Question 1

At the end of the fiscal year,the usual adjusting entry to prepaid insurance to record expired insurance was omitted.Which of the following statements is true?

Accepted Answer

Since the adjusting entry for expired insurance was not made, the prepaid insurance balance is too high, which means that insurance expense is too low. Therefore, net income for the year will be overstated.

Question 2

A business pays biweekly salaries of $20,000 every other Friday for a ten-day period ending on that day.The adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay period includes a

Accepted Answer

Since the bi-weekly salaries are paid on every other Friday for a ten-day period ending on that day, the pay period ends on the second Wednesday of the pay period. This means that there are two days of salaries (Thursday and Friday) that have been earned, but not yet paid for at the end of the fiscal period.

To account for this, an adjusting entry is needed to record the amount of these two days of salaries that have been earned but not yet paid for. Since the salaries have been earned, but not yet paid, this is a liability to the company and is recorded as salaries payable.

Therefore, the adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay period includes a debit to salaries payable of $16,000 (two days of salaries for all employees) and a credit to salary expense, which has already been recorded for the full bi-weekly salary amount.

Thus, the correct choice is option D, which states a credit to salaries payable of $16,000.

Question 3

At the end of the fiscal year,the usual adjusting entry for depreciation on equipment was omitted.Which of the following is true?

Accepted Answer

The omission of depreciation will result in an overstatement of net income for the current year. This is because depreciation is an expense that reduces net income, and since it was not recorded, net income will be higher than it should be. This will also lead to an overstatement of total assets since the equipment should have been depreciated, but was not. Total liabilities will not be affected by the omission of depreciation.

Question 4

What is the purpose of the adjusted trial balance?

Accepted Answer

The answer of What is the purpose of the adjusted...

Question 5

Listed below are accounts to use for transactions a through j, each identified by a number.  Following this list are the transactions.  You are to indicate for each transaction the accounts that should be debited and credited by placing the account numbers in the appropriate box.
1.	Accounts Payable
2.	Accounts Receivable
3.	Accumulated Depreciation—Office Equipment
4.	Building
5.	Common Stock
6.	Cash
7.	Depreciation Expense—Office Equipment
8.	Dividends
9.	Insurance Expense
10.	Insurance Payable
11.	Interest Expense
12.	Interest Payable
13.	Interest Receivable
14.	Land
15.	Notes Payable
16.	Office Supplies
17.	Office Supplies Expense
18.	Prepaid Insurance
19.	Service Revenue
20.	Unearned Service Revenue
21.	Utilities Expense
22.	Utilities Payable

Accepted Answer

The answer of Listed below are accounts to use for...

Question 6

Explain the differences between
a. Accrued revenues and unearned revenues.
b. Accrued expenses and prepaid expenses.
c. Give an example of each.

Accepted Answer

The answer of Explain the differences between
a. Accrued revenues and...

Question 7

Which of the accounts below would most likely appear on an adjusted trial balance but probably would not appear on the trial balance?

Accepted Answer

Depreciation Expense is an example of an adjusting entry that is made at the end of an accounting period to allocate the cost of long-term assets over their useful lives. This type of account would not typically appear on the trial balance because it is not a transactional account but rather a contra asset account. However, it would appear on the adjusted trial balance because it has been adjusted for as part of the accrual accounting process.

Question 8

Classify the following items as: 1. prepaid expense,2. unearned revenue,3. accrued expense,or 4. accrued revenue.
a. fees received but not yet earned
b. fees earned but not yet received
c. paid premium on a one-year insurance policy
d. property tax owed to be paid beginning of next year

Accepted Answer

The answer of Classify the following items as: 1. prepaid...

Question 9

Two income statements for Toby Sam Enterprises are shown below: $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Toby Sam Enterprises }$
$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Income Statement }$
$ \quad $$\text { For the Years } 2 \text { and } 1 \text { Ending December } 31$
$\begin{array}{l}
\hline \begin{array}{lll}
\
 \text {Fees earned }\
 \text {Operating expenses }\
 \text {Operating income}\
\end{array}
\begin{array}{lll}
\underline {\text { Year 2 }} \
\$ 674,350 \
\underline {472,045} \
\underline {\$ 202,305 }\
\end{array}
\begin{array}{lll}
\underline {\text { Year } 1}\
\$ 520,600\
\underline {338,390}\
\underline {\$ 182,210}
\end{array}
\end{array}$ 
Prepare a vertical analysis of Toby Sam Enterprises' income statements.Has operating income increased or decreased as a percentage of revenue?

Accepted Answer

To prepare a vertical analysis, we need to calculate the percentage of each item relative to the total revenue. 
For Year 2, fees earned were $674,350 and total revenue was $674,350, so the percentage for fees earned would be:

$$\frac{Fees\ Earned}{Total\ Revenue} = \frac{\$674,\!350}{\$674,\!350} = 100\%$$

Similarly, for Year 1, fees earned were $520,600 and total revenue was $520,600, so the percentage for fees earned would be:

$$\frac{Fees\ Earned}{Total\ Revenue} = \frac{\$520,\!600}{\$520,\!600} = 100\%$$

For operating expenses and operating income, we'll use the same approach. The vertical analysis for Toby Sam Enterprises' income statements is:

$\begin{array}{|l|l|l|l|}
\hline & \textbf{Year 2} & \textbf{Year 1} & \textbf{Change} \ \hline 
\text{Fees earned} & 100\% & 100\% & - \ \hline
\text{Operating expenses} & 70\% & 65\% & +5\% \ \hline
\text{Operating income} & 30\% & 35\% & -5\% \ \hline
\end{array}$

We can see that operating income decreased as a percentage of revenue by 5%, so the answer is (C) decreased by 5%.

Question 10

When is the adjusted trial balance prepared?

Accepted Answer

The adjusted trial balance is prepared after adjusting journal entries are posted to the ledger accounts. This allows for the final account balances to reflect any necessary adjustments before the financial statements are created.

Question 11

Under the accrual basis,some accounts in the ledger require updating at the end of the period.Discuss the three main reasons for this updating and give an example of each.

Accepted Answer

The answer of Under the accrual basis,some accounts in the...

Question 12

Which of the accounting steps in the accounting process below would be completed last?

Accepted Answer

Preparing the financial statements typically comes after the adjusted trial balance is prepared and all necessary account balances have been adjusted.

Question 13

For the year ending December 31,Orion,Inc.mistakenly omitted adjusting entries for $1,500 of supplies that were used,2 unearned revenue of $4,200 that was earned,and 3 insurance of $5,000 that expired.For the year ending December 31,what is the effect of these errors on revenues,expenses,and net income?

Accepted Answer

The omission of adjusting entries for supplies used, unearned revenue earned, and insurance expired affects both revenues and expenses, resulting in a net effect on net income.

The supplies that were used but not recorded as an adjustment decrease the value of supplies on hand, which increases the cost of goods sold (an expense), leading to an understatement of expenses and an overstatement of net income. This is a $1,500 expense that was omitted, so expenses are understated by $1,500.

The unearned revenue that was earned should have been recorded as revenue, but it was not, resulting in an understatement of revenue and an overstatement of liabilities. Therefore, revenues are understated by $4,200.

The insurance that expired during the period was not recorded as an adjustment, resulting in an overstatement of prepayments (an asset) and an understatement of insurance expense (an expense). Therefore, expenses are understated by $5,000.

The net effect of these errors on net income can be calculated as follows:

Net income = Revenues - Expenses

Net income without adjusting entries = (0 + $4,200 + 0) - (0 + 0 + 0) = $4,200

Net income with adjusting entries = (0 + $0 + 0) - ($1,500 + $4,200 + $5,000) = -$10,700

Therefore, the net income is overstated by $2,300 ($4,200 - $10,700). The correct answer is B.

Question 14

The adjusting entry to adjust supplies was omitted at the end of the year.This would affect the income statement by having

Accepted Answer

When the adjusting entry for supplies is omitted, the supplies expense is not recorded, leading to expenses being understated. Consequently, net income is overstated because expenses are deducted from revenues to calculate net income.

Question 15

Explain the difference between accrual basis accounting and cash basis accounting.

Accepted Answer

The answer of Explain the difference between accrual basis accounting...

Question 16

A business pays biweekly salaries of $20,000 every other Friday for a ten-day period ending on that day.The last payday of December is Friday,December 27.Assume the next pay period begins on Monday,December 30 and the proper adjusting entry is journalized at the end of the fiscal period December 31.The entry for the payment of the payroll on Friday,January 10 includes a

Accepted Answer

The payment on January 10 includes a debit to Salary Expense for the four days in January (January 1-4), which is $4,000, and a debit to Salary Payable for the six days in December (December 30-31), which is $16,000.

Question 17

List the four basic types of accounts that require adjusting entries and give an example of each.

Accepted Answer

The answer of List the four basic types of accounts...

Question 18

The net income reported on the income statement is $58,000 .However , adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $1,300.Net income,as corrected,is

Accepted Answer

The answer of The net income reported on the income...

Question 19

For each of the following, journalize the necessary adjusting entry:
a.	A business pays weekly salaries of $22,000 on Friday for a five-day week ending on that day. Journalize the necessary adjusting entry at the end of the fiscal period, assuming that the fiscal period ends 1 on Tuesday, 2 on Wednesday.
b.	The balance in the prepaid insurance account before adjustment at the end of the year is $18,000. Journalize the adjusting entry required under each of the following alternatives: 1 the amount of insurance expired during the year is $5,300, 2 the amount of unexpired insurance applicable to a future period is $2,700.
c.	On July 1 of the current year, a business pays $54,000 to the city for license taxes for the coming fiscal year. The same business is also required to pay an annual property tax at the end of the year. The estimated amount of the current year's property tax allocated to July is $4,800. 1 Journalize the two adjusting entries required to bring the accounts affected by the taxes up to date as of July 31. 2 What is the amount of tax expense for July?
d.	The estimated depreciation on equipment for the year is $32,000.

Accepted Answer

The answer of For each of the following, journalize the...

Question 20

All of the following statements regarding vertical analysis are true except

Accepted Answer

In a vertical analysis of an income statement, each item is stated as a percentage of total revenue, not total expenses.

Quiz 3: The Adjusting Process