Question 1

Adjusting entries help achieve the goals of accrual accounting by applying the following two accounting principles:

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that the revenue recognition principle and the matching principle are adhered to. The realization principle requires companies to record revenue in the period in which it is earned, not when cash is received. The matching principle requires companies to match expenses with the revenues they helped generate in the same accounting period. Together, these two principles ensure that financial statements accurately reflect a company's financial performance and position. Therefore, the correct answer is C, which includes both of these principles in its options.

Question 2

Under accrual accounting,salaries earned by employees but not yet paid should be expensed:

Accepted Answer

Under accrual accounting, expenses should be recorded in the period in which they are incurred or earned, not in the period in which they are paid. Therefore, salaries earned by employees but not yet paid should be expensed in the period in which they are earned.

Question 3

Gordy's Corp.has seven employees.Each earns $800 per week for a five day work week ending on Friday.This month,the last day of the month falls on a Thursday.The company should make an adjusting entry:

Accepted Answer

The last day of the month falls on a Thursday, which means that the employees will only work four days in the final week of the month. Therefore, the company needs to adjust its accounts by recording the wages owed to the employees for the final day (Friday) that they did not work. The total amount owed to the seven employees for that day is $800 x 7 = $5,600. Since the company has not yet paid these wages, they should be recorded as a liability in the Wages Payable account. The adjusting entry to record this liability is to debit Wage Expense for the amount owed ($800 x 7 x 1 day/5 days = $1,120) and credit Wages Payable for the same amount. Therefore, the correct choice is A.

Question 4

Swordfish Co.earned $75,000 in 2013 and expects to receive 2/3 of the amount in 2014 and the remainder in 2015.How much revenue should Swordfish Co.report in 2013?

Accepted Answer

Swordfish Co. earned $75,000 in 2013, therefore, revenue reported in 2013 should be $75,000 since this is the amount the company earned in that year.

Question 5

During the last month of its fiscal year,Echo Lake Resort provided catering services for local business.Echo Lake Resort has not yet received payment from the local business.The entry to record this event is an example of an adjusting entry:

Accepted Answer

This is an example of an accrual of uncollected revenue because the catering services have been provided but the payment has not yet been received. Therefore, an adjusting entry is needed to record the revenue earned but not yet collected.

Question 6

Great Kids Co.began providing day care for the children of employees of a large corporation on January 15 for an agreed monthly fee of $9,000.The first payment is to be received on February 15.The adjusting entry required by Great Kids Co.on January 31 includes:

Accepted Answer

Great Kids Co. has earned half of the monthly fee by January 31, so they should recognize $4,500 as earned revenue.

Question 7

Which of the following statements concerning materiality is true?

Accepted Answer

Materiality refers to the significance of an amount or an event in the context of financial statements. Immaterial items can be handled in the most expedient manner, even if it results in financial statements that are not completely precise. This is because the benefit of presenting precise financial statements does not justify the cost of providing additional information about immaterial items.

Question 8

Which of the following accounting principles is concerned with offsetting revenue with the expenses incurred in producing that revenue?

Accepted Answer

The matching principle is concerned with offsetting revenue with the expenses incurred in producing that revenue. The other principles mentioned are not related to this concept. The realization principle is concerned with recognizing revenue when it is earned, while materiality is a concept related to the significance of financial information, and depreciation is the systematic allocation of the cost of an asset over its useful life.

Question 9

The concept of materiality:

Accepted Answer

The concept of materiality refers to the measure of an item's significance in terms of whether its inclusion or exclusion would influence the decisions of users of financial statements. It can apply to both tangible and intangible assets and to both the income statement and balance sheet. Materiality is not always an exact percentage, but rather depends on the context and the judgment of the accountant or auditor.

Question 10

Dolphin Co.received $1,500 in fees during 2014,1/3 of which will be earned in 2015,the rest was earned when the amount was received.The company should report which of the following amounts as income in 2014?

Accepted Answer

Since only 1/3 of the fees ($500) will be earned in 2015, the rest ($1,000) was earned in 2014 when the amount was received. Therefore, Dolphin Co. should report $1,000 as income in 2014.

Question 11

Which of the following would not be a proper application of the concept of materiality by Millridge Corporation?

Accepted Answer

Transactions involving small dollar amounts should still be recorded in a company's accounting records to ensure completeness and accuracy of financial information. Ignoring small transactions entirely could lead to inaccuracies in financial reporting.

Question 12

The concept of materiality:

Accepted Answer

Materiality allows for the omission or simplification of accounting information that would not significantly influence the decision-making process of users of financial statements. This concept can justify deviations from certain accounting principles, like the matching or realization principles, when the impact of strictly following them is immaterial to the financial statements' overall presentation and users' decision-making.

Question 13

The accountant for the Grassroots Company failed to make an adjusting entry to record revenue earned but not yet billed to customers.The effect of this error is:

Accepted Answer

Failing to record revenue earned but not yet billed results in an understatement of assets (accounts receivable), net income (since revenue increases net income), and owners' equity (as net income increases owners' equity).

Question 14

Which statement is true about an adjusted trial balance?

Accepted Answer

The adjusted trial balance is prepared after adjusting entries are made and before the financial statements are prepared. It lists all the accounts including revenue, expenses, assets, and liabilities, with their adjusted balances. Balance sheet items are indeed presented before income statement items, ensuring that assets, liabilities, and equity accounts are listed before revenues and expenses.

Question 15

Which of the following is the accounting principle that governs the timing of revenue recognition?

Accepted Answer

The Realization principle governs the timing of revenue recognition. It states that revenue should be recognized when it is earned and realized or realizable, meaning when the seller has performed its obligations to the buyer, and payment is expected to be received.

Question 16

The accountant for Perfect Painting forgot the following two adjustments at the end of 2015: (a)The entry to record depreciation: $3,000.
(b)The entry to record the portion of fees received in advance which have now been earned: $3,000.
As a result of these two omissions:

Accepted Answer

The answer of The accountant for Perfect Painting forgot the...

Question 17

Before any month-end adjustments are made,the net income of Bennett Company is $76,000.The following adjustments are necessary: office supplies used,$3,160; services performed for clients but not yet recorded or collected,$3,640; interest accrued on note payable to bank,$3,040.After adjusting entries are made for the items listed above,Bennett Company's net income will be:

Accepted Answer

The net income before adjustments is $76,000. After making the adjustments for office supplies used ($3,160), services performed but not yet recorded or collected ($3,640), and interest accrued on note payable to bank ($3,040), the new net income will be $76,000 - $3,160 - $3,640 - $3,040 = $66,160. Therefore, the best choice is C.

Question 18

An adjusting entry involving recognition of accrued revenue is necessary at the end of March in which of the following situations?

Accepted Answer

Accrued revenue refers to revenue that has been earned but not yet billed or received by the end of the accounting period. In option B, Midwood Consultants began working for a client in March but will not bill the client until April, making it necessary to recognize the revenue earned in March through an adjusting entry.

Question 19

On the adjusted trial balance,retained earnings is:

Accepted Answer

The adjusted trial balance is prepared after all the adjusting entries have been recorded and posted to the ledger accounts. Retained earnings account shows the total earnings of the company retained by the business over time. Since it is an ongoing cumulative account, the beginning balance of retained earnings is taken from the previous period's ending balance, and it is not adjusted on the current period's adjusted trial balance. Therefore, Option B is correct as the retained earnings account is stated at the period-beginning amount.

Question 20

Regal Real Estate which maintains its accounts on the basis of a fiscal year ending June 30,began the management of an office building on June 15 for an agreed annual fee of $4,800.The first payment is due on July 15.The adjusting entry required at June 30 is:

Accepted Answer

The correct answer is A because Regal Real Estate earned a portion of the annual fee by managing the office building from June 15 to June 30, which is 15 days out of the 365 days in a year. The fee for this period is calculated as ($4,800/365) * 15 = $200. Since the payment is due after June 30, the amount earned but not yet received should be recorded as a receivable, thus requiring a debit to Management Fees Receivable and a credit to a revenue account for $200.

Quiz 4: The Accounting Cycle: Accruals and Deferrals

Adjusting entries help achieve the goals of accrual accounting by applying the following two accounting principles:

Under accrual accounting,salaries earned by employees but not yet paid should be expensed:

Gordy's Corp.has seven employees.Each earns $800 per week for a five day work week ending on Friday.This month,the last day of the month falls on a Thursday.The company should make an adjusting entry:

Swordfish Co.earned $75,000 in 2013 and expects to receive 2/3 of the amount in 2014 and the remainder in 2015.How much revenue should Swordfish Co.report in 2013?

During the last month of its fiscal year,Echo Lake Resort provided catering services for local business.Echo Lake Resort has not yet received payment from the local business.The entry to record this event is an example of an adjusting entry:

Great Kids Co.began providing day care for the children of employees of a large corporation on January 15 for an agreed monthly fee of $9,000.The first payment is to be received on February 15.The adjusting entry required by Great Kids Co.on January 31 includes:

Which of the following statements concerning materiality is true?

Which of the following accounting principles is concerned with offsetting revenue with the expenses incurred in producing that revenue?

The concept of materiality:

Dolphin Co.received $1,500 in fees during 2014,1/3 of which will be earned in 2015,the rest was earned when the amount was received.The company should report which of the following amounts as income in 2014?

Which of the following would not be a proper application of the concept of materiality by Millridge Corporation?

The concept of materiality:

The accountant for the Grassroots Company failed to make an adjusting entry to record revenue earned but not yet billed to customers.The effect of this error is:

Which statement is true about an adjusted trial balance?

Which of the following is the accounting principle that governs the timing of revenue recognition?

The accountant for Perfect Painting forgot the following two adjustments at the end of 2015: (a) The entry to record depreciation: $3,000. (b) The entry to record the portion of fees received in advance which have now been earned: $3,000. As a result of these two omissions:

An adjusting entry involving recognition of accrued revenue is necessary at the end of March in which of the following situations?

On the adjusted trial balance,retained earnings is:

Regal Real Estate which maintains its accounts on the basis of a fiscal year ending June 30,began the management of an office building on June 15 for an agreed annual fee of $4,800.The first payment is due on July 15.The adjusting entry required at June 30 is: