Question 1

On July 1, Alpha Company paid rent of $15,000 for a small equipment storage area for the period of July 1 till December 31. Provide the adjusting journal entry on July 31. Assume the prepaid expense is initially recorded as an asset.

Accepted Answer

The answer of On July 1, Alpha Company paid rent...

Question 2

Henry Tax Planning Service bought production equipment for $9,600 on January 1, 2015. It has an estimated useful life of 5 years and zero residual value. Henry uses the straight-line method to calculate depreciation and records depreciation expense in the books at the end of every month. As of June 30, 2015, the book value of this equipment shown on Henry's balance sheet will be:
A)$8,640.
B)$9,600.
C)$10,560.
D)$9,760.

Accepted Answer

The annual depreciation expense is $9,600 / 5 = $1,920. Monthly depreciation is $1,920 / 12 = $160. For 6 months, depreciation is $160 * 6 = $960. The book value as of June 30, 2015, is $9,600 - $960 = $8,640.

Question 3

The adjusted trial balance helps to identify:
A)account balances after adjustments.
B)revenue accounts only.
C)account balances before adjustments.
D)amounts that are out of balance.

Accepted Answer

The answer of The adjusted trial balance helps to identify:
A)account...

Question 4

Ursula Tax Planning Service has the following plant assets: Communications equipment: Cost, $6,720 with useful life of 8 years; Furniture: Cost, $18,000 with useful life of 12 years; and Computer: Cost, $12,000 with useful life of 4 years. Ursula's monthly depreciation expense calculated using the straight-line method is: (Assume salvage value of all the assets to be zero)
A)$250.
B)$125.
C)$70.
D)$445.

Accepted Answer

The monthly depreciation expense is calculated by dividing the cost of each asset by its useful life in months and summing them up: ($6,720/96) + ($18,000/144) + ($12,000/48) = $70 + $125 + $250 = $445.

Question 5

On April 1, Balsa Company purchased office supplies for $1,500. At the end of April, they took a count of the remaining supplies and found that there was $500 of supplies left. Please provide the adjusting entry needed at the end of April. Assume the office supplies were initially recorded as an asset. Assume there were no office supplies on hand prior to the purchase on April 1.

Accepted Answer

The answer of On April 1, Balsa Company purchased office...

Question 6

The accountant for Jones Auto Repair Company failed to make an adjusting entry to record $5,000 of unpaid salaries for the last 2 weeks of the year. Which of the following is an impact of this omission?
A)The net income will be overstated.
B)The total assets will be understated.
C)The total liabilities will be overstated.
D)The total assets will be overstated.

Accepted Answer

Since the accountant failed to record the unpaid salaries, the net income will be overstated because salaries expenses were not recognized. This means that the company's expenses will be lower than they should be, resulting in a higher net income.

Question 7

A business hired a repairman to overhaul their plumbing system. The repairman began work on September 15 and intends to complete it on October 15. The business will pay him $4,000 when the work is completed. As of September 30, the work was 50% complete. Provide the adjusting entry to accrue repair expense as of the end of September.

Accepted Answer

The answer of A business hired a repairman to overhaul...

Question 8

Real Weight Losers, a diet magazine, collected $480,000 in subscription revenue in May. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. Provide the adjusting entry needed on June 30. Assume the magazine initially records a liability for the subscription revenue.

Accepted Answer

The answer of Real Weight Losers, a diet magazine, collected...

Question 9

Ursula Tax Planning Service has the following plant assets: Communications equipment: Cost, $6,720 with useful life of 8 years; Furniture: Cost, $18,000 with useful life of 12 years; and Computer: Cost, $12,000 with useful life of 4 years. Assume the salvage value of all the assets is zero and the straight-line method is used. Ursula's monthly depreciation journal entry will include a:
A)debit to Depreciation Expense of $5,340.
B)credit to Depreciation Expense of $5,340.
C)debit to Accumulated Depreciation of $445.
D)credit to Accumulated Depreciation of $445.

Accepted Answer

The answer of Ursula Tax Planning Service has the following...

Question 10

Deborah Consultants had the following accounts and account balances after adjusting entries. Assume all accounts have normal balances. Calculate the amount of service revenue and prepare the adjusted trial balance for Deborah Consultants as of December 31, 2015.

Accepted Answer

The answer of Deborah Consultants had the following accounts and...

Question 11

On July 1, Alpha Company prepaid rent for a small equipment storage area. They paid $20,000 to rent the area for the period of July 1 through the end of the year. Provide the journal entry needed on July 1 when the payment is made. Assume the prepaid expense is initially recorded as an asset.

Accepted Answer

The answer of On July 1, Alpha Company prepaid rent...

Question 12

Luminous Electrical Repair performed services costing $8,000 on January 24 and invoiced the customer. Luminous received the $8,000 on January 31. Provide the journal entry on January 31 when the cash was received.

Accepted Answer

The answer of Luminous Electrical Repair performed services costing $8,000...

Question 13

Viva Inc. had bought machine X for $15,500 two years ago. The machine had no residual value and had an estimated useful life of 10 years. If the company uses the straight line depreciation method, calculate the current book value of the machine.
A)$12,400
B)$3,100
C)$18,600
D)$15,500

Accepted Answer

The machine depreciates by $1,550 per year ($15,500/10 years). After 2 years, the depreciation is $3,100. The current book value is $15,500 - $3,100 = $12,400.

Question 14

A business hired a repairman to overhaul their plumbing system. The repairman began work on September 15 and completed it on October 15. The business agreed to pay him $4,000 when the work was completed. As of September 30, the work was 50% complete and the business made an adjusting entry to accrue repair expense as of the end of September. On October 15, the work was completed and the business paid the repairman in full. Provide the journal entry for the cash payment on October 15.

Accepted Answer

The answer of A business hired a repairman to overhaul...

Question 15

If a company fails to make an adjusting entry for prepaid expense, the assets will be overstated. Assume the prepaid expense is initially recorded as an asset.

Accepted Answer

If the company fails to make an adjusting entry for prepaid expense, the asset account will still reflect the full prepaid amount, which means that the assets will be overstated. This is because the prepaid expense should have been recognized as an expense during the period to which it relates, and failing to make an adjusting entry means that the expense is not being properly recognized.

Question 16

An adjusted trial balance does not list the revenues and expenses of a business.

Accepted Answer

An adjusted trial balance does list the revenues and expenses of a business, but they have been adjusted for accruals and prepayments.

Question 17

Luminous Electrical Repair performed services costing $8,000 on January 24 and invoiced the customer. Luminous received the $8,000 on January 31. Provide the journal entry on January 24 when services were rendered.

Accepted Answer

The answer of Luminous Electrical Repair performed services costing $8,000...

Question 18

Healthy Living, a diet magazine, collected $500,000 in subscription revenue in May. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. Provide the journal entry for collection of cash in May. Assume the magazine initially records a liability for the subscription revenue.

Accepted Answer

The answer of Healthy Living, a diet magazine, collected $500,000...

Question 19

Deborah Consultants had the following balances before passing adjusting entries in the books on December 31, 2015.  Prepare the adjusted trial balance after considering these adjustments:
a. Office Supplies used, $800. Assume the office supplies were initially recorded as an asset.
b. Accrued salaries on December 31, $600.
c. Revenue accrued but not recorded, $200.

Accepted Answer

The answer of Deborah Consultants had the following balances before...

Question 20

If a company fails to make an adjusting entry for accrued revenues, the net income will be overstated.

Accepted Answer

If a company fails to make an adjusting entry for accrued revenues, the net income will be understated because the company will not have recognized revenue it has earned but not yet received payment for. Accrued revenues are revenues that have been earned but not yet received, so failing to adjust for them will result in an understatement of revenue and net income.

Quiz 3: The Adjusting Process