Question 1

Unearned revenue is a(n):

Accepted Answer

Unearned revenue represents payments received in advance for goods or services that have not yet been provided. This creates a liability to the company to provide those goods or services in the future. Therefore, unearned revenue is classified as a liability on the balance sheet.

Question 2

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

Accepted Answer

Salary Expense is debited to recognize the expense incurred during the period, even though it has not yet been paid.

Question 3

The Houston Rockets basketball team receives $5,000 for season tickets on August 1. By December 31, they have earned $2,000 of the revenue. The adjusting entry to be made on December 31 by the Houston Rockets includes a:

Accepted Answer

The adjusting entry should recognize the revenue earned during the period, so the Rockets need to debit (decrease) the liability account, Unearned Revenue, by the amount of revenue earned (in this case, $2,000). Therefore, the correct choice is B, debit to Unearned Revenue of $2,000.

Question 4

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 5

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

Accepted Answer

Since the company paid rent in advance for three months, the Prepaid Rent account was debited for $5,400 on November 1. As of December 31, the company has used one month's worth of rent (November) and is still prepaying two months' worth of rent (December and January). Therefore, the adjusting entry on December 31 should be a debit to Rent Expense for one month of rent (1/3 of $5,400) or $1,800 and a credit to Prepaid Rent for the same amount. Therefore, the correct answer is B) $1,800.

Question 6

A liability that arises from an expense that has not yet been paid is a(n):

Accepted Answer

An accrued expense is a liability that arises from an expense that has been incurred but has not yet been paid. This means that the company owes money for the expense, but has not yet made a payment. Unearned expenses are liabilities that arise from payments that have been received in advance for goods or services that have not yet been provided. Prepaid expenses are assets that arise from payments that have been made in advance for goods or services that will be consumed in the future. Accrued revenue is a revenue that has been earned but the payment has not yet been received.

Question 7

A company started the year with $400 of supplies. During the year, the company purchased an additional $1,200 of supplies. There were $700 of supplies on hand at the end of the year. An adjusting entry prepared at the end of the accounting period includes a:

Accepted Answer

We need to determine the amount of supplies that were actually used during the year.

Beginning supplies = $400 
Purchased supplies = $1,200 
Total supplies available = $1,600

Ending supplies = $700

Supplies used during the year = Beginning supplies + Purchased supplies - Ending supplies = $400 + $1,200 - $700 = $900

Therefore, an adjusting entry needs to be made to recognize the expense for supplies used during the year. The entry should debit Supplies Expense for $900 and credit Supplies for $900.

Question 8

Ben George, Inc. has an unadjusted balance in Accumulated Depreciation─Truck of $9,000 as of December 31, 2010. This relates to a Truck purchased for $15,000 with an expected useful life of 5 years that is depreciated using the straight line method. After recording the depreciation expense for 2011, the adjusted balance in the Accumulated Depreciation─Truck account as of December 31, 2011 is:

Accepted Answer

The annual depreciation expense for the truck can be calculated as $15,000 / 5 = $3,000 per year. Therefore, the depreciation expense for 2011 would be $3,000. The adjusted balance in Accumulated Depreciation─Truck as of December 31, 2011 can be calculated as the unadjusted balance of $9,000 plus the depreciation expense for 2011 of $3,000, which equals $12,000. Therefore, the correct answer is B.

Question 9

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

Accepted Answer

When a business pays or receives cash in advance for a service or good, it creates a liability or an asset. This is a deferral because the revenue or expense has not been recognized yet, and the liability or asset will be adjusted when the revenue or expense is recognized in the appropriate accounting period. Accruals refer to expenses or revenues that have been recognized but not yet paid or received, while earned revenue refers to revenue that has been recognized but not yet collected. Expense recognition refers to the process of recognizing expenses in the appropriate accounting period.

Question 10

Which account is credited in the adjusting entry to allocate the cost of equipment?

Accepted Answer

When allocating the cost of equipment, the account that is credited in the adjusting entry is the Accumulated Depreciation account. This account is used to track the total amount of depreciation that has been recorded for a specific asset over its useful life. Therefore, the correct answer is D) Accumulated Depreciation.

Question 11

On September 1, Banger Bros. Company paid $9,000 for one year of rent, in advance. Which of the following accounts and amounts will appear on an adjusted trial balance prepared on December 31?

Accepted Answer

The answer of On September 1, Banger Bros. Company paid...

Question 12

The book value of a plant asset is the:

Accepted Answer

The book value of a plant asset is calculated by subtracting the accumulated depreciation from the cost of the asset. This reflects the portion of the asset's cost that has not yet been expensed through depreciation. Therefore, the correct answer is D, which states that the book value is equal to the cost of the asset less the accumulated depreciation.

Question 13

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

Since the legal services were to be performed evenly throughout the next six months, as of December 31 (4 months after receiving payment), Jamie Simmons would have only earned half of the revenue received. Therefore, the revenue earned would be $2,700, and the remaining $2,700 would still be considered unearned revenue, resulting in a credit balance of $900 in the Unearned Revenue account.

Question 14

Plant and property assets include:

Accepted Answer

Plant and property assets typically include equipment, buildings, and land. Therefore, choice C is the best answer. Choice A includes supplies which are not considered part of plant assets. Choice B includes prepaid insurance which is an intangible asset and not part of plant assets. Choice D includes accounts receivable which are not considered as part of plant assets.

Question 15

O'Connor Company purchased supplies totaling $21,600. By year end, $9,300 of supplies were still on hand. How much Supplies Expense should O'Connor recognize?

Accepted Answer

The Supplies Expense should only recognize the amount of supplies actually used during the year, which is determined by subtracting the ending inventory of $9,300 from the total supplies purchased of $21,600:

$21,600 - $9,300 = $12,300

Therefore, the correct answer is B) $12,300.

Question 16

A company started the year with $400 of supplies. During the year the company purchased additional supplies costing $1,600. There were $800 of supplies on hand at the end of the year. An adjusted trial balance prepared at the end of the accounting period will show the following balance in Supplies:

Accepted Answer

The answer of A company started the year with $400...

Question 17

Which account is debited in the adjusting entry to record insurance expired during the current period?

Accepted Answer

Insurance expired during the current period is an expense and it should be recorded by debiting the Insurance Expense account.

Question 18

A company pays an employee $1,000 per week for a five day work week. The adjusting entry on December 31, which is a Tuesday, is a:

Accepted Answer

The answer of A company pays an employee $1,000 per...

Question 19

A revenue that has been earned, but not yet collected is a(n):

Accepted Answer

An accrued revenue is revenue that has been earned but has not yet been received or collected. It belongs to the current accounting period but has not been recorded in the books as revenue.

Question 20

On August 1 of the current year, 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

The adjusting entry on December 31, 2008, would include a debit to Unearned Service Revenue for $2,000. This is because $4,800 was received on August 1 for services to be performed evenly over the next twelve months. As of December 31, 2008, four months have passed, so 4/12 of the services have been performed. This means that $4,800 x 4/12 = $2,000 of the unearned service revenue has been earned and should be recognized as service revenue.

Quiz 3: Accrual Accounting Income

Unearned revenue is a(n) :