Question 1

In which of these circumstances are adjusting journal entries made at the end of the period?

Accepted Answer

Adjusting journal entries are made at the end of the period when cash receipts and payments occur before or after the point when revenues and expenses should be recognized under accrual accounting. This is done to ensure that financial statements reflect the accurate financial position of the company. The use of cash basis accounting or reporting revenue in the same period that cash is collected may also require adjusting entries, but these circumstances do not necessarily guarantee the need for adjusting entries at the end of the period. Management adjustments on the statement of cash flows do not affect the need for adjusting entries at the end of the period.

Question 2

On October 1,a company borrowed $200,000 on a two-year,12% note,with interest and principal to be paid at maturity.How much interest expense will be reported on the income statement for the year ending December 31?

Accepted Answer

$200,000 (Principal)F1F1F1S1*F1F1F10 12% (Rate)F1F1F1S1*F1F1F10 3/12 (Time)= $6,000

Question 3

What happens to the accounting equation when the adjustment is recorded to recognize earned revenue previously recorded as unearned revenue?

Accepted Answer

When earned revenue previously recorded as unearned revenue is recognized, the liability (unearned revenue) decreases because the obligation to provide goods or services is fulfilled, and shareholders' equity increases as a result of the earned revenue, reflecting an increase in net income.

Question 4

Which of the following adjustments will increase assets?

Accepted Answer

Recording rent revenue for amounts owed by a tenant but not yet paid will increase assets. The other options either do not have an impact on assets or will decrease assets (accrued interest and depreciation).

Question 5

Which of the following is an accrued liability?

Accepted Answer

An accrued liability is a liability that has been incurred but has not been paid at the end of the period. Rent that has been incurred but has not been paid is an example of an accrued liability. Equipment, insurance policies, and supplies are not accrued liabilities.

Question 6

A company borrowed $500,000 on a one-year,10% note on October 1,Year 1,with interest and principal to be paid at maturity.How much interest should be reported on the income statement for the year ending December 31,Year 2?

Accepted Answer

$500,000 (Principal)F1F1F1S1*F1F1F10 10% (Rate)F1F1F1S1*F1F1F10 9/12 (Time)= $37,500

Question 7

Carver Memorial Gardens purchased supplies for $14,500 during the year.At January 1,supplies on hand were $1,000.At December 31,supplies on hand are $3,500.How much is the supplies expense for the year?

Accepted Answer

$1,000 (Amount on hand at Jan.1)+ $14,500 (Purchases)F1F1F1S1-F1F1F10 $3,500 (Amount on hand at Dec.31)= $12,000

Question 8

Carolina Truck Lines purchased a truck at a cost of $22,000 five years ago.As of January 1 of the current year,depreciation of $18,000 had been recorded on this asset.Depreciation expense for the current year is $2,000.Before the adjustments are recorded and posted at December 31 of the current year,what is the truck's book value?

Accepted Answer

$22,000 - $18,000 = $4,000

Question 9

Match Incorporated recorded salary expense of $120,000.However,additional salaries of $9,000 had been earned but not paid or recorded at December 31.After the adjustments are recorded and posted at December 31,what will be the balances in the salaries expense and salaries payable accounts?

Accepted Answer

Salaries expense = $9,000 (Adjustment at Dec.31)+ $120,000 (Expenses for the year)= $129,000
Salaries payable = $9,000 (Adjustment for salaries earned but unpaid and previously unrecorded)

Question 10

A company forgot to record four adjustments during 2013.Which of the following omissions of adjustments will understate net income?

Accepted Answer

When sales made during the last week of the period are not recorded, revenue is understated, which directly leads to an understatement of net income.

Question 11

A law firm purchased supplies at a cost of $20,000 during the current year.At January 1,the beginning balance in the supplies account was $1,300.For the year,supplies expense was $11,200.How much "supplies" is on hand as of December 31?

Accepted Answer

$1,300 (Beginning balance)+ $20,000 (Purchases)F1F1F1S1-F1F1F10 $11,200 (Expenses)= $10,100

Question 12

What happens to the accounting equation when the adjustment for depreciation expense for the accounting period is recorded?

Accepted Answer

Depreciation expense is a non-cash expense that reduces the value of an asset, therefore decreasing the asset side of the accounting equation. This decrease is balanced out by a decrease in shareholders' equity, as the net income for the period is lower due to the depreciation expense being recorded.

Question 13

A company forgot to record four adjustments during 2013.Which of the following omissions of adjustments will understate assets?

Accepted Answer

Interest on monies loaned out represents an asset (interest receivable) that the company should have recorded. By not recording this interest, the company's assets are understated.

Question 14

Cozy Corporation purchased supplies at a cost of $15,000 during the current year.At January 1,supplies on hand were $5,000.At December 31,supplies on hand are $2,000.How much is the supplies expense?

Accepted Answer

$5,000 (Amount on hand at Jan.1)+ $15,000 (Purchases)F1F1F1S1-F1F1F10 $2,000 (Amount on hand at Dec.31)= $18,000

Question 15

A sporting goods chain purchased supplies at a cost of $11,000 during the year.At January 1,the beginning balance in the supplies account was $3,000.At December 31,supplies on hand are $800.How much is the supplies expense for the year?

Accepted Answer

$3,000 (Beginning balance)+ $11,000 (Purchases)F1F1F1S1-F1F1F10 $800 (Ending balance)= $13,200

Question 16

A company borrowed $100,000 on a one-year,10% note on September 1,with interest and principal to be paid at maturity.How much interest payable will be reported on the balance sheet at November 30?

Accepted Answer

$100,000 (Principal)F1F1F1S1*F1F1F10 10% (Rate)F1F1F1S1*F1F1F10 3/12 (Time)= $2,500

Question 17

Cash Express had no supplies on January 1 but purchased $2,581 in supplies during the year.At December 31,supplies on hand are $1,492.What amount for supplies will be reported on the firm's balance sheet?

Accepted Answer

The amount for supplies that will be reported on the firm's balance sheet is the value of supplies on hand at the end of the year, which is $1,492.

Question 18

A company had $2,400 of supplies on hand at January 1.During the year,supplies with a cost of $4,000 are purchased.At December 31,the actual supplies on hand amount to $2,000.After the adjustments are recorded and posted at December 31,what are the ending balances in the supplies and supplies expense accounts?

Accepted Answer

Supplies = $2,000 (Actual supplies on hand at Dec.31)
Supplies expense = $2,400 (Supplies at Jan.1)+ $4,000 (Amount purchased)F1F1F1S1-F1F1F10 $2,000 (Supplies at Dec.31)= $4,400

Question 19

On October 1,a company paid $9,000 rent in advance.The rent per month is $1,000.Assuming the company's accounting period ends on December 31,what will be reported on the financial statements?

Accepted Answer

Since the company paid $9,000 in advance for rent and the rent per month is $1,000, the company has prepaid rent for 9 months (October-December plus 6 more months). As the accounting period ends on December 31, the company has used up 3 months of prepaid rent (October-December). Hence, the prepaid rent on the balance sheet at December 31 would be $6,000 (prepaid rent for 6 months: January-June). Therefore, choice A is correct.

Choice B is incorrect as it assumes that the company has not used up any prepaid rent by December 31.

Choice C is incorrect as rent expense would only be recognized for the months of October-December, which amounts to $3,000, not the entire $9,000.

Choice D is incorrect as the company is not earning any revenue from renting the property.

Question 20

If the end-of-year supplies on hand totalled $200,purchases totalled $300,and supplies on hand at the beginning of the year amounted to $100,how much will be reported as supplies expense for the current year?

Accepted Answer

$100 (Beginning balance)+ $300 (Purchases)F1F1F1S1-F1F1F10 $200 (Ending balance)= $200

Quiz 3: Accrual Accounting