Question 1

On April 1, Smart, Inc.paid $7,200 for an insurance premium on a three-year insurance policy.How does this transaction affect Smart's accounts?

Accepted Answer

The payment of $7,200 for a three-year insurance policy is a prepaid expense. This means that Smart, Inc. has paid in advance for insurance coverage that it will use over the next three years. Therefore, this transaction will increase Smart's prepaid insurance account by $7,200 and decrease its cash account by the same amount. It will not impact Smart's insurance expense or unearned insurance accounts since the insurance premiums will be expensed as they are used over the next three years. Likewise, the transaction will not impact Smart's retained earnings account as this is a balance sheet transaction and does not affect the income statement.

Question 2

The updating of accrual accounting records before preparing financial statements is referred to as the:

Accepted Answer

The updating of accrual accounting records before preparing financial statements is referred to as the adjustment process. This involves making adjustments for items such as accrued expenses, prepaid expenses, and depreciation, in order to ensure that the financial statements reflect the true financial position of the business. The consolidation process refers to the combination of financial statements of multiple entities, while the full disclosure process involves providing all relevant information in the financial statements. The money measurement process refers to the fact that only transactions that can be measured in monetary terms are recorded in the accounting system.

Question 3

When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account, which section of the statement of cash flows is affected?

Accepted Answer

Adjusting entries for recording insurance expense and reducing the prepaid insurance account are non-cash transactions. They affect the income statement and balance sheet but do not impact the cash flow statement directly.

Question 4

On June 1, Unidevo, Inc.purchased $2,300 worth of supplies on account.Prior to the purchase, the balance in the supplies account was $350.On December 31, the fiscal year-end for Unidevo, it is determined that $500 of supplies still remain.What is the balance in the supplies account after adjustment?

Accepted Answer

To determine the balance in the supplies account after adjustment, we need to subtract the amount of supplies used during the year ($2,300 - $500 = $1,800) from the balance in the supplies account prior to the purchase ($350). This gives us a balance of $2,150. However, since the initial purchase was made on account, we also need to add the $2,300 purchase to this balance, which brings us to a total balance of $4,450. Finally, since we know that $500 of supplies still remain at the end of the fiscal year, we can subtract that amount from our total balance to get the adjusted balance in the supplies account: $4,450 - $500 = $3,950. However, this answer is not one of the choices listed. The only choice that is close is C, which represents the amount of supplies still remaining at the end of the year. Therefore, the best choice is C.

Question 5

A deferred expense is initially recorded as:

Accepted Answer

A deferred expense is an asset as it represents prepayments made for goods or services that will be received in the future. Over time, the asset is reduced and becomes an expense as the good or service is consumed or utilized.

Question 6

Perill Co.has a five-day workweek (Monday through Friday).Employees earn $650 per day.If the month ends on Wednesday, and wages will not be paid until Friday, how much wage expense should be accrued on Wednesday?​

Accepted Answer

The correct answer is B) $1,950. Since the month ends on a Wednesday, the company needs to accrue wages for three days (Monday, Tuesday, and Wednesday) at $650 per day. Therefore, the total accrued wage expense is 3 days * $650/day = $1,950.

Question 7

When an entry is made to adjust the supplies account and recognize supplies expense for the period, which section of the statement of cash flows is affected?

Accepted Answer

Adjusting entries for supplies expense do not involve cash transactions; they are made to update the accounts for accrual accounting purposes. Therefore, they do not affect the statement of cash flows.

Question 8

In August, Falcon Inc.received cash in advance of rendering services to its clients.If only a few of those services were provided by December 31, the year-end adjustment would:

Accepted Answer

When Falcon Inc. receives cash in advance for services, it records this as unearned revenue, a liability, because the service has not yet been provided. As services are rendered, unearned revenue is decreased (because the obligation to provide services is being fulfilled), and revenue is increased (because the service is being provided and thus earning the revenue).

Question 9

Which of the following is normally the result of cash being received or paid before the revenue is earned or the expense is incurred?

Accepted Answer

A deferred expense occurs when cash is paid before the expense is incurred, reflecting a prepayment for goods or services to be received in the future.

Question 10

Perill Co.has a five-day workweek (Monday through Friday).Employees earn $650 per day.How much cash will be paid on Friday?​

Accepted Answer

Since employees earn $650 per day and work five days a week, the total cash paid on Friday for the week's work would be $650 * 5 = $3,250.

Question 11

On June 1, Unidevo, Inc.purchased $1,700 worth of supplies on account.Prior to the purchase, the balance in the supplies account was $0.On December 31, the fiscal year-end for Unidevo, it is determined that $800 of supplies still remain.What is the balance in the supplies account after adjustment?

Accepted Answer

The balance in the supplies account after adjustment is $800, which represents the value of supplies still remaining at the end of the fiscal year. The adjustment accounts for the supplies used during the year ($1,700 - $800 = $900 used), leaving $800 worth of supplies as the ending balance.

Question 12

Unearned interest is categorized as:

Accepted Answer

Unearned interest represents a liability for the company, as it is money collected in advance for interest that has not yet been earned.

Question 13

Which of the following is true of an accrual?

Accepted Answer

An accrual is a transaction that occurs before the related revenue is earned or the expense is incurred, and it is typically recorded as a liability or asset until it is earned or incurred. Thus, in the case of an accrual, cash is usually received or paid after the revenue has been earned or the expense has been incurred. Therefore, option D is the correct answer.

Question 14

On April 1, Tenity, Inc.paid $3,300 for an insurance premium on a three-year insurance policy.At the end of December, Tenity's fiscal year-end, what should be the balance in the prepaid insurance account?

Accepted Answer

Since the insurance policy is for three years and Tenity paid $3,300 for the premium, the annual premium would be $1,100 ($3,300 divided by 3). As of December, Tenity would have used up 9 months worth of insurance coverage (January to September), which would be $825 ($1,100 times 9 months). Therefore, the balance in the prepaid insurance account at the end of December would be $2,475 ($3,300 minus $825).

Question 15

Deferred revenue is initially recorded as:

Accepted Answer

Deferred revenue is money received by a company for goods or services not yet delivered. At the time of receipt, it is recorded as a liability because the company owes the customer the product or service. As the company provides the goods or services, the deferred revenue is recognized as revenue on the company's income statement. Hence, option C is correct.

Question 16

Speedy Company's weekly payroll of $250 is paid on Fridays (five-day work week).Assume that the last day of the month falls on Thursday.Which of the following is the required month-end adjusting entry?

Accepted Answer

The correct adjusting entry is to recognize the expense incurred for the four days of work that occurred in the current month but will be paid in the next month. Since the weekly payroll is $250 for a five-day work week, each day's payroll is $50 ($250/5). For four days (Monday to Thursday), the expense is $200 ($50 x 4 days), so Salaries Expense should be increased by $200, and Salaries Payable should also be increased by $200 to reflect the obligation to pay this amount.

Question 17

Which of the following assets never loses its ability to provide service and, as a result, does not need to be depreciated?

Accepted Answer

Land is a tangible asset that is expected to have an indefinite useful life and, as such, is not subject to depreciation. Unlike other assets like office equipment, patents or copyrights, land does not wear out over time.

Question 18

Which of the following accounts would require an adjustment when making an adjusting entry for a deferral?

Accepted Answer

Unearned rent is a type of deferral account, meaning that cash was received before revenue was earned. Therefore, an adjusting entry is needed to recognize the portion of the rent that has been earned during the accounting period. Accrued interest, salary expense, and notes receivable are not deferral accounts and would not require adjustment for deferral.

Question 19

​Identify the item that should be treated as a deferred expense by a company. ​

Accepted Answer

Prepaid advertising should be treated as a deferred expense by a company as it is an advance payment made for advertising services yet to be received.

Question 20

St.Nick Corporation's Toy-Making Supplies account showed a beginning balance of $200 and supplies purchased of $800.There were $400 of supplies on hand at year-end.The year-end adjustment would include an increase in Toy-Making Supplies Expense for

Accepted Answer

The year-end adjustment would be to decrease the supplies account by the amount of supplies on hand ($400) and increase the Toy-Making Supplies Expense account for the amount used during the year ($600). Therefore, the correct answer is (C) $600.

Quiz 3: Basic Accounting Systems: Accrual Basis

On April 1, Smart, Inc.paid $7,200 for an insurance premium on a three-year insurance policy.How does this transaction affect Smart's accounts?

The updating of accrual accounting records before preparing financial statements is referred to as the:

When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account, which section of the statement of cash flows is affected?

On June 1, Unidevo, Inc.purchased $2,300 worth of supplies on account.Prior to the purchase, the balance in the supplies account was $350.On December 31, the fiscal year-end for Unidevo, it is determined that $500 of supplies still remain.What is the balance in the supplies account after adjustment?

A deferred expense is initially recorded as:

Perill Co.has a five-day workweek (Monday through Friday) .Employees earn $650 per day.If the month ends on Wednesday, and wages will not be paid until Friday, how much wage expense should be accrued on Wednesday?

When an entry is made to adjust the supplies account and recognize supplies expense for the period, which section of the statement of cash flows is affected?

In August, Falcon Inc.received cash in advance of rendering services to its clients.If only a few of those services were provided by December 31, the year-end adjustment would:

Which of the following is normally the result of cash being received or paid before the revenue is earned or the expense is incurred?

Perill Co.has a five-day workweek (Monday through Friday) .Employees earn $650 per day.How much cash will be paid on Friday?

On June 1, Unidevo, Inc.purchased $1,700 worth of supplies on account.Prior to the purchase, the balance in the supplies account was $0.On December 31, the fiscal year-end for Unidevo, it is determined that $800 of supplies still remain.What is the balance in the supplies account after adjustment?

Unearned interest is categorized as:

Which of the following is true of an accrual?

On April 1, Tenity, Inc.paid $3,300 for an insurance premium on a three-year insurance policy.At the end of December, Tenity's fiscal year-end, what should be the balance in the prepaid insurance account?

Deferred revenue is initially recorded as:

Speedy Company's weekly payroll of $250 is paid on Fridays (five-day work week) .Assume that the last day of the month falls on Thursday.Which of the following is the required month-end adjusting entry?

Which of the following assets never loses its ability to provide service and, as a result, does not need to be depreciated?

Which of the following accounts would require an adjustment when making an adjusting entry for a deferral?

Identify the item that should be treated as a deferred expense by a company.

St.Nick Corporation's Toy-Making Supplies account showed a beginning balance of $200 and supplies purchased of $800.There were $400 of supplies on hand at year-end.The year-end adjustment would include an increase in Toy-Making Supplies Expense for

Quiz 3: Basic Accounting Systems: Accrual Basis

On April 1, Smart, Inc.paid $7,200 for an insurance premium on a three-year insurance policy.How does this transaction affect Smart's accounts?

The updating of accrual accounting records before preparing financial statements is referred to as the:

When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account, which section of the statement of cash flows is affected?

A deferred expense is initially recorded as:

Perill Co.has a five-day workweek (Monday through Friday) .Employees earn $650 per day.If the month ends on Wednesday, and wages will not be paid until Friday, how much wage expense should be accrued on Wednesday?​

When an entry is made to adjust the supplies account and recognize supplies expense for the period, which section of the statement of cash flows is affected?

In August, Falcon Inc.received cash in advance of rendering services to its clients.If only a few of those services were provided by December 31, the year-end adjustment would:

Which of the following is normally the result of cash being received or paid before the revenue is earned or the expense is incurred?

Perill Co.has a five-day workweek (Monday through Friday) .Employees earn $650 per day.How much cash will be paid on Friday?​

On June 1, Unidevo, Inc.purchased $1,700 worth of supplies on account.Prior to the purchase, the balance in the supplies account was $0.On December 31, the fiscal year-end for Unidevo, it is determined that $800 of supplies still remain.What is the balance in the supplies account after adjustment?

Unearned interest is categorized as:

Which of the following is true of an accrual?

On April 1, Tenity, Inc.paid $3,300 for an insurance premium on a three-year insurance policy.At the end of December, Tenity's fiscal year-end, what should be the balance in the prepaid insurance account?

Deferred revenue is initially recorded as:

Speedy Company's weekly payroll of $250 is paid on Fridays (five-day work week) .Assume that the last day of the month falls on Thursday.Which of the following is the required month-end adjusting entry?

Which of the following assets never loses its ability to provide service and, as a result, does not need to be depreciated?

Which of the following accounts would require an adjustment when making an adjusting entry for a deferral?

​Identify the item that should be treated as a deferred expense by a company. ​

St.Nick Corporation's Toy-Making Supplies account showed a beginning balance of $200 and supplies purchased of $800.There were $400 of supplies on hand at year-end.The year-end adjustment would include an increase in Toy-Making Supplies Expense for

Perill Co.has a five-day workweek (Monday through Friday) .Employees earn $650 per day.If the month ends on Wednesday, and wages will not be paid until Friday, how much wage expense should be accrued on Wednesday?

Perill Co.has a five-day workweek (Monday through Friday) .Employees earn $650 per day.How much cash will be paid on Friday?

Identify the item that should be treated as a deferred expense by a company.