Question 1

Which of the accounting steps in the accounting process below would be completed last?
A) preparing the adjusted trial balance
B) posting
C) preparing the financial statements
D) journalizing

Accepted Answer

In the accounting process, preparing the financial statements is the last step as it requires information from the adjusted trial balance.

Question 2

A one-year insurance policy was purchased on June 1, 2011 for $1,500. The adjusting entry on December 31, 2011 would be:

Accepted Answer

The answer of A one-year insurance policy was purchased on...

Question 3

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
A) $56,700
B) $58,000
C) $55,800
D) $54,500

Accepted Answer

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

Question 4

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

Accepted Answer

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

Question 5

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?
A) Revenues are overstated by $4,200.
B) Net income is overstated by $2,300.
C) Expenses are overstated by $6,500.
D) Expenses are understated by $3,500.

Accepted Answer

1. The mistake in omitting adjusting entry for $1,500 of supplies that were used means that supplies expense was understated by $1,500. Therefore, expenses are understated by $1,500.
2. The money received as unearned revenue of $4,200 that was earned should be recognized as revenue in the year ended December 31. Therefore, Revenues are understated by $4,200.
3. Insurance of $5,000 expired in the year, which means that Insurance expense was understated by $5,000. Therefore, expenses are understated by $5,000.
Total impact on expenses = -1,500 - 5,000 = -$6,500
Total impact on revenues = -4,200
Net income = Revenue - Expenses
Hence, Net income is overstated by $2,300.

Question 6

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 accrual

Accepted Answer

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

Question 7

All of the following statements regarding vertical analysis are true except:
A) Vertical analysis may be prepared for several periods to analyze changes in relationships over time.
B) In a vertical analysis of a balance sheet, each asset item is stated as a percent of total assets.
C) In a vertical analysis of an income statement, each item is stated as a percent of total expenses.
D) Major differences between a company's vertical analysis and industry averages should be investigated.

Accepted Answer

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

Question 8

Depreciation on Office Equipment is $3,300. The adjusting entry on December 31, 2011 would be:

Accepted Answer

The answer of Depreciation on Office Equipment is $3,300. The...

Question 9

At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?
A) Total assets will be understated at the end of the current year.
B) The balance sheet and income statement will be misstated but the statement of owner's equity will be correct for the current year.
C) Net income will be overstated for the current year.
D) Total liabilities and total assets will be understated.

Accepted Answer

If the adjusting entry for depreciation on equipment is omitted, net income will be overstated for the current year. This is because depreciation expense is subtracted from revenue to determine net income. Without the adjusting entry, depreciation expense is not recorded, which results in a higher net income than what it should be. The other options are incorrect because they do not accurately describe the consequences of not recording the adjusting entry for depreciation.

Question 10

The adjusting entry to adjust supplies was omitted at the end of the year. This would effect the income statement by having
A) expenses understated and therefore net income overstated
B) revenues understated and therefore net income understated
C) expenses understated and therefore net income understated
D) expenses overstated and therefore net income understated

Accepted Answer

If the adjusting entry for supplies is omitted, expenses will be understated because the cost of supplies used is not recorded. This results in net income being overstated.

Question 11

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?
A) Total assets at the end of the year will be understated.
B) Owner's equity at the end of the year will be understated.
C) Net income for the year will be overstated.
D) Insurance Expense will be overstated.

Accepted Answer

If the adjusting entry to record expired insurance is omitted, expenses will be understated, leading to an overstatement of net income.

Question 12

Indicate with a Yes or No whether or not each of the following accounts would, under normal circumstances, require an adjusting entry.
1. Cash
2. Prepaid Expenses
3. Depreciation Expense
4. Accounts Payable
5. Accumulated Depreciation
6. Equipment

Accepted Answer

The answer of Indicate with a Yes or No whether...

Question 13

Two income statements for PS Enterprises are shown below:  Prepare a vertical analysis of PS Enterprises' income statements. Has operating income increased or decreased as a percentage of revenue?
A) Yes, increased by 5%.
B) Yes, increased by 111%.
C) No, decreased by 5%.
D) None are correct.

Accepted Answer

To perform vertical analysis, we need to calculate the percentage of each item in the income statement relative to revenue.

For 2013: 
Operating income = $140,000 ÷ $2,800,000 = 5% 
Net income = $88,000 ÷ $2,800,000 = 3.14%

For 2012: 
Operating income = $150,000 ÷ $3,000,000 = 5% 
Net income = $80,000 ÷ $3,000,000 = 2.67%

As we can see, operating income decreased from 5% in 2012 to 4.5% in 2013, which represents a 10% decrease. Therefore, the correct answer is C) No, decreased by 5%.

Question 14

Which of the accounts below would most likely appear on an adjusted trial balance but probably would not appear on the trial balance?
A) Fees Earned
B) Accounts Receivable
C) Unearned Fees
D) Depreciation Expense

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 fixed assets over their useful lives. It is unlikely to appear on the trial balance because it is not part of the day-to-day transactions of the business, but it will appear on the adjusted trial balance because it is part of the overall financial statements.

Question 15

A business pays bi-weekly 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:
A) debit to Salary Expense of $8,000.
B) debit to Salary Payable of $8,000
C) credit to Salary Expense of $16,000
D) credit to Salary Payable of $16,000

Accepted Answer

The answer of A business pays bi-weekly salaries of $20,000...

Question 16

What is the purpose of the adjusted trial balance?
A) to verify that all of the adjusting entries have been posted
B) to verify that the net income (loss) is correctly reported
C) to verify that no adjusting journal entry has been omitted.
D) to verify that the debits and credits balance

Accepted Answer

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

Question 17

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true?
A) Salary Expense for the year was understated.
B) The total of the liabilities at the end of the year was overstated.
C) Net income for the year was understated.
D) Owner's equity at the end of the year was understated.

Accepted Answer

When the adjusting entry for accrued salaries is omitted, Salary Expense is understated because the expense that should have been recorded is not, leading to an overstatement of net income and owner's equity.

Question 18

A business pays bi-weekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The last pay day of December is Friday, December 27. Assuming 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:
A) debit to Salary Expense of $16,000
B) debit to Salary Expense of $4,000
C) credit to Salary Payable of $16,000
D) credit to Salary Payable of $4,000

Accepted Answer

The business pays bi-weekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The last pay day of December is Friday, December 27. So, 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 debit to Salary Expense of $16,000.

Question 19

When is the adjusted trial balance prepared?
A) Before adjusting journal entries are posted
B) After adjusting journal entries are posted.
C) After the adjusting journal entries are journalized
D) Before the adjusting journal entries are journalized.

Accepted Answer

The adjusted trial balance is prepared after the adjusting journal entries are posted. This is because the purpose of the adjusted trial balance is to ensure that all the accounts are correctly updated after the adjusting journal entries have been made.

Question 20

Protonix Corp has a payroll of $8,000 for a five-day workweek. Its employees are paid each Friday for the five-day workweek. The adjusting entry on December 31, 2015 assuming the year ends on Thursday would be:

Accepted Answer

The answer of Protonix Corp has a payroll of $8,000...

Quiz 3: The Adjusting Process

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

A one-year insurance policy was purchased on June 1, 2011 for $1,500. The adjusting entry on December 31, 2011 would be:

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

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

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 accrual

All of the following statements regarding vertical analysis are true except:

Depreciation on Office Equipment is $3,300. The adjusting entry on December 31, 2011 would be:

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

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

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?

Indicate with a Yes or No whether or not each of the following accounts would, under normal circumstances, require an adjusting entry. 1. Cash 2. Prepaid Expenses 3. Depreciation Expense 4. Accounts Payable 5. Accumulated Depreciation 6. Equipment

Two income statements for PS Enterprises are shown below: Prepare a vertical analysis of PS Enterprises' income statements. Has operating income increased or decreased as a percentage of revenue?

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

A business pays bi-weekly 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:

What is the purpose of the adjusted trial balance?

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true?

When is the adjusted trial balance prepared?

Protonix Corp has a payroll of $8,000 for a five-day workweek. Its employees are paid each Friday for the five-day workweek. The adjusting entry on December 31, 2015 assuming the year ends on Thursday would be: