Question 1

On December 1 of the current year,Prepaid Rent was debited $5,400 for three months of rent,to cover the period,December 1 to February 28.The amount of the adjusting entry on December 31 is:

Accepted Answer

Since Prepaid Rent was debited for three months of rent, the total rent paid in advance is $5,400. However, by December 31, only one month has passed, i.e., December. Therefore, the adjustment required is for two months (January and February). So, the amount of the adjusting entry will be $1,800 (=$5,400/3 x 2). This adjustment will reduce the Prepaid Rent account by $1,800 and increase Rent Expense account by $1,800. Therefore, the answer is B).

Question 2

In the preparation of the adjusted trial balance using a worksheet:

Accepted Answer

The purpose of preparing an adjusted trial balance using a worksheet is to ensure that all necessary adjusting entries have been recorded and to obtain the final account balances that will be used in the preparation of the financial statements. The unadjusted trial balance columns come from the general ledger and do not necessarily reflect last period's financial statements. Four columns are used for the adjustments (adjustment columns), and the adjusted trial balance columns (after the adjustments have been recorded) should have the total debits equal to the total credits, as with any trial balance.

Question 3

A company has $500 in Prepaid Advertising before any adjustments.At the end of the year,an adjusting entry is made to debit Advertising Expense for $100.The ending balance in the Prepaid Advertising account will be:

Accepted Answer

The adjusting entry of debiting Advertising Expense for $100 means that $100 worth of prepaid advertising has been used up/expired during the year. Therefore, the ending balance in the Prepaid Advertising account will be reduced by $100 to reflect the amount that has been used up, leaving a remaining balance of $400 ($500 original balance - $100 adjustment). Therefore, choice (C) is correct.

Question 4

The debit to the Unearned Revenue account represents the:

Accepted Answer

The answer of The debit to the Unearned Revenue account...

Question 5

At December 31,the NBC Company owes an employee for four days of work that will not be paid until January 5th.The weekly rate of pay for a five-day workweek is $1,000.The adjusting entry to record the accrued wages will include a:

Accepted Answer

The adjusting entry should recognize the expense incurred during the period. Since the employee worked four days, the expense is 4/5 of the weekly pay, which is $800. Therefore, debit Salaries Expense for $800.

Question 6

A company started the year with $400 of supplies.During the year,the company purchased an additional $1,200 of supplies.There were $700 of supplies on hand at the end of the year.An adjusting entry prepared at the end of the accounting period includes a:

Accepted Answer

To calculate the cost of supplies used during the year, we need to subtract the ending balance of supplies from the total supplies available (beginning balance + purchases). 
Total supplies available = $400 (beginning balance) + $1,200 (purchases) = $1,600 
Supplies used during the year = $1,600 - $700 (ending balance) = $900 
Since supplies used during the year is an expense, we need to debit Supplies Expense for $900 and credit Supplies for $900 in the adjusting entry.

Question 7

The adjustment for an accrued revenue:

Accepted Answer

Accrued revenue refers to revenue that has been earned but has not yet been received in cash or recorded in the accounts. Therefore, an adjustment is needed to record the revenue as well as to reflect the corresponding accounts receivable. This adjustment increases both revenue and accounts receivable, which are asset accounts. Option B and C are incorrect because accrued revenue does not directly affect payable or receivable accounts. Option D is also incorrect because if a business receives cash before performing a service, it should be recorded as unearned revenue, not accrued revenue.

Question 8

On October 1,2014,Golde Company paid $12,000 for one year of insurance for the period,October 1,2014 through September 30,2015.Which of the following will be part of the adjusting entry on December 31,2014?

Accepted Answer

The adjusting entry on December 31, 2014, will involve recognizing the portion of insurance expense related to the three months from October 1, 2014, to December 31, 2014. Therefore, the adjusting entry will include a debit to Insurance Expense account for $3,000 ([$12,000 × 3 months] ÷ 12 months). Option A is incorrect because debiting prepaid insurance account would increase the balance of a prepaid asset, which is not yet fully consumed. Option B is incorrect because debiting prepaid insurance account by $9,000 would mean that there would be no insurance expense for the year ended September 30, 2015. Option D is incorrect because debiting Insurance Expense account for $9,000 would mean that the full amount of insurance is already consumed for the entire year ended September 30, 2015, which is not correct as the company is only consuming three months of insurance during the current period.

Question 9

On August 1 of the current year,Trevor Beck received $5,400 for legal services to be performed evenly throughout the next six months.The adjusting entry on December 31 of the current year would include a:

Accepted Answer

The answer of On August 1 of the current year,Trevor...

Question 10

A company started the year with $400 of supplies.During the year the company purchased additional supplies costing $1,600.There were $800 of supplies on hand at the end of the year.An adjusted trial balance prepared at the end of the accounting period will show the following balance in Supplies Expense:

Accepted Answer

The company's total supplies expenses for the year would be $2,000 ($400 beginning balance + $1,600 purchases - $800 ending balance). Therefore, the adjusted trial balance should show a balance of $1,200 in Supplies Expense ($2,000 total supplies expenses - any supplies expenses that have already been recorded and adjusted).

Question 11

On December 1,2015,Carrie's Day Care receives $3,000 in advance for an agreement to care for Susan's children for the months of December,January,and February.Carrie's Day Care will make an adjusting entry on December 31,2015 to:

Accepted Answer

The $3,000 received from Susan represents unearned revenue because the service is not yet performed by Carrie's Day Care. Therefore, on December 31, an adjusting entry must be made to recognize the revenue earned during the month of December. This would involve debiting the Unearned Revenue account for $1,000 (1/3 of the $3,000 received) and crediting the Revenue account for $1,000. The remaining $2,000 will be recognized as revenue in January and February.

Question 12

Doorglam paid $105,000 for office furniture.The furniture is depreciated using the straight-line method and has an estimated service life of 7 years.After three years of use,the accumulated depreciation of the furniture will be:

Accepted Answer

The straight-line depreciation method divides the cost of the asset by its useful life. $105,000 / 7 years = $15,000 per year. After three years, the accumulated depreciation is $15,000 * 3 = $45,000.

Question 13

A construction company purchased a new bulldozer for $90,000 on January 1,2011.The company estimates that the bulldozer will have a useful life of nine years and then be worthless.Using the straight-line depreciation method,yearly depreciation expense will be:

Accepted Answer

The straight-line depreciation method evenly spreads the cost of the asset over its useful life. To calculate the yearly depreciation expense, we divide the cost of the asset ($90,000) by the estimated useful life (9 years). 
$90,000 / 9 years = $10,000 per year. 
Therefore, the answer is B, $10,000 per year.

Question 14

A company purchased supplies during the year totaling $20,000.At the end of the year,they made an adjusting entry to record $15,000 of supplies that had been used during the year.The ending balance in the Supplies account after the adjustment was $12,000.The beginning balance in the Supplies account was:

Accepted Answer

The supplies purchased during the year were $20,000 and $15,000 of supplies were used during the year, which means that $5,000 worth of supplies are still available at the end of the year. Therefore, the beginning balance in the Supplies account must have been $7,000 ($5,000 + $12,000).

Question 15

On October 1,McReady Company paid six months' insurance in advance totaling $9,000.An adjusted trial balance prepared on December 31 would include a balance in the Prepaid Insurance account of:

Accepted Answer

Prepaid insurance is considered an asset account because the payment was made in advance for future insurance coverage. The adjusting entry required at the end of the accounting period is to recognize the portion of the prepaid insurance that has been used or expired during the period. Since the payment was made for six months, and the period from October 1 to December 31 covers three months, the amount of prepaid insurance that has been used is $4,500 (half of $9,000). Therefore, the adjusted trial balance on December 31 would include a balance of $4,500 in the Prepaid Insurance account.

Question 16

Deere Company holds a $10,000 note receivable dated July 1,2015,with 10% interest.What adjusting entry is needed on December 31,2015?

Accepted Answer

The interest for six months (July 1 to December 31) is $500, calculated as $10,000 x 10% x (6/12). Therefore, the adjusting entry is to debit Interest Receivable and credit Interest Revenue for $500.

Question 17

On August 1,2014,Brian Quinn received $5,400 for legal services to be performed evenly throughout the next twelve months,beginning August 1,2014.An adjusted trial balance prepared on December 31,2014 will show a credit balance in Unearned Revenue in the amount of:

Accepted Answer

By December 31, 2014, five months of services have been performed (August to December). The monthly revenue is $5,400 / 12 = $450. For five months, the earned revenue is 5 * $450 = $2,250. The unearned revenue remaining is $5,400 - $2,250 = $3,150.

Question 18

The adjusting entry to record the accrual of income tax expense includes a:

Accepted Answer

The correct adjusting entry to record the accrual of income tax expense includes a credit to Income Tax Payable. This reflects the obligation to pay the accrued taxes.

Question 19

On October 1 of the current year,a company received $4,800 for services to be performed evenly over the next six months.If no adjusting entry was made on December 31 of the current year:

Accepted Answer

This is because, by December 31 of the current year, three months would have already passed since the company received the $4,800. This means that $2,400 (3 months x $800 per month) of the revenue would have been earned and should be recognized as revenue for the current year. If no adjusting entry is made, the company's net income would be understated by $2,400.

Question 20

A company purchased medical equipment for $100,000 on January 1,2015.The company determined that the yearly depreciation expense is $10,000.What will be the ending balance in the Accumulated Depreciation-Medical Equipment at December 31,2017?

Accepted Answer

The equipment is depreciated at $10,000 per year. From January 1, 2015, to December 31, 2017, there are 3 years, so the accumulated depreciation is 3 years x $10,000/year = $30,000.

Quiz 3: Accrual Accounting Income