Question 1

At the end of the accounting period, wages earned by employees but not yet recorded nor paid amounted to $400; therefore, the adjusting entry should be: Debit--Wages payable; Credit - Wages expense.

Accepted Answer

The correct adjusting entry should be: Debit--Wages Expense; Credit--Wages Payable. This records the expense incurred during the period and acknowledges the liability (wages payable) that the company owes to its employees.

Question 2

A trial balance is a list of all accounts with their debit or credit balances indicated in the appropriate column to provide a check on the equality of the debits and credits.

Accepted Answer

The statement is true.

Question 3

Service revenue earned but not yet collected by the end of the period was $200; therefore, the adjusting entry should be: Debit--Service revenue receivable, $200; Credit--Unearned service revenue, $200.

Accepted Answer

The correct adjusting entry should be: Debit--Accounts Receivable (or Service Revenue Receivable), $200; Credit--Service Revenue, $200. This records the earned revenue that has not yet been collected in cash. Unearned Service Revenue is used for revenue received in advance, not earned revenue.

Question 4

Usually, adjusting entries are entered in the accounts at the end of the accounting period.

Accepted Answer

Adjusting entries are made at the end of the accounting period to ensure that the financial statements reflect accurate and up-to-date information.

Question 5

The accounting cycle begins with the journalizing of the transactions.

Accepted Answer

The answer of The accounting cycle begins with the journalizing...

Question 6

To compute depreciation expense using the straight-line formula, the cost of a depreciable asset (i.e., equipment) must be reduced by any estimated residual or salvage value.

Accepted Answer

This statement is true. Depreciation expense is calculated by subtracting the estimated residual or salvage value from the cost of the depreciable asset, and then dividing the difference by the asset's useful life. The straight-line formula is a common method used to calculate depreciation expense.

Question 7

Accrued revenues represent money received from customers for work to be done later.

Accepted Answer

Accrued revenues represent revenue earned but not yet received, meaning the work has already been done and the payment is expected in the future.

Question 8

During the accounting period, an expense paid in advance and debited to prepaid expense was $180; therefore, the adjusting entry for the expiration of this item should be to debit an expense account for $180 and credit a prepaid expense account for $180.

Accepted Answer

This is the correct adjusting entry for the expiration of a prepaid expense. The prepaid expense account is credited because it decreases as the expense is recognized, and the expense account is debited because it increases as the expense is recognized.

Question 9

Rent of $150 collected in advance was credited to rent revenue. At the end of the accounting period, it was still unearned. The related adjusting entry should be: Debit-- Rent revenue, $150; Credit--Unearned rent revenue, $150.

Accepted Answer

The adjusting entry correctly moves the $150 from earned revenue (where it was incorrectly recognized upon initial receipt) to a liability account (unearned rent revenue), reflecting that the service has not yet been provided.

Question 10

Expenses paid in advance of the use of services or goods give rise to an asset until the goods and services are used, consumed, or expired.

Accepted Answer

When expenses are paid in advance, it creates a prepayment asset on the balance sheet until the goods or services are used, consumed, or expired. Once they are used or consumed, the prepayment is recognized as an expense in the income statement.

Question 11

Adjusting entries are used to update income statement accounts and statement of ﬁnancial position accounts.

Accepted Answer

Adjusting entries are necessary to update income statement accounts and statement of financial position accounts to reflect the accrual basis of accounting and ensure that the financial statements are accurate and complete.

Question 12

Adjusting entries are recorded in the journal (i.e., journalized) but they are not posted to the ledger.

Accepted Answer

Adjusting entries are both journalized and posted to the ledger. This process ensures that the financial statements reflect the correct amounts.

Question 13

Each adjusting entry affects at least one income statement account and at least one statement of ﬁnancial position account.

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that the income statement and statement of financial position are accurate and up-to-date. As a result, at least one income statement account and at least one statement of financial position account are affected by each adjusting entry.

Question 14

An expense incurred, but not yet recorded nor paid, creates a liability until the payment is made.

Accepted Answer

This statement is consistent with the accrual basis of accounting, which recognizes expenses when they are incurred and creates a liability until they are paid.

Question 15

Prepaid expenses are costs that are paid for before they are used.

Accepted Answer

Prepaid expenses are typically considered assets on a company's balance sheet because they represent future expenses that have already been paid for. Examples of prepaid expenses include prepaid rent, prepaid insurance, and prepaid subscriptions.

Question 16

Both the adjusting entries and the closing entries usually are dated as of the last day of the accounting period.

Accepted Answer

Both adjusting entries and closing entries are recorded and dated as of the last day of the accounting period in order to properly reflect the financial position of the business at the end of the period and prepare for the next accounting period.

Question 17

An adjusted trial balance is usually developed to show the balances in all the accounts after the effects of the adjusting and closing entries.

Accepted Answer

An adjusted trial balance is prepared to show the balances in all accounts after adjusting entries have been made, but before closing entries are recorded. Closing entries are not reflected in the adjusted trial balance.

Question 18

An adjusting entry to a prepaid expense is required to recognize costs that expire with time.

Accepted Answer

Prepaid expenses are assets that represent payments made in advance for goods or services that will be consumed or used in the future. As time passes, some portion of the prepaid expense will expire and become an expense that should be recognized on the income statement. Adjusting entries are used to recognize these expired costs and reduce the amount of the prepaid expense asset.

Question 19

On July 1, 20X1, Liz Company borrowed $5,000 cash and signed a one year note payable, interest 10 percent, payable on the maturity date, June 30, 20X2. The accounting period ends on December 31; therefore, the required adjusting entry on December 31, 20X1 would be: Debit--Interest payable, $250; Credit--Interest expense, $250.

Accepted Answer

The correct adjusting entry should be Debit--Interest Expense, $250; Credit--Interest Payable, $250.

Question 20

The unadjusted trial balance does not reﬂect adjusting entries.

Accepted Answer

The unadjusted trial balance only includes transactions that have been recorded by the company, but it does not account for adjusting entries that may be needed to accurately reflect the company's financial position at the end of an accounting period. These adjusting entries are typically made at the end of the period and are used to update account balances for items like prepaid expenses, accrued revenues, and accrued expenses. Therefore, the unadjusted trial balance may not provide a complete or accurate picture of a company's financial status.

Quiz 4: Adjustments, Financial Statements, and Financial Results