Question 1

Which of the following must be considered in estimating depreciation on an asset for an accounting period?

Accepted Answer

Depreciation is based on both the original cost of the asset and its useful life. The decline in fair market value is not a factor in depreciation.

Question 2

Which of the following would NOT be a correct form for an adjusting entry?

Accepted Answer

The answer of Which of the following would NOT be...

Question 3

On November 1, 2020, Halton Corp. purchased equipment by signing a 6-month, 4% note for $ 180,000. The December 31, 2020, adjusting entry required in connection with this note is

Accepted Answer

The interest for two months (November and December) on a 6-month, 4% note for $180,000 is calculated as follows: $180,000 x 4% x (2/12) = $1,200. Therefore, the adjusting entry would be to debit Interest Expense and credit Interest Payable for $1,200.

Question 4

Tabby Corp.'s account balances at December 31, 2020, included Accounts Receivable, $ 192,500 debit; Allowance for Doubtful Accounts, $ 1,250 credit. From a review of the receivables, Blue estimates that $ 7,000 of the December 31 receivables will be uncollectible. The required adjusting entry would include a credit to the allowance account for

Accepted Answer

The adjusting entry to record the estimated uncollectible accounts should bring the Allowance for Doubtful Accounts to the desired balance of $7,000. Since the account already has a credit balance of $1,250, an additional $5,750 ($7,000 - $1,250) credit is needed to adjust the balance to $7,000.

Question 5

On September 1, 2020, Regal Corp. made the annual lease payment of $ 24,000 for its fleet of delivery trucks. The payment covered the period September 1, 2020 to August 31, 2021. Assuming the entire amount had originally been debited to Lease Expense, the required adjustment at December 31, 2020 is

Accepted Answer

The lease payment covers 12 months, so $24,000/12 = $2,000 per month. By December 31, 2020, 4 months have passed, so $8,000 should be expensed, leaving $16,000 as prepaid for the remaining 8 months. Therefore, debit Prepaid Lease and credit Lease Expense $16,000.

Question 6

On May 15, 2020, Bagle Corp. purchased 1,000 common shares of Holter Inc. for $ 24,000, as a Fair Value through Other Comprehensive Income (FV-OCI) equity investment. At December 31, 2020, the fair value of these shares was $ 26,550. The required adjusting entry to reflect this fact is

Accepted Answer

The correct entry to adjust the investment to its fair value involves debiting the Fair Value-OCI Investment account to increase its value and crediting the Holding Gain on Investment (OCI) for the increase in value, which is $2,550 ($26,550 fair value - $24,000 original cost).

Question 7

An accrued revenue can best be described as an amount

Accepted Answer

An accrued revenue is revenue that has been earned but not yet collected. It is currently matched with expenses as the income has been earned but not yet received. Choice A is incorrect because collected revenue is not considered accrued revenue. Choice B is incorrect because collected revenue is not considered accrued revenue. Choice D is incorrect because revenue that is not accrued is either collected or has not been earned yet.

Question 8

An adjusting entry for bad debts will generally

Accepted Answer

An adjusting entry for bad debts increases the Bad Debt Expense account and increases the Allowance for Doubtful Accounts, which is a contra-asset account.

Question 9

On December 10, 2020, Bella Inc. received a cheque for $ 13,625 from a customer for services that Bella will be performing in December 2020 and January 2021. By December 31, 2020, Bella had earned 60% of that amount. Assuming the appropriate year-end adjustments were made, the 2020 balance in Bella Unearned Revenue account will be

Accepted Answer

By December 31, 2020, Bella Inc. had earned 60% of the $13,625, which means 40% remained unearned. $13,625 * 40% = $5,450, which is the balance in the Unearned Revenue account.

Question 10

On September 1, 2020, Rudolph Corporation received $ 54,000 cash from a tenant for one year's rent in advance, and recorded the transaction with a credit to Rent Revenue. The December 31, 2020, required adjusting entry in connection with this would be

Accepted Answer

When Rudolph Corporation received $54,000 cash from the tenant for one year's rent in advance, it recorded the transaction with a credit to Rent Revenue. However, at the end of the year, only 4 months worth of rent revenue has been actually earned (since the year-end is on December 31), which is $54,000/12*4 = $18,000.

Therefore, an adjusting entry is required to recognize that $36,000 of the $54,000 cash received is still unearned because it corresponds to rent for the next 8 months. This means that the Rent Revenue account needs to be reduced and the Unearned Rent account needs to be increased by $36,000.

Hence, the adjusting entry would be to debit Rent Revenue and credit Unearned Rent, $36,000.

Question 11

Use the following information for the following questions:
Orange Corp reported the following items on its calendar 2020 statement of comprehensive income:
 $\begin{array}{llcc}
  \text { Interest revenue..................... } &\$84,200  \
 \text { Salaries expense..................... } &72,000\
 \text { Insurance expense.................. } &10,600\
\end{array}$
 As well, their statements of financial position showed the following balances:
 $\begin{array}{llcc}
 &\underline{\text {December 31, 2019 } } &\underline{ \text {December 31. } } \
  \underline{\text {2020  }} & & \
 \text {Accrued interest receivable................  } &\$10,100&\$8,800\
 \text {  Accrued salaries payable...................} &9,800&5,400\
 \text {  Prepaid insurance..............................} &1,500&1,600\

\end{array}$

-The cash received for interest during 2020 was

Accepted Answer

The cash received for interest during 2020 is calculated by adjusting the interest revenue by the change in accrued interest receivable. Interest revenue is $84,200. The accrued interest receivable decreased from $10,100 at the beginning of the year to $8,800 at the end of the year, a decrease of $1,300. This means that more interest was received in cash than was earned in terms of revenue. Therefore, the cash received for interest is $84,200 (interest revenue) + $1,300 (decrease in accrued interest receivable) = $85,500.

Question 12

On October 31, 2020, Kiwi Inc. lent $ 63,000 to Plum Inc. in return for a three-month, 4% interest-bearing note. What adjusting entry should Kiwi Inc. make on December 31, 2020, in connection with this note?

Accepted Answer

Kiwi Inc. needs to make an adjusting entry for the accrued interest on the note receivable from Plum Inc. As the note is for three months and interest is 4%, the interest accrued for two months (from November 1 to December 31) will be:

$63,000 × 4% × 2/12 = $420

Therefore, Kiwi Inc. should debit Interest Receivable and credit Interest Revenue, both for $420, on December 31, 2020. This represents the recognition of interest earned on the note during the period. Option A is incorrect because it involves crediting Interest Revenue with $630, which would be the full interest amount earned over three months rather than two. Option B is incorrect because it involves debiting Cash with $420, which would mean receiving the interest in cash rather than accruing it. Option D is incorrect because it involves debiting Interest Revenue and crediting Interest Receivable in reverse, which would not be in accordance with accounting principles.

Question 13

Siamese Corp.'s account balances at December 31, 2020, included Accounts Receivable, $ 360,000 debit; Allowance for Doubtful Accounts, $ 400 debit. Sales during 2020 were $ 920,000. It is estimated that 2% of sales will be uncollectible. The required adjusting entry would include a credit to the allowance account for

Accepted Answer

To estimate the amount of uncollectible accounts, we multiply the sales by the estimated percentage: $920,000 x 2% = $18,400. To adjust the allowance account, we need to increase it by the same amount, so we would credit the allowance account for $18,400.

Question 14

Use the following information for the following questions:
Orange Corp reported the following items on its calendar 2020 statement of comprehensive income:
 $\begin{array}{llcc}
  \text { Interest revenue..................... } &\$84,200  \
 \text { Salaries expense..................... } &72,000\
 \text { Insurance expense.................. } &10,600\
\end{array}$
 As well, their statements of financial position showed the following balances:
 $\begin{array}{llcc}
 &\underline{\text {December 31, 2019 } } &\underline{ \text {December 31. } } \
  \underline{\text {2020  }} & & \
 \text {Accrued interest receivable................  } &\$10,100&\$8,800\
 \text {  Accrued salaries payable...................} &9,800&5,400\
 \text {  Prepaid insurance..............................} &1,500&1,600\

\end{array}$

-The cash paid for salaries during 2020 was

Accepted Answer

The cash paid for salaries is calculated by adjusting the salaries expense for changes in accrued salaries payable: $72,000 (salaries expense) + $9,800 (beginning accrued salaries) - $5,400 (ending accrued salaries) = $76,400.

Question 15

The type of account and normal balance of "Accumulated Depreciation, Equipment" is

Accepted Answer

Accumulated Depreciation is a contra-asset account, meaning it has a credit balance. This account is used to show the total amount of depreciation expense that has been recorded for an asset, which reduces the carrying value of that asset.

Question 16

On May 15, 2020, Croissant Corp. purchased 1,000 common shares of Holter Inc. for $ 24,000, as a Fair Value through Net Income (FV-NI) equity investment. At December 31, 2020, the fair value of these shares was $ 23,100. The required adjusting entry to reflect this fact is

Accepted Answer

The correct answer is to recognize the decrease in fair value of the investment by debiting Investment Loss and crediting Fair value-Net Income Investment for the difference between the purchase price ($24,000) and the fair value at year-end ($23,100), which is $900. This reflects the loss in value of the investment in the income statement, consistent with the FV-NI classification.

Question 17

Lime Limited has received its invoice for $ 75,000 for property taxes for the calendar year 2020. The invoice was received and paid in June 2020 and the entire amount was debited to Property Tax Expense. Assuming Lime does NOT prepare interim financial statements, the required adjustment on December 31, 2020, related to the property taxes is

Accepted Answer

Since the entire amount was already expensed in June and Lime does not prepare interim financial statements, no adjustment is needed at year-end.

Question 18

For adjusting entries relating to accrued revenues,

Accepted Answer

Accrued revenues are revenues that have been earned but not yet recorded or received in cash. Before adjustment, both assets (receivables) and revenues are understated because the revenue has been earned but not yet recorded.

Question 19

If the accountant forgets to record an adjustment for Accumulated Depreciation, Building at the end of the accounting period, this will cause

Accepted Answer

Failing to record an adjustment for Accumulated Depreciation results in not recognizing the depreciation expense for the period. This means the value of the building asset on the balance sheet remains higher than it should be, leading to an overstatement of assets. Accumulated Depreciation is a contra asset account that reduces the book value of the asset it is associated with.

Question 20

Principle Place determines that it has NOT yet recorded the 2020 accrual for interest revenue to be received in 2021. Assuming the amount to be recorded for 2020 is $ 6,000, the required adjustment at December 31, 2020, is

Accepted Answer

The adjustment needed is to record the interest revenue earned but not yet received as of December 31, 2020. This requires a debit to Interest Receivable, which represents the amount of interest that has been earned but not yet received, and a credit to Interest Revenue, which recognizes the revenue earned in accordance with the accrual accounting method. Therefore, the correct choice is A.

Quiz 13: Accounting Information Systems and Adjusting Entries: A Comprehensive Guide