Question 1

A business pays weekly wages of $20,000 on Friday for a five-day week ending on that day. If the fiscal period ends on Wednesday, the adjusting entry is
A)debit Wages Expense, $12,000; credit Drawing, $12,000.
B)debit Wages Expense, $12,000; credit Wages Payable, $12,000.
C)debit Drawing, $12,000; credit Wages Payable, $12,000.
D)debit Wages Payable, $12,000; credit Wages Expense, $12,000.
E)none of these.

Accepted Answer

The adjusting entry would be to debit Wages Expense for the amount earned but not yet paid, which is $12,000 (5/7 of the weekly wage of $20,000) and credit Wages Payable for the same amount. This is because the $20,000 paid on Friday only covers salaries earned through Wednesday, so the remaining amount is accrued and should be reflected in the financial statements. Option B reflects this adjusting entry. Options A, C, and D do not accurately reflect the situation.

Question 2

The Income Statement Debit column of the work sheet contains
A)expense account balances.
B)asset account balances.
C)liability account balances.
D)revenue account balances.
E)contra-asset account balances.

Accepted Answer

A

Question 3

The entry to record expired insurance is omitted. This error causes
A)assets to be overstated.
B)expenses to be overstated.
C)liabilities to be overstated.
D)liabilities to be understated.
E)an increase in liabilities on the balance sheet.

Accepted Answer

When the entry to record expired insurance is omitted, the insurance expense is not recognized, and the prepaid insurance (an asset) is not reduced. This results in assets being overstated because the prepaid insurance asset remains higher than it should be.

Question 4

Failure to record the entry for accrued wages results in
A)wages payable being overstated.
B)net income being understated.
C)wages expense being understated.
D)total assets being understated.
E)total assets being overstated.

Accepted Answer

Failure to record the entry for accrued wages would result in wages expense being understated because the expense has been incurred but not recorded in the books of accounts. This would lead to an understatement of total expenses and ultimately an understatement of net income. However, wages payable (liability) would be understated resulting in an overstatement of total assets.

Question 5

If total credits exceed total debits in the Balance Sheet columns of a work sheet,
A)a mistake has been made.
B)a net income has occurred.
C)assets exceed liabilities.
D)no conclusion can be drawn until the closing entries have been made.
E)a net loss has occurred.

Accepted Answer

The answer of If total credits exceed total debits in...

Question 6

The balance in the Prepaid Insurance account before adjustment at the end of the year is $720, which represents twelve months' insurance purchased on December 1. The adjusting entry required for the month of December, on December 31, the end of the fiscal year, is
A)debit Insurance Expense, $60; credit Prepaid Insurance, $60.
B)debit Insurance Expense, $660; credit Prepaid Insurance, $660.
C)debit Prepaid Insurance, $60; credit Insurance Expense, $60.
D)debit Prepaid Insurance, $720; credit Insurance Expense, $720.
E)debit Insurance Expense, $60; credit Insurance Payable, $60.

Accepted Answer

Since 12 months of insurance were purchased on December 1, the entire $720 was initially recorded as a debit to the Prepaid Insurance account. However, as each month passes, a portion of this prepaid expense is used up and needs to be recognized as an expense on the income statement.

As of December 31, one month has passed since the insurance was purchased, so the adjusting entry needed is to recognize one month's worth of insurance as an expense.

To do this, we need to debit Insurance Expense (which increases the expense account) and credit Prepaid Insurance (which decreases the asset account).

Since one month is 1/12th of a year, the amount to be recognized as an expense is $720/12 = $60.

Therefore, the adjusting entry should be:

Debit Insurance Expense $60
Credit Prepaid Insurance $60

Choice A is the only one that matches this entry.

Question 7

In which columns of a work sheet would the adjusted balance of Accumulated Depreciation appear?
A)Adjusted Trial Balance Credit, Balance Sheet Debit
B)Adjusted Trial Balance Credit, Balance Sheet Credit
C)Adjusted Trial Balance Credit, Income Statement Credit
D)Adjusted Trial Balance Debit, Balance Sheet Debit
E)Trial Balance Debit, Adjusted Trial Balance Debit

Accepted Answer

Accumulated Depreciation is a contra-asset account and has a credit balance. Therefore, on the adjusted trial balance, it will appear as a credit amount. On the balance sheet, it will also appear as a credit amount in the same column as the asset to which it relates. Therefore, option B is the correct choice as it specifies both the adjusted trial balance credit and the balance sheet credit columns.

Question 8

The type of account and normal balance of Accumulated Depreciation are
A)contra asset, debit.
B)asset, credit.
C)asset, debit.
D)liability, credit.
E)contra asset, credit.

Accepted Answer

Accumulated Depreciation is a contra asset account, meaning it has a normal credit balance and is used to reduce the value of the asset it is associated with on the balance sheet.

Question 9

Foster Company bought equipment on January 3 of this year for $10,000. At the time of purchase, the equipment was estimated to have a useful life of nine years and a trade-in value of $1,000 at the end of nine years. Using the straight-line method, the amount of one year's depreciation is
A)$1,111.
B)$1,222.
C)$1,000.
D)$9,000.
E)$2,000.

Accepted Answer

The formula for straight-line depreciation is:

(cost of the asset – salvage value) / useful life

In this case, the cost of the equipment is $10,000, the salvage value is $1,000, and the useful life is 9 years.

($10,000 - $1,000) / 9 = $1,000

Therefore, the amount of one year's depreciation is $1,000.

Question 10

Which of the following accounts is not adjusted?
A)Accumulated Depreciation
B)Wages Payable
C)Depreciation Expense
D)Owner's Capital
E)Prepaid Insurance

Accepted Answer

Owner's Capital is not adjusted because it represents the owner's equity in the business and is not affected by adjustments for accrued expenses, prepaid expenses, or depreciation.

Question 11

Accumulated Depreciation, Equipment, is shown as a(n)
A)expense on the income statement.
B)liability on the balance sheet.
C)deduction from net income on the statement of owner's equity.
D)contra account on the balance sheet.
E)addition to equipment on the balance sheet.

Accepted Answer

Accumulated Depreciation, Equipment, is a contra account that offsets the Equipment account on the balance sheet. It represents the total amount of depreciation expense that has been recorded on the equipment, and is subtracted from the original cost of the equipment to determine its carrying value or net book value. It does not appear on the income statement or the statement of owner's equity, and is not a liability.

Question 12

Depreciation is
A)a decrease in the fair market value of an asset.
B)an expense that is incurred during an accounting period.
C)a method of saving cash to replace plant assets.
D)added to the cost of equipment on the balance sheet.
E)shown on the balance sheet as a liability.

Accepted Answer

Depreciation is an expense that is incurred during an accounting period as a result of the wear and tear, deterioration, or obsolescence of a tangible asset over its useful life. It is not a decrease in the fair market value of an asset, a method of saving cash to replace plant assets, added to the cost of equipment on the balance sheet, or shown on the balance sheet as a liability.

Question 13

The amount of net income will appear on the debit side of the Income Statement columns on a work sheet,
A)if total revenue exceeded total expenses for the period.
B)if withdrawals have been made during the period.
C)if total assets exceeded total liabilities for the period.
D)if total expenses exceeded total revenue for the period.
E)if net income exceeds the owner's withdrawals.

Accepted Answer

Net income is the amount by which total revenue exceeds total expenses for the period. As such, it will appear on the debit side of the Income Statement columns on a work sheet.

Question 14

If equipment cost $20,000 and accumulated depreciation amounts to $6,000, the book value of the equipment is
A)$26,000.
B)$6,000.
C)$14,000.
D)$20,000.
E)none of these.

Accepted Answer

The book value of the equipment is equal to its purchase cost minus the accumulated depreciation, so the book value would be $20,000 - $6,000 = $14,000. Therefore, the correct answer is C.

Question 15

The owner's Capital account is found on the
A)Trial Balance Credit column and Income Statement Debit column of a work sheet.
B)Trial Balance Credit column, Adjusted Trial Balance Credit column, and Balance Sheet Credit column of a work sheet.
C)Trial Balance Credit column, Adjustments Credit column, Adjusted Trial Balance Credit column, and Balance Sheet Credit column of a work sheet.
D)Trial Balance Debit column, Adjustments Debit column, Adjusted Trial Balance Credit column, and Income Statement Credit column of a work sheet.
E)Balance Sheet Debit column and nowhere else.

Accepted Answer

The owner's Capital account is a part of the balance sheet, so it would be found in the Trial Balance Credit column, Adjusted Trial Balance Credit column, and Balance Sheet Credit column of a work sheet. It would not be found in the Income Statement Debit column or the Income Statement Credit column as those are for temporary accounts.

Question 16

If the Income Statement Debit and Credit columns on a work sheet are not equal after adding the respective columns,
A)an error has been made.
B)the company generated a net income.
C)the company incurred a net loss.
D)the liabilities must exceed the assets.
E)the company either generated a net income or incurred a net loss.

Accepted Answer

The Income Statement shows the company's revenues and expenses and whether it generated a net income (revenues exceed expenses) or incurred a net loss (expenses exceed revenues) during the period. Therefore, if the debit and credit columns on the Income Statement are not equal, it means that either the company generated a net income or incurred a net loss. Option A is incorrect because it doesn't provide a clear reason for the unequal columns and assumes that an error has been made. Option B and C are only partially correct, as they assume that either a net income or net loss has been generated, respectively. Option D is not related to the Income Statement and the equality of its columns.

Question 17

An adjusting entry must contain
A)two balance sheet accounts.
B)two income statement accounts.
C)a balance sheet account and an income statement account.
D)an asset account and a liability account.
E)an asset account and an expense account.

Accepted Answer

An adjusting entry typically involves a balance sheet account (such as prepaid expenses or accrued liabilities) and an income statement account (such as rent expense or interest revenue). This is because adjusting entries are meant to ensure that the company's financial statements accurately reflect the current period's revenue and expenses, as well as the assets and liabilities that relate to those revenues and expenses. Therefore, options A, B, D, and E are incorrect.

Question 18

The difference between the balance of the Equipment account and its related Accumulated Depreciation account is called
A)trade-in value.
B)a contra asset.
C)an accrued liability.
D)an accrued asset.
E)book value.

Accepted Answer

The book value of an asset is calculated by subtracting the accumulated depreciation from the equipment account balance.

Question 19

The adjusting entry to record depreciation of equipment is
A)debit Accumulated Depreciation; credit Depreciation Expense.
B)debit Depreciation Expense; credit Accumulated Depreciation.
C)debit Equipment; credit Accumulated Depreciation.
D)debit Depreciation Expense; credit Depreciation Payable.
E)debit Accumulated Depreciation; credit Equipment.

Accepted Answer

Depreciation Expense is an expense account, therefore it is debited. Accumulated Depreciation is a contra-asset account, which represents the cumulative depreciation of the asset, therefore it is credited. The entry reduces the carrying value of the asset on the balance sheet and records the expense on the income statement.

Question 20

Accrued wages are wages that
A)have been earned by employees but not paid.
B)have been paid.
C)have been neither earned by employees nor paid.
D)were earned by employees and have been paid.
E)have been paid but not earned by employees.

Accepted Answer

Accrued wages are wages that have been earned by employees but not paid. This means that the employees have worked for a certain period of time and are entitled to receive payment, but they have not yet been paid. Accrued wages are a liability for the employer and will usually be recorded on the balance sheet.

Quiz 4: Adjusting Entries and the Work Sheet

A business pays weekly wages of $20,000 on Friday for a five-day week ending on that day. If the fiscal period ends on Wednesday, the adjusting entry is

The Income Statement Debit column of the work sheet contains

The entry to record expired insurance is omitted. This error causes

Failure to record the entry for accrued wages results in

If total credits exceed total debits in the Balance Sheet columns of a work sheet,

The balance in the Prepaid Insurance account before adjustment at the end of the year is $720, which represents twelve months' insurance purchased on December 1. The adjusting entry required for the month of December, on December 31, the end of the fiscal year, is

In which columns of a work sheet would the adjusted balance of Accumulated Depreciation appear?

The type of account and normal balance of Accumulated Depreciation are

Foster Company bought equipment on January 3 of this year for $10,000. At the time of purchase, the equipment was estimated to have a useful life of nine years and a trade-in value of $1,000 at the end of nine years. Using the straight-line method, the amount of one year's depreciation is

Which of the following accounts is not adjusted?

Accumulated Depreciation, Equipment, is shown as a(n)

Depreciation is

The amount of net income will appear on the debit side of the Income Statement columns on a work sheet,

If equipment cost $20,000 and accumulated depreciation amounts to $6,000, the book value of the equipment is

The owner's Capital account is found on the

If the Income Statement Debit and Credit columns on a work sheet are not equal after adding the respective columns,

An adjusting entry must contain

The difference between the balance of the Equipment account and its related Accumulated Depreciation account is called

The adjusting entry to record depreciation of equipment is

Accrued wages are wages that