Question 1

On October 1, a company borrowed $200,000 on a two-year, 12% note, with interest and principal to be paid at maturity. How much interest expense will be reported on the income statement for the year ending December 31?

Accepted Answer

Interest expense for the year ending December 31 is calculated as follows:Interest expense = Principal x Interest rate x Time= $200,000 x 12% x 3/12= $6,000

Question 2

What happens to the accounting equation when the adjustment is recorded to recognize earned revenue previously recorded as unearned revenue?

Accepted Answer

When earned revenue previously recorded as unearned revenue is recognized, the liability for unearned revenue decreases and revenue increases, resulting in an increase in stockholders' equity. There is no impact on assets or liabilities other than the decrease in the unearned revenue liability.

Question 3

A sporting goods chain purchased supplies at a cost of $11,000 during the year. At January 1, the beginning balance in the supplies account was $3,000. At December 31, supplies on hand are $800. Determine supplies expense for the year.

Accepted Answer

The supplies expense for the year is calculated by adding the beginning balance of supplies to the purchases made during the year and then subtracting the ending balance of supplies. This gives: $3,000 (beginning balance) + $11,000 (purchases) - $800 (ending balance) = $13,200.

Question 4

A law firm purchased supplies at a cost of $20,000 during the year. At January 1, the beginning balance in the supplies account was $1,300. For the year, supplies expense was $11,200. How much "Supplies" are on hand as of December 31?

Accepted Answer

The beginning balance of supplies was $1,300, and $20,000 worth of supplies were purchased, totaling $21,300. With a supplies expense of $11,200, the remaining supplies on hand would be $21,300 - $11,200 = $10,100.

Question 5

On October 1, 2019, a company paid $9,000 rent in advance. The rent per month is $1,000. Assuming the company's accounting period ends on December 31, 2019, what will be reported on the financial statements?

Accepted Answer

The company paid $9,000 rent in advance, which means they have prepaid rent for 9 months (October-December). Since the company's accounting period ends on December 31, 2019, only 3 months of rent (January-March 2020) will be incurred in the next accounting period. Therefore, at December 31, 2019, the company will report Prepaid Rent of $6,000 ($1,000/month x 6 months remaining) on its balance sheet. Rent Expense of $9,000 will not be reported on the income statement until the rent is actually incurred during the next accounting period. Rent Revenue is not applicable as the question does not mention any rental income earned by the company.

Question 6

Adjusting journal entries are made at the end of the period when

Accepted Answer

Adjusting journal entries are made to ensure that revenues and expenses are recognized in the appropriate accounting period under the accrual basis of accounting. This is necessary when cash receipts and payments occur before or after the point in time when revenues and expenses should be recognized. Therefore, option B is the correct answer. The other options are incorrect because they do not relate to the reason for making adjusting journal entries.

Question 7

Cozy Corporation purchased supplies at a cost of $15,000 during the year. At January 1, supplies on hand were $5,000. At December 31, supplies on hand are $2,000. Calculate supplies expense for the year.

Accepted Answer

Supplies expense is calculated as the beginning inventory ($5,000) plus purchases ($15,000) minus ending inventory ($2,000), which equals $18,000.

Question 8

A company borrowed $100,000 on a one-year, 10% note on September 1, with interest and principal to be paid at maturity. How much interest payable will be reported on the balance sheet at November 30?

Accepted Answer

The interest payable for 3 months (September 1 to November 30) on a $100,000 loan at a 10% annual interest rate is calculated as follows: $100,000 * 10% * (3/12) = $2,500.

Question 9

What happens to the accounting equation when the adjustment for depreciation expense for the accounting period is recorded?

Accepted Answer

Depreciation expense is an expense that reduces the value of an asset over time. When the adjustment for depreciation expense is recorded, it decreases the value of the asset and, therefore, decreases the total assets of the company. At the same time, it reduces the net income, which reduces the retained earnings and, in turn, decreases the stockholders' equity. Therefore, both the assets and the stockholders' equity decrease.

Question 10

Which one of the following is an example of an accrued liability?

Accepted Answer

An accrued liability is an expense that has been incurred but not yet paid. Rent that has been incurred but not paid at the end of the period is an example of an accrued liability. The other options are all examples of prepaid expenses or long-term assets.

Question 11

A particular company had $2,400 of supplies on hand at January 1. During the year, supplies with a cost of $4,000 were purchased. At December 31, the actual supplies on hand amounted to $2,000. After the adjustments are recorded and posted at December 31, what are the ending balances in the Supplies and Supplies Expense accounts? Supplies Supplies Expense

Accepted Answer

The cost of supplies purchased during the year ($4,000) needs to be added to the beginning balance of supplies on hand ($2,400) to get the total cost of supplies available for use during the year ($6,400). Then, the actual supplies on hand at the end of the year ($2,000) need to be subtracted from this total to get the amount of supplies used during the year ($4,400). This amount is recorded as Supplies Expense. 
Supplies: Beginning balance $2,400 + Purchases $4,000 - Ending balance $2,000 = $4,400 
Supplies Expense: $4,400.

Question 12

If the end-of-year supplies on hand totaled $200, and purchases totaled $300, and supplies on hand at the beginning of the year amounted to $100, how much will be reported as supplies expense for the current year?

Accepted Answer

The supplies expense for the current year is calculated as beginning supplies plus purchases minus end supplies. So, $100 (beginning) + $300 (purchases) - $200 (end) = $200.

Question 13

Carolina Truck Lines purchased a truck at a cost of $22,000 in 2014. As of January 1, 2019, depreciation of $18,000 had been recorded on this asset. Depreciation expense for 2019 is $2,000. Before the adjustments are recorded and posted at December 31, 2019, what is the truck's book value?

Accepted Answer

Book value = Cost - Accumulated depreciation
Accumulated depreciation as of January 1, 2019 = $18,000
Depreciation expense for 2019 = $2,000
Accumulated depreciation as of December 31, 2019 = $18,000 + $2,000 = $20,000
Book value as of December 31, 2019 = $22,000 - $20,000 = $2,000

Question 14

Carver Memorial Gardens purchased supplies for $14,500 during the year. At January 1, supplies on hand were $1,000. At December 31, supplies on hand are $3,500. Determine the amount of supplies expense for the year.

Accepted Answer

The supplies expense for the year is calculated by adding the purchases to the beginning inventory, then subtracting the ending inventory: $14,500 + $1,000 - $3,500 = $12,000.

Question 15

A company forgot to record four adjustments during the current year. Which one of the following omissions of adjustments will understate assets?

Accepted Answer

Interest on monies loaned out that has not yet been recorded would understate assets because the interest receivable (an asset) would not be recognized in the financial statements.

Question 16

Cash Express had no supplies on January 1 but purchased $2,581 in supplies during the year. At December 31, supplies on hand are $1,492. What amount for supplies will be reported on the firm's balance sheet?

Accepted Answer

The amount for supplies reported on the firm's balance sheet will be the supplies on hand at the end of the year, which is $1,492.

Question 17

A company forgot to record four adjustments during the current year. Which one of the following omissions of adjustments will understate net income?

Accepted Answer

Not recording sales made during the last week of the period will understate net income because it omits revenue that should have been recognized, thus reducing the reported income.

Question 18

The university satellite office operates five days per week with a daily payroll of $5,000. Employees are paid every Saturday for the workweek just completed (Monday through Friday). The last day of the month is Wednesday, October 31. What is the effect of the correct adjustment at October 31?

Accepted Answer

The adjustment on October 31 should recognize the wages expense incurred for Monday, Tuesday, and Wednesday of that week, totaling $15,000. This increases Wages Payable and decreases Stockholders' equity due to the expense.

Question 19

Which one of the following adjustments will increase assets?

Accepted Answer

The answer of Which one of the following adjustments will...

Question 20

A company borrowed $500,000 on a one-year, 10% note on October 1, 2018, with interest and principal to be paid at maturity. How much interest should be reported on the income statement for the year ending December 31, 2019?

Accepted Answer

The note only accrued interest for three months in 2018 (October, November, and December), so the interest expense for the year ending December 31, 2019 would be for nine months. 9/12 of the interest on the note would be: 
($500,000 x 0.10) x (9/12) = $37,500. Therefore, the correct choice is (D).

Quiz 3: Accrual Accounting