Question 1

Allocating the cost of long-lived tangible assets used in the operations of a business is referred to as:

Accepted Answer

Depreciation is the process of allocating the cost of long-lived tangible assets, such as buildings or equipment, over the period in which they are used in the business operations. This is done to match the cost of the asset to the revenue it generates and to reflect the gradual wear and tear or obsolescence of the asset over time.

Question 2

Chance stables purchased a new baler as their annual equipment purchase.The baler was purchased for $10,000 down and a $50,000 note with an estimated life of 8 years.The baler will be worthless at the end of its life.The annual amount of depreciation on this equipment is:

Accepted Answer

The annual depreciation expense is calculated by dividing the cost of the equipment minus the salvage value by the estimated life of the equipment. In this case, the cost of the equipment is $50,000, the salvage value is $0, and the estimated life is 8 years. Therefore, the annual depreciation expense is $50,000 / 8 = $6,250.

Question 3

A journal entry contains a debit to the Cash account and a credit to the Unearned Service Revenue account.This is an example of a(n):

Accepted Answer

This is an example of deferred revenue because the Cash account has been credited in anticipation of providing a service in the future, and the Unearned Service Revenue account has been credited to reflect the liability owed to the customer for the service that has not yet been provided. When the service is provided, the liability will be fulfilled and the revenue will be recognized as earned.

Question 4

A journal entry contains a debit to an asset account and a credit to a revenue account.This is an example of a(n):

Accepted Answer

This journal entry represents the recognition of earned revenue for an asset being used or sold. As the asset account is debited and the revenue account is credited, it indicates that the revenue has been earned and therefore accrued.

Question 5

An adjustment is made for an expense incurred prior to its payment.The adjustment is called a(n):

Accepted Answer

An expense that has been incurred but not yet paid is an accrued expense. It requires an adjusting entry to recognize the expense in the accounting period in which it was incurred. Prepaid expenses refer to payments made in advance of incurring an expense, and unearned expenses refer to payments received for goods or services not yet provided. Accrued assets are not a commonly used term in accounting.

Question 6

On June 1,2017,Destiny Ltd.received $3,600 for services to be performed evenly over the next twelve months.The adjusting entry on December 31,2017,would include a:

Accepted Answer

The answer of On June 1,2017,Destiny Ltd.received $3,600 for services...

Question 7

Honey Brown Inc.paid six months' rent in advance totalling $9,000.At the end of the first month,the adjusting entry would include a:

Accepted Answer

The adjusting entry at the end of the first month would include a debit to Rent Expense for $1,500, which is the monthly rent expense ($9,000 total rent for six months divided by 6 months).

Question 8

What is the liability called that arises from an expense that the business has incurred but has not yet paid?

Accepted Answer

An expense that the business has incurred but has not yet paid is referred to as an accrued expense. This liability is created because the business owes money to a supplier or vendor for goods or services that have been received but not yet paid for. Examples of accrued expenses include salaries payable, interest payable, and taxes payable.

Question 9

What will be the result if no adjusting entry is made to record revenue earned during the current period when the cash was received in the last accounting period?

Accepted Answer

If no adjusting entry is made, the liability (unearned revenue) will remain on the books, overstating liabilities since the revenue has already been earned.

Question 10

Rover Ltd.had $8,200 of supplies on hand at the beginning of the month.A count at the end of the month indicated $1,350 of supplies were still on hand.The adjusting entry at year end would include a:

Accepted Answer

The supplies used during the month are calculated as $8,200 (beginning balance) - $1,350 (ending balance) = $6,850. The adjusting entry would debit Supplies Expense for $6,850 to reflect the cost of supplies used.

Question 11

What effect does an accrued revenue adjustment have on a company's net income?

Accepted Answer

Accrued revenue adjustments recognize revenue that has been earned but not yet recorded, increasing net income for the period.

Question 12

Shaftebury Ltd.began operations and purchased $15,900 of supplies.By year end,$8,800 of supplies were still on hand.The adjusting entry at year end would include a:

Accepted Answer

The adjusting entry should recognize the supplies used during the year. The supplies used is the difference between the initial purchase and the supplies on hand, which is $15,900 - $8,800 = $7,100. Therefore, a debit to Supplies Expense for $7,100 is needed to reflect the expense incurred.

Question 13

What will be the result if the adjusting entry to record the current period's depreciation on equipment is not recorded?

Accepted Answer

If the adjusting entry for depreciation is not recorded, expenses will be understated, leading to an overstatement of net income.

Question 14

The adjusted trial balance serves as the basis for preparing:

Accepted Answer

The adjusted trial balance includes all accounts and their updated balances after adjusting entries have been made. Therefore, it serves as the basis for preparing both the balance sheet and the income statement. The statement of retained earnings is prepared using information from the income statement and the balance sheet.

Question 15

A journal entry contains a debit to an expense account and a credit to a payable account.This is an example of a(n):

Accepted Answer

The debit to an expense account indicates that an expense has been incurred but not yet paid for, creating an accrued expense. The credit to a payable account indicates that there is a liability to be paid in the future.

Question 16

Unearned Revenue is a(n):

Accepted Answer

Unearned revenue is a liability account that records the payment received by a company in advance for goods or services that have not yet been delivered or performed. As the company delivers the goods or services, the unearned revenue liability is decreased, and the revenue earned from delivering those goods or services is recognized in the income statement as revenue.

Question 17

Upper Canada Corp.bought $72,000 of equipment with an estimated service life of 4 years.The equipment will be worthless at the end of its life.The annual amount of depreciation on this equipment is:

Accepted Answer

To calculate the annual amount of depreciation, we divide the cost of the equipment by its estimated service life.

Annual depreciation = cost of equipment / service life

Annual depreciation = $72,000 / 4 years

Annual depreciation = $18,000

Therefore, the correct answer is A) $18,000.

Question 18

Accumulated depreciation is classified as a(n):

Accepted Answer

Accumulated depreciation is a contra-asset account because it has a credit balance and reduces the value of the related asset account. It is not an expense account because it represents the portion of the asset's cost that has been depreciated over time. It is not an asset account because it does not represent a resource with economic value, and it is not a liability account because it does not represent a future obligation to pay.

Question 19

The adjusting entry made to record prepaid insurance that has expired during the period would include a debit to:

Accepted Answer

The adjusting entry made to record prepaid insurance that has expired during the period should debit to Insurance Expense and credit to Prepaid Insurance account. This is because the prepaid insurance was initially recorded as an asset, but as it is used up or expired, it becomes an expense for the period. Therefore, the adjustment is necessary to recognize the expense in the correct period. Option A (Unearned Insurance) and Option C (Accrued Insurance) are not correct because they do not represent the correct account affected by the adjustment.

Question 20

What effect does an accrued expense adjustment have on the financial statements?

Accepted Answer

An accrued expense adjustment increases expenses because it recognizes costs that have been incurred but not yet paid, and it increases liabilities because it records the obligation to pay these expenses in the future.

Quiz 3: Accrual Accounting and the Financial Statements