Question 1

The adjustment for corporate income taxes is generally the first adjustment prepared.

Accepted Answer

Income tax is calculated by multiplying the company's adjusted income (before income tax expense)by the company's tax rate.Therefore,the adjustment for income taxes cannot be calculated until all other adjustments are made.

Question 2

The amount charged for a good or service provided to a customer on account is recorded as revenue only after the payment is received.

Accepted Answer

The amount charged for a good or service provided to a customer on account is debited to Accounts Receivable and credited to the related revenue account at the time the good or service is provided.

Question 3

The carrying value of an asset is an approximation of the asset's market value.

Accepted Answer

Carrying value is simply the amount at which an asset or liability is reported ("carried")in the financial statements.

Question 4

The purpose of adjusting entries is to transfer net income and dividends to Retained Earnings.

Accepted Answer

Adjustments need to be made at the end of an accounting period to: (1)update amounts already recorded in the accounting records and (2)include events that occurred but had not yet been recorded.

Question 5

If a company forgot to record depreciation on equipment for a period,Total Assets would be overstated and Total Stockholders' Equity would be overstated on the balance sheet.

Accepted Answer

If the adjusting entry to record depreciation for the period is not made,the Accumulated Depreciation account will be understated,which means that Total Assets will be overstated.Depreciation Expense would also be understated,which means that expenses would be understated and net income will be overstated.This overstatement of net income causes stockholders' equity to be overstated.

Question 6

If a contra-account of $20,000 is mistakenly included in the same column of the trial balance as the account it offsets,the error will cause the debit and credit column totals to differ by $40,000.

Accepted Answer

A contra-account is an account that is an offset to,or reduction of,another account.Including a contra-account in the same column as the account it offsets will make the columns differ by twice the amount of the contra-account balance.

Question 7

The closing process includes a transfer of the Dividends account balance to the Retained Earnings account.

Accepted Answer

At the end of each year,after all the year's transactions and adjustments are recorded,the Dividends account is closed by transferring its balance to its permanent home in Retained Earnings.

Question 8

When a company pays its rent in advance,an asset is reported on the balance sheet.

Accepted Answer

When a company pays its rent in advance,the expense is initially deferred as an asset on the balance sheet (in an account called Prepaid Rent).

Question 9

A deferral adjustment may involve one asset and one liability account.

Accepted Answer

Deferrals commonly involve (1)an asset and an expense or (2)a liability and a revenue.

Question 10

One of the purposes of the closing entries is to bring the balances in all asset,liability,revenue,and expense accounts down to zero to start the next accounting period.

Accepted Answer

At the end of each year,after all transactions and adjustments are recorded,all revenue,expense,and dividends accounts are closed by moving their balances to their permanent home in Retained Earnings.Asset and liability accounts are not closed.

Question 11

If the Retained Earnings account is credited for $3,600 in the closing process,the company had a net income of $3,600.

Accepted Answer

The closing entries include a debit to each revenue account for the amount of its credit balance,a credit to each expense account for the amount of its debit balance,and record the difference in Retained Earnings.The amount credited to Retained Earnings should equal Net Income on the Income Statement.(If the company has a net loss,Retained Earnings will be debited. )

Question 12

The asset,liability,and stockholders' equity accounts are referred to as permanent accounts.

Accepted Answer

The permanent accounts are the accounts that track financial results from year to year by carrying their ending balances into the next year.The permanent accounts include all asset,liability,and stockholders' equity accounts.

Question 13

The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance.

Accepted Answer

The adjusted trial balance includes the beginning balance for the Retained Earnings account;the balance sheet reports the ending balance of Retained Earnings.The ending balance of Retained Earnings comes from the statement of retained earnings.

Question 14

Depreciation is a measure of the decline in market value of an asset.

Accepted Answer

Depreciation is the process of allocating the cost of buildings,vehicles,and equipment to the accounting periods in which they are used.

Question 15

The temporary accounts will have zero balances in a post-closing trial balance.

Accepted Answer

All temporary accounts are reduced to zero in the closing process,which means they would have zero balances in the post-closing trial balance.

Question 16

If a company forgot to prepare an adjusting entry to record salaries and wages incurred but unpaid at the end of the period,Total Liabilities would be understated and Retained Earnings would be understated on the Balance Sheet.

Accepted Answer

If the adjusting entry to accrue unpaid salaries and wages is not made (Salaries and Wages Payable)a liability account will be understated,which means that Total Liabilities will be understated.Salaries and Wages Expense would also be understated,which means that expenses would be understated and net income will be overstated.This overstatement of net income would cause Retained Earnings to be overstated.

Question 17

As a company uses supplies,an adjustment should be made to decrease an expense account and increase an asset account.

Accepted Answer

When a company purchases supplies,the expense is initially deferred as an asset on the balance sheet (in an account called Supplies).The adjustment part comes later when the supplies are used.The adjustment to record supplies used decreases the Supplies account and increases the Supplies Expense account.

Question 18

An adjusted trial balance is completed to check that debits still equal credits after the income statement is prepared.

Accepted Answer

An adjusted trial balance is prepared before the financial statements are prepared,and after the adjusting entries are made.

Question 19

A contra-account is added to the account it offsets.

Accepted Answer

A contra-account is an account that is an offset to,or reduction of,another account.

Question 20

Adjusting entries often involve cash.

Accepted Answer

Adjusting entries never involve the Cash account.Transactions involving cash are recorded as regular journal entries.

Quiz 4: Adjustments,Financial Statements,and Financial Results