Question 1

Rover Ltd. had $8,200 of supplies on hand at the beginning of the month. A count at the end of the month indicated $1,350 of supplies were still on hand. The adjusting entry at year end would include a:

Accepted Answer

The correct adjusting entry to record the supplies used during the month involves debiting Supplies Expense for $6,850, which is the difference between the supplies on hand at the beginning of the month ($8,200) and the supplies on hand at the end of the month ($1,350). This entry recognizes the expense of the supplies used during the period.

Question 2

An adjustment is made for an expense incurred prior to its payment. The adjustment is called a(n):

Accepted Answer

An accrued expense is an expense that has been incurred but not yet paid. It is typically recorded as an adjusting entry at the end of an accounting period to ensure that the expense is properly recognized in the period in which it was incurred. Examples of accrued expenses include salaries and wages, interest expense, and rent expense. Choices B, C, and D do not apply to this scenario, as they relate to other types of adjustments.

Question 3

Shaftebury Ltd. began operations and purchased $15,900 of supplies. By year end, $8,800 of supplies were still on hand. The adjusting entry at year end would include a:

Accepted Answer

The adjusting entry at year end for supplies would involve reducing the balance sheet account Supplies by the amount still on hand ($8,800), and recognizing the expense incurred during the year for the amount of supplies used up ($15,900 - $8,800 = $7,100). The expense account being credited would be Supplies Expense and the account being debited would be Supplies Expense for $7,100.

Question 4

What effect does an accrued expense adjustment have on the financial statements?

Accepted Answer

An accrued expense adjustment increases expenses and increases liabilities. This means that the expense is recognized in the current period, and the company owes money for the expense in the future. This has the effect of decreasing net income and decreasing retained earnings on the balance sheet.

Question 5

An accountant recognizes the impact of a business event as it occurs and accounts for it appropriately in which basis of accounting?

Accepted Answer

The accrual basis of accounting recognizes revenue and expenses as they are earned or incurred, regardless of when cash is exchanged. This method provides a more accurate depiction of a company's financial position and performance.

Question 6

A company using the cash basis of accounting pays for one year of rent in advance. The entry to record this transaction will involve a debit to:

Accepted Answer

The answer of A company using the cash basis of...

Question 7

The adjusting entry to record salaries owed to employees but not paid until the next accounting period involves a credit to:

Accepted Answer

The adjusting entry for salaries owed to employees but not yet paid involves increasing the Salary Payable account with a credit. This reflects the amount of unpaid salaries owed to employees at the end of the accounting period. The corresponding debit would be to the Salary Expense account to recognize the expense for the period. Choices A, C, and D do not accurately reflect the nature of this entry.

Question 8

Cash for services to be performed in 2020 is received in 2019. Using the accrual basis of accounting, the revenue should appear on:

Accepted Answer

Under the accrual basis of accounting, revenue is recognized when earned, regardless of when the cash is received. Since the services are to be performed in 2020, the revenue should be recognized in 2020, not when the cash was received in 2019.

Question 9

What will be the result if no adjusting entry is made to record revenue earned during the current period when the cash was received in the last accounting period?

Accepted Answer

If no adjusting entry is made, the liability account (unearned revenue) will not be reduced, causing liabilities to be overstated.

Question 10

The post closing trial balance contains which of the following accounts?

Accepted Answer

The post closing trial balance only contains permanent accounts, which are those that are not closed at the end of the accounting period. Among the options given, only Accumulated Depreciation is a permanent account, whereas Service Revenue, Depreciation Expense, and Dividends are all temporary accounts that are closed out to Retained Earnings at the end of the accounting period. Therefore, only C, Accumulated Depreciation, would be included in the post closing trial balance.

Question 11

An improvement in the proportion of a company's assets that are financed with debt would be shown by:

Accepted Answer

A decrease in the debt ratio indicates that a smaller proportion of the company's assets are financed with debt, which is an improvement in the company's financial leverage.

Question 12

The closing entry made for dividends would include:

Accepted Answer

Dividends declared by a corporation reduce Retained Earnings, which is a portion of the stockholders' equity. Therefore, the closing entry made for dividends includes a debit to Retained Earnings and a credit to Dividends.

Question 13

Which of the following accounts is not considered a "permanent" account?

Accepted Answer

Rent Expense is a temporary account as it is used to track expenses for a specific period of time and is reset to zero at the end of the accounting period. The other accounts listed are permanent accounts as they represent ongoing balances within the company.

Question 14

On September 1 of the current year, Prepaid Rent was debited for $3,000. This amount represents payment for one year of rent, paid in advance. The adjusting entry on December 31 will involve a:

Accepted Answer

Since the prepaid rent was for one year and paid in advance on September 1, the portion of that time period that has already passed by December 31 is 4 months (September, October, November, and December). Therefore, the adjusting entry on December 31 should recognize the expense for those 4 months, which amounts to $1,000 ($3,000/12 months x 4 months). This means that Rent Expense will need to be debited for $1,000 in the adjusting entry to properly recognize the expense for the period. The other options are incorrect as they do not reflect the correct amount of rent expense that needs to be recognized.

Question 15

The adjusted trial balance serves as the basis for preparing:

Accepted Answer

The adjusted trial balance includes all the necessary adjustments made to the trial balance to ensure accuracy, such as adjusting entries for accruals and deferrals. This adjusted trial balance is then used as the basis for preparing both the balance sheet and the income statement. Therefore, choice C is correct. The statement of retained earnings is prepared using the net income figure from the income statement, but it is not directly based on the adjusted trial balance. As for choice A and D, the adjusted trial balance is not sufficient to prepare either the balance sheet or the income statement separately.

Question 16

The journal entry to accrue for interest expense is a credit to which account?

Accepted Answer

Accruing for interest expense is recognizing that interest has been incurred but has not yet been paid. Therefore, the journal entry would include a credit to the liability account Interest Payable, representing the amount of interest owed but not yet paid.

Question 17

Which of the accounts listed below is a permanent (or real) account?

Accepted Answer

Salary Payable is a permanent (or real) account because it carries its ending balance over to the next accounting period and is not closed at the end of the accounting period like income statement accounts (Dividends, Sales Revenue, Rent Expense).

Question 18

Unearned Revenue is a(n):

Accepted Answer

Unearned Revenue is a liability account because it represents money that has been received by a company for goods or services that have not yet been provided to the customer. It is a liability because the company has an obligation to provide the goods or services to the customer in the future. Once the goods or services are provided, the liability is reduced and revenue is recognized.

Question 19

On a cash flow statement, closing entries will:

Accepted Answer

Closing entries do not involve cash transactions and therefore do not appear on the cash flow statement.

Question 20

The current ratio is computed by:

Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay its short-term debts with its current assets. It is computed by dividing current assets by current liabilities, which gives an indication of how well a company can cover its short-term obligations. Choice A is incorrect because dividing current assets by non-current assets does not provide a meaningful ratio for liquidity analysis. Choice B is incorrect because dividing current liabilities by current assets yields the reciprocal of the current ratio, which is not generally used for financial analysis. Choice D is incorrect because dividing current assets by non-current liabilities mixes short-term and long-term items and does not provide a relevant liquidity measure.

Quiz 3: Accrual Accounting and the Financial Statements