Question 1

The adjusting entry to account for the use of supplies consists of:

Accepted Answer

When supplies are used up, it reduces the balance of Supplies account. To record this reduction, Supplies Expense account is debited because it is an expense of the period, and the Supplies account is credited. Therefore, the adjusting entry would be a debit to Supplies Expense and a credit to Supplies.

Question 2

On December 31, Treats Catering Inc.'s trial balance shows a $1,000 balance in the Supplies account. However, a physical count of the supplies determined that only $350 of supplies actually remain in the supply cabinet. Select the adjusting entry made on December 31, to record the amount of supplies that had been used during the year.

Accepted Answer

The adjusting entry should reflect the decrease in the supply account balance from $1,000 to $350 ($1,000 - $350 = $650) due to the supplies used during the year. Therefore, Supplies Expense should be debited for $650 and Supplies should be credited for the same amount. Option C reflects this adjustment correctly.

Question 3

J. B. Consulting purchased a machine for $6,000 on August 1, 2019. The company expects the useful life of the machine to be 5 years and no salvage value is expected. If the company uses the straight-line method to depreciate the machine, what will be the depreciation adjustment for the year ending December 31, 2019?

Accepted Answer

The company expects the useful life of the machine to be 5 years, so we will use the formula:

Depreciation Expense = (Cost - Salvage Value) / Useful Life

Since no salvage value is expected, the formula becomes:

Depreciation Expense = Cost / Useful Life

Depreciation Expense = $6,000 / 5 = $1,200 per year

Since the machine was purchased on August 1, 2019, the company only used the machine for 5/12 of the year, which is approximately 42%. The depreciation adjustment for the year ending December 31, 2019 will be:

Depreciation Expense for 2019 = $1,200 x 42% = $504

The journal entry to record the depreciation adjustment is:

Debit Depreciation Expense $500
Credit Accumulated Depreciation $500

So, the best choice is C.

Question 4

The balance in the Prepaid Rent account before adjustment at the end of the year is $12,000, which represents 12 months rent paid on November 1. The adjusting entry required on December 31 to show the amount of rent that had expired is:

Accepted Answer

Since the prepaid rent is for 12 months and it was paid on November 1st, it means that the rent expired at the end of each month starting from November, and thus two months have expired by the end of the year (December 31st).

To reflect this, an adjusting entry of $2,000 is needed to reduce the prepaid rent account by two months ($1,000/month) and recognize that amount as rent expense for the period.

Therefore, the correct option is B.

Question 5

On October 25, 2019, the company paid $24,000 rent in advance for the six-month period (November 2019 through April 2020). On December 31, 2019, the adjustment for expired rent would include:

Accepted Answer

When the company paid $24,000 rent in advance for the six-month period, it would debit Prepaid Rent for $24,000 and credit Cash for $24,000.

By December 31, 2019, two months of the prepaid rent ($24,000/6 months × 2 months = $8,000) have expired. Therefore, the adjustment for expired rent would require a debit of $8,000 to Rent Expense and a credit of $8,000 to Prepaid Rent.

Option A is incorrect because it suggests that the expired rent adjustment would require a credit to Prepaid Rent, which is not true.

Option B is incorrect because it suggests that the adjustment would require a credit to Rent Expense, which is not true.

Option D is incorrect because it ignores the fact that rent has already been paid and is being expensed over the six-month period.

Question 6

On a worksheet, the adjusting entry to account for depreciation of equipment consists of:

Accepted Answer

The adjusting entry to account for depreciation of equipment involves recognizing the expense and reducing the value of the asset. Depreciation Expense is debited to record the expense, and Accumulated Depreciation is credited to reduce the value of the Equipment. Choice B correctly reflects this entry.

Question 7

On July 1, Sidney Consulting Services paid $18,000 for 12 months of advance rent on its office building. Select the adjusting entry made on December 31, to record the amount of rent that had expired during the year.

Accepted Answer

The answer of On July 1, Sidney Consulting Services paid...

Question 8

On March 1, 2019, the company paid $6,000 rent in advance for a 12-month period. On December 31, 2019, the company's adjustment for expired rent would include:

Accepted Answer

The adjustment for expired rent at the end of the year would involve recognizing the portion of the prepaid rent that has been used up during the year. As of December 31, 2019, the company would have used up 10 months of the prepaid rent ($6,000 / 12 months x 10 months = $5,000). Therefore, the adjustment would involve debiting Rent Expense for $5,000 (to recognize the expense for the portion of the rent that has been used up) and crediting Prepaid Rent for $5,000 (to reduce the balance of the prepaid rent to its remaining amount of $1,000). The correct answer is option C.

Question 9

On November 1, 2019, Peaches Consulting Service paid $4,800 for 12 months of advance rent on its office space. The correct adjusting entry on December 31, 2019, to show the amount of rent that had expired would include:

Accepted Answer

The correct adjusting entry on December 31, 2019, to show the amount of rent that had expired would include: debit Rent Expense $800; credit Prepaid Rent $800. This is because one month's rent has expired, and the Prepaid Rent account should be reduced by that amount.

Question 10

If the prepaid expenses are not adjusted, assets on the balance sheet:

Accepted Answer

If prepaid expenses are not adjusted, they remain higher than they should be on the balance sheet, leading to an overstatement of assets. Prepaid expenses should decrease over time as they are recognized as expenses, reducing the assets accordingly.

Question 11

Equipment costing $27,000 with an estimated salvage value of $2,040 and an estimated life of 4 years was purchased on October 31, 2019. Using the straight-line depreciation method, what is the amount of depreciation expense to be recorded at December 31, 2019?

Accepted Answer

To calculate the annual depreciation expense using the straight-line method, we need to use the formula:

Depreciation expense = (Cost - Salvage value) / Estimated life

In this case, the cost is $27,000 and the salvage value is $2,040, and the estimated life is 4 years. Therefore:

Depreciation expense = ($27,000 - $2,040) / 4 = $6,240 / 4 = $1,560 per year

Since the equipment was purchased on October 31, 2019, we need to prorate the depreciation expense for the remaining two months of the year.

Depreciation expense for November and December 2019 = ($1,560 / 12) x 2 = $260 + $780 = $1,040

Therefore, the amount of depreciation expense to be recorded at December 31, 2019, is $1,040. The correct answer is D.

Question 12

Adjusting entries can be journalized:

Accepted Answer

Adjusting entries are made to ensure that the revenue recognition and matching principles are followed. They are typically made at the end of an accounting period, such as a month or a year, but can be made as often as necessary to accurately reflect the financial transactions of a company.

Question 13

During its first year of business, XYZ Inc. purchased $1,600 of supplies. By the end of the year, only $500 of supplies remain in the supply cabinet. Determine the amount to be reported in the Supplies account in the Adjusted Trial Balance section of the worksheet prepared on December 31.

Accepted Answer

The Supplies account in the Adjusted Trial Balance should show the current value of supplies on hand, which is $500. This reflects the amount of supplies remaining at the end of the year.

Question 14

On September 1, 2019, Jay Walker Company purchased a one-year insurance policy for $1,320. The correct adjusting entry on December 31, 2019, is:

Accepted Answer

The answer of On September 1, 2019, Jay Walker Company...

Question 15

On January 1, 2019, Johnson Consulting purchased a truck for $18,000. The truck is expected to last 60 months and have no salvage value. Calculate the book value of the truck on December 31, 2020.

Accepted Answer

The truck's annual depreciation is calculated as the cost of the truck ($18,000) divided by its useful life (60 months), resulting in $300 per month. Over 24 months (January 1, 2019, to December 31, 2020), the total depreciation is $300 * 24 = $7,200. The book value on December 31, 2020, is the original cost ($18,000) minus the accumulated depreciation ($7,200), which equals $10,800.

Question 16

The adjusting entry to account for the expiration of prepaid insurance consists of:

Accepted Answer

Prepaid insurance is an asset account that represents the insurance premium that a company has paid in advance. As time passes, the prepaid insurance account is reduced or "used up" as the insurance coverage that it represents expires. This reduction in the prepaid insurance account is recorded as an expense on the income statement and is known as insurance expense. Therefore, to account for the expiration of prepaid insurance, we need to make an adjusting entry that debits insurance expense (an income statement account) and credits prepaid insurance (a balance sheet account). The correct entry is a debit to insurance expense and a credit to prepaid insurance, as in choice B.

Question 17

On January 1, ABC Catering purchased an oven for $5,000. The oven is expected to last five years and have no salvage value. Select the adjusting entry made on December 31, to record the depreciation of the oven for one year.

Accepted Answer

The adjusting entry to record the depreciation of the oven for one year is to debit Depreciation Expense (an income statement account) and credit Accumulated Depreciation--Equipment (a balance sheet account). Option A is incorrect as it only records half of the proper amount of depreciation. Option B is incorrect as it debits the wrong account (Equipment instead of Depreciation Expense). Option C is incorrect as it inaccurately increases the Equipment account instead of showing a decrease in its value due to depreciation. Therefore, the correct answer is D.

Question 18

Equipment cost $36,000 and is expected to be useful for 5 years and have no salvage value. Under the straight-line method, monthly depreciation will be:

Accepted Answer

The straight-line depreciation method divides the cost of the equipment by its useful life to determine annual depreciation. For equipment costing $36,000 with a useful life of 5 years and no salvage value, annual depreciation is $36,000 / 5 = $7,200. Monthly depreciation is then $7,200 / 12 = $600.

Question 19

Which of the following entries records the depreciation on equipment for the fiscal year-end adjustment?

Accepted Answer

Depreciation expense needs to be recorded as an expense, which is why it should be debited to Depreciation Expense account. The Accumulated Depreciation account, on the other hand, is a contra asset account, which is credited to reflect that the value of the asset has decreased. Hence, the correct journal entry is Debit Depreciation Expense and Credit Accumulated Depreciation.

Question 20

If long-term assets are not adjusted, expenses on the income statement:

Accepted Answer

If long-term assets are not adjusted for depreciation or amortization, the expenses related to these assets will be understated on the income statement.

Quiz 5: Adjustments and the Worksheet