Question 1

Cupling Enterprises borrowed $6,000 from Escada Bank on October 1,2012.At that time,the company made the appropriate journal entry; however,no other journal entry pertaining to the note has been made.Given that the bank is charging interest at a rate of 9%,what adjusting entry is necessary as of Cupling Enterprise's year-end date of December 31,2012?

Accepted Answer

The adjusting entry needed would be to recognize the accrued interest expense and the corresponding liability that has accumulated since October 1, 2012. The interest expense would be calculated using the formula: $6,000 x 9% x (3/12) = $135. Therefore, the correct journal entry would be to debit interest expense for $135 and credit accrued interest payable for $135. Option A is the only one that includes this correct adjusting entry.

Question 2

The adjusting entry to record accrued salaries has what effect on the basic accounting equation?

Accepted Answer

The adjusting entry to record accrued salaries increases the liability for salaries owed but not yet paid, which is an increase to the liabilities side of the equation. However, since the salaries have already been earned by the employees, but not yet paid, there is no corresponding increase in assets, and thus stockholders' equity decreases.

Question 3

Auto Detailing,Inc.had the following transactions on August 1:
a.The company sold $2,100 of inventory costing $1,400.The customer will not be billed until September.As of August 31,no entries have been made with respect to the inventory that has been sold or the sale.
b.The company received a $2,000 payment from a customer for services to be performed during August and September.On August 1,the entire $2,000 was placed in the Unearned Revenue account.As of August 31,40% of the work had been completed.
c.The company paid $7,200 for 4 months' rent in advance.The entire amount was placed into Prepaid Rent.
d.The company sold equipment costing $2,400 for $5,400 to a customer in return for a 3-month note.The sale was properly recorded on August 1.Auto Detailing,Inc.is charging 12% interest on the note.The customer will pay the note and all interest after 3 months.
Prepare the appropriate journal entries for Auto Detailing,Inc.as of August 31,for each of the above transactions.

Accepted Answer

The answer of Auto Detailing,Inc.had the following transactions on August...

Question 4

Scrumptious Donuts sold $2,000 worth of gift certificates in December.As of December 31,$500 worth of the $2,000 gift certificates had been redeemed.All gift certificates sold use the Deferred Revenue account.The balance in the Deferred Revenue account as of December 31 is

Accepted Answer

The total amount of gift certificates sold is $2,000 and $500 of that has been redeemed, leaving $1,500 still outstanding. Since all gift certificate sales use the Deferred Revenue account, the balance in the Deferred Revenue account as of December 31 would be the outstanding amount of $1,500. Therefore, the correct answer is D) $1,500.

Question 5

Circle Knitting,Inc.recorded $4,000 of unearned revenue being earned and the collection of $1,500 cash for services previously accrued.The impact of these two entries on total revenue is an increase of $5,500.

Accepted Answer

The impact on total revenue is an increase of $4,000, not $5,500. Recording $4,000 of unearned revenue as earned increases total revenue by $4,000. The collection of $1,500 cash for services previously accrued does not affect total revenue; it affects cash and accounts receivable.

Question 6

The entry to accrue $2,000 of income tax monthly is

Accepted Answer

The entry to accrue $2,000 of income tax monthly is to record an expense for income tax (Income tax expense) and create a liability for the taxes owed (Accrued income tax payable). Deferred income tax is for the temporary differences between financial reporting and tax reporting, so it is not applicable here. Option B is incorrect because it suggests creating a liability for deferred income tax, which is not relevant to this scenario. Option D is incorrect because the liability should be created for accrued income tax payable, not the other way around. Option E is also incorrect because income taxes are recognized as an expense in the period they are incurred, not necessarily when paid.

Question 7

What is the effect on the basic accounting equation of the cash payment of accrued interest payable previously accrued?

Accepted Answer

Paying off accrued interest payable with cash decreases both assets (cash) and liabilities (interest payable), keeping the accounting equation balanced.

Question 8

The adjusting entry to record the accrual of interest expense has what effect on the basic accounting equation?

Accepted Answer

The adjusting entry to record the accrual of interest expense involves increasing Interest Expense account (an expense account) and increasing Interest Payable account (a liability account). This means that the liabilities increase while the stockholders' equity remains the same. Thus, the effect on the basic accounting equation is that the liabilities increase while stockholders' equity decreases, resulting in a decrease in the total equity. This is reflected by an increase in liabilities and a decrease in stockholders' equity. Option D is the best choice.

Question 9

The adjusting entry to record $675 of earned revenue received in advance would include a debit to Unearned Revenue.

Accepted Answer

When revenue is received in advance, it is initially recorded as unearned revenue, which is a liability account. An adjusting entry is required to transfer the amount from the unearned revenue account to the revenue account, which increases the revenue and reduces the liability. Therefore, the adjusting entry must include a debit to the unearned revenue account.

Question 10

Howard Products has a daily payroll of $2,200,5 days a week.The employees are paid every Friday for that week's wages.July 31 was on a Wednesday and the employees were paid $11,000 on August 2.What is the journal entry on August 2,assuming the appropriate month ending adjusting entry was made on July 31?

Accepted Answer

Since July 31 is a Wednesday, the wages for three days of that week (Monday, Tuesday, and Wednesday) would have been accrued. The total weekly payroll is $11,000, so $2,200 per day times 3 days equals $6,600, which would be recorded as "Accrued wages payable" for the July 31 adjusting entry. The remaining $4,400 represents two days' wages (Thursday and Friday) that are paid but not accrued, thus recorded as "Wage expense" on August 2. The total payment of $11,000 is recorded against "Cash".

Question 11

The adjusting entry to record accrued salaries earned includes a debit to accrued salaries payable.

Accepted Answer

The adjusting entry to record accrued salaries includes a debit to Salaries Expense (to recognize the expense) and a credit to Salaries Payable (to recognize the liability), not a debit to accrued salaries payable.

Question 12

Income before income tax is

Accepted Answer

Income before income tax is a subtotal before net income on the income statement. It represents the amount of income earned by the company before it pays income tax.

Question 13

Chordall Authors Company circulates a monthly magazine,charging $36 to subscribers for a 12-month subscription.Subscribers are required to forward the entire $36 yearly subscription fee before Chordall Authors Company will furnish the subscriber with the magazine.Chordall Authors Company sold 300 magazine subscriptions in the month of March,while the balance in the Unearned Subscription Revenue account was $20,000 on March 1,2009.After the necessary adjusting entry for March,the balance in the Unearned Subscription Revenue account was $25,200.
Required:
1.Prepare the appropriate journal entry for Chordall Authors Company as of March 31.
2.How would net income be affected for the month ending March 31 if Chordall Authors Company did not record the above entry?

Accepted Answer

The answer of Chordall Authors Company circulates a monthly magazine,charging...

Question 14

The adjustment for revenue received in advance that has now been earned involves a debit to

Accepted Answer

When revenue is received in advance, it is initially recorded as unearned revenue, which is a liability. When the revenue is earned, it needs to be adjusted by debiting the liability account (unearned revenue) and crediting the revenue account. Therefore, the correct choice is B, Unearned Revenue and a credit to Revenue. The other choices do not reflect the correct account that needs to be debited.

Question 15

An adjusting entry made to record accrued interest on a note payable involves a credit to

Accepted Answer

When making an adjusting entry to record accrued interest on a note payable, we need to recognize that we owe interest to the holder of the note, even if we haven't yet paid it. This means we need to record a liability for the accrued interest that we owe, which is credited to accrued interest payable. The corresponding debit entry would be to interest expense, which reflects the cost of borrowing money. Therefore, the correct answer is B.

Question 16

What effect does the earning of revenue previously collected have on the basic accounting equation? Assume Unearned Revenue had been increased when the cash was collected in advance.

Accepted Answer

When revenue previously collected is earned, it decreases liabilities (specifically Unearned Revenue) and increases stockholders' equity (as Revenue increases Equity).

Question 17

Module Accounting Services receives $8,000 cash for service revenue to be earned in the future.The company credits Service Revenue upon receipt of the cash.

Accepted Answer

The correct accounting treatment for receiving cash for services to be performed in the future is to credit a liability account (such as Unearned Revenue or Deferred Revenue) rather than crediting Service Revenue, which is recognized when the service is actually performed.

Question 18

The entry to record the cash payment of salaries that had previously been accrued has what effect on the basic accounting equation?

Accepted Answer

When salaries that have been previously accrued are paid in cash, it will result in a decrease in the liability (accrued salaries) and a decrease in assets (due to the cash payment). Therefore, the basic accounting equation would be impacted by a decrease in both liabilities and assets. Hence, choice A is the correct option.

Question 19

An example of an adjusting entry is

Accepted Answer

An adjusting entry is a journal entry made at the end of an accounting period to adjust income and expenses to the period in which they occurred. Accruing interest expense is an example of an adjusting entry because interest expense is recognized in the period in which it is earned, regardless of when it is paid. The other options listed are not examples of adjusting entries.

Question 20

Failure to adjust for an unrecorded expense such as wages expense will overstate net income and stockholders' equity for the period.

Accepted Answer

Failure to adjust for an unrecorded expense such as wages expense will result in an understatement of expenses and an overstatement of net income and stockholders' equity for the period. Therefore, option A is the correct answer.

Quiz 4: Accrual Accounting and Financial Statements