 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 it omits revenue that should have been recognized, thus reducing the reported income.

Question 10

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...

Question 11

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 income taxes will increase the income taxes expense on the income statement, reducing net income. It will also increase the income taxes payable on the balance sheet. This adjustment has no effect on retained earnings.

Question 12

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...

Question 13

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 14

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

Supplies expense can be calculated as the cost of supplies purchased during the year minus the supplies on hand at the end of the year minus the supplies on hand at the beginning of the year. 
Supplies expense = $12,000 - $1,000 - $2,000 = $9,000 
Therefore, the total amount of supplies expense for the year is $9,000 + $4,000 (beginning supplies on hand) = $13,000. 
The correct answer is C.

Question 15

What happens to the accounting equation when the adjustment that recognizes accrued interest revenue is recorded?

Accepted Answer

When the adjustment that recognizes accrued interest revenue is recorded, both assets (cash) and stockholders' equity (interest revenue) increase. This increase in interest revenue, a part of net income, also increases stockholders' equity. Therefore, option B is the correct answer.

Question 16

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

To find the amount of supplies on hand as of December 31, 2015, we need to subtract the supplies used (supplies expense) from the total supplies purchased (beginning balance + supplies purchased).

Beginning balance = $1,000 
Supplies purchased during 2015 = $18,000 
Total supplies available = $1,000 + $18,000 = $19,000

Supplies used (supplies expense) = $16,000

Supplies on hand as of December 31, 2015 = Total supplies available - Supplies used = $19,000 - $16,000 = $3,000

Therefore, the correct answer is B) $3,000

Question 17

Lucky Company purchased a truck at a cost of $12,000 in 2010. As of January 1, 2015, depreciation of $10,000 had been recorded on this asset. Depreciation expense for 2015 is $2,000. After the adjustments are recorded and posted at December 31, 2015, what is the carrying value of the truck?

Accepted Answer

The answer of Lucky Company purchased a truck at a...

Question 18

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 19

A company forgot to record four adjustments during 2015. Which one of the following omissions of adjustments will overstate assets?

Accepted Answer

When prepaid insurance is not reduced for the portion that has expired, it overstates assets because the prepaid insurance account remains higher than it should be, as it includes amounts that should have been expensed.

Question 20

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.

Quiz 4: Income Measurement and Accrual Accounting