Question 1

Accumulated depreciation:

Accepted Answer

Accumulated depreciation is a contra-asset account because it is used to offset the balance of the related asset account, resulting in the net balance of the asset. It represents the total amount of depreciation expense that has been recorded over the life of the asset.

Question 2

Your business declared a $200 dividend on August 31,payable in September.On August 31,which of the following journal entries would be made?

Accepted Answer

When a company declares a dividend, it creates a liability called dividends payable. On the declaration date, the company debits Retained Earnings (or Dividends) for the amount of the dividend and credits Dividends Payable for the same amount. Therefore, the correct journal entry is to debit Dividends Declared for $200 and credit Dividends Payable for $200. Option A is incorrect because Dividends Receivable is used when the company has already declared a dividend but has not yet paid it. Option C is incorrect because Dividends Payable should be credited on the declaration date, not debited. Option D is incorrect because Dividends Receivable is only used when a company has paid a dividend in advance and is waiting for the record date to arrive before issuing the dividend to the shareholders.

Question 3

To calculate the company's income tax expense for the current period,it is necessary to know:

Accepted Answer

To calculate the company's income tax expense, we need to know the income before income taxes and the applicable tax rate. This is because income tax expense is calculated as a percentage of income before income taxes. Other information such as operating expenses and revenue are not directly relevant to calculating income tax expense.

Question 4

A company has an asset account,Prepaid Insurance,with a balance of $3,750 at the beginning of the month.The company used $980 of insurance during the month.Which of the following statements is true?

Accepted Answer

When a company uses a prepaid asset, such as prepaid insurance, it is considered an expense and should be recorded as such. The account to be debited, in this case, would be Insurance Expense, and the account to be credited would be Prepaid Insurance, both for the amount of $980. This would decrease the balance of Prepaid Insurance to $2,770 ($3,750 - $980). Neither Retained Earnings nor Stockholders' Equity is affected by this transaction since it only involves a decrease in assets and an increase in expenses, which have no direct effect on equity accounts.

Question 5

Recording an adjusting journal entry to recognize depreciation would cause which of the following?

Accepted Answer

Recording an adjusting journal entry to recognize depreciation involves decreasing the value of the asset (which is an expense) and decreasing the value of the corresponding accumulated depreciation account (which reduces the value of the asset on the balance sheet). This leads to a decrease in assets and stockholders' equity, and an increase in expenses. It does not affect liabilities.

Question 6

Declared dividends:

Accepted Answer

Declared dividends are a way to distribute the company's profits to its stockholders. They are not an expense of doing business and are not a legal obligation that a company must pay. While dividends do affect the retained earnings on the balance sheet, they themselves are not reported there.

Question 7

A count of supplies revealed $400 worth on hand at 12/31/13.The adjusting entry would include

Accepted Answer

The adjusting entry should reflect the amount of supplies used up during the period. If the supplies account initially had $1,000 and $400 worth is left, then $600 worth has been used, requiring a debit to Supplies Expense for $600.

Question 8

A company pays wages every two weeks.Wages amount to $100 a day,7 days a week.On March 31,the company pays wages for the two weeks ending March 24.At the end of the month,the related adjusting journal entry will include a

Accepted Answer

The wages for the two weeks ending March 24th were paid on March 31st, meaning that the company owed wages for one week (March 25-31) at the end of the month. The total wages for one week would be $700 ($100/day x 7 days). The adjusting journal entry would debit Wage Expense for the amount owed ($700) and credit Wages Payable for the same amount (as this is an accrued expense). Option B is the only choice that reflects this.

Question 9

Contra-accounts:

Accepted Answer

Contra-accounts are used to decrease the original value of the account they offset. They have a normal balance opposite to the account they offset (e.g. contra-asset accounts like accumulated depreciation have a normal credit balance and offset the debit balance of the related asset account). Contra-accounts always appear in the opposite column of the trial balance from the account they offset.

Question 10

Purrfect Pets had $6,000 of supplies at the end of October.During November,the company bought $2,000 of supplies.At the end of November,the company had $1,000 of supplies remaining.Which of the following statements is not true?

Accepted Answer

An asset should not be debited for $1,000 in November; instead, the remaining supplies of $1,000 should be reported as an asset on the balance sheet.

Question 11

During the month,a company uses up $4,000 of supplies.At the end of the month,the related adjusting journal entry would result in:

Accepted Answer

When supplies are used up, it results in a decrease in the asset "Supplies" since there are now fewer supplies available. At the same time, an equal increase in expenses should be recorded to reflect the reduction in the company's resources. Therefore, the adjusting entry would be to debit Supplies Expense and credit Supplies for $4,000.

Question 12

A company has a loan that accrues interest at a rate of $20 a day.The company pays the interest once a quarter.Which of these would be an accurate adjustment for a month in which no payments are made?

Accepted Answer

Since no payments are made, the interest expense accrues and increases the liability in the form of interest payable. Therefore, we need to debit Interest Expense to recognize the expense and credit Interest Payable to increase the liability, accurately reflecting the interest that has accrued during the month.

Question 13

At the end of the year,accrual adjusting entries could include a:

Accepted Answer

At the end of the year, accrual adjusting entries are made to record expenses incurred or revenue earned, but not yet recorded. This involves debiting an expense account and crediting a liability account, since the expense has been incurred but payment has not yet been made. Therefore, the best choice is D - debit to an expense and a credit to a liability.

Question 14

Unearned insurance premiums were $5,500 at the beginning of the year and $7,500 at the end of the year.Insurance premiums collected were $42,000.How much in insurance premiums were earned this year?

Accepted Answer

The change in unearned premiums is $7,500 - $5,500 = $2,000. Therefore, the earned premiums are $42,000 - $2,000 = $40,000.

Question 15

An adjusting journal entry that includes an increase to an asset contra-account would include an increase in a(n):

Accepted Answer

An increase to an asset contra-account, such as accumulated depreciation, typically corresponds with an increase in an expense account, like depreciation expense.

Question 16

Which of these accounts would normally not be affected by an adjustment?

Accepted Answer

Cash is a balance sheet account that represents the actual amount of cash held by the company at a given time. Adjustments are made to income statement accounts, such as supplies, revenues, and expenses, in order to ensure that they reflect the appropriate amount for the accounting period. Cash, on the other hand, should always reflect the actual amount of cash the company has on hand and is not subject to adjustments.

Question 17

Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate.Its net income should be reported as:

Accepted Answer

Net income = Income before income tax - (Income before income tax x tax rate)
Net income = $164,000 - ($164,000 x 0.34)
Net income = $164,000 - $55,760
Net income = $108,240
Therefore, the net income should be reported as $108,240.

Question 18

The insurance policy covers four years and was purchased by Sneetch on 1/1/13.The adjusting entry on December 31,2013 would include

Accepted Answer

The insurance policy covers four years, so the annual expense is 1/4 of the total. If the total cost was $4,800, then $1,200 is the expense for one year. The adjusting entry would credit prepaid insurance for $1,200 to recognize the expense for the year.

Question 19

Your business purchased a certificate of deposit on April 1 that will pay $90 interest three months from that date.On April 30,which of the following adjusting entries would be made?

Accepted Answer

The interest for one month (April) is $30 ($90/3 months). The adjusting entry recognizes the interest earned but not yet received by debiting Interest Receivable and crediting Interest Revenue for $30.

Question 20

When a dividend has been declared but not yet paid,

Accepted Answer

When a dividend is declared, it creates a liability for the company as it is obligated to pay the dividend to shareholders, thus increasing liabilities. At the same time, it reduces retained earnings, which is a component of stockholders' equity, thereby decreasing stockholders' equity.

Quiz 4: Adjustments, Financial Statements, and Financial Results