Question 1

Failure to record depreciation expense for the period results in which of the following?

Accepted Answer

Failure to record depreciation expense for the period results in both net income and stockholders' equity being overstated. Depreciation expense represents the portion of an asset's cost that has been used up during a specific period. Failure to record this expense results in higher net income because expenses are understated, and higher stockholders' equity because depreciation is not reflected as a reduction in the value of the asset.

Question 2

Emory Co.operates five days per week with a daily payroll of $4,000.Employees are paid every Saturday for the workweek just completed (Monday through Friday).The last day of the month is Wednesday,March 31.What is the effect of the correct adjustment at March 31?

Accepted Answer

The answer of Emory Co.operates five days per week with...

Question 3

What is the effect on the accounting equation when a company recognizes rent as earned that had previously been received in advance from customers?

Accepted Answer

Recognizing rent as earned that was previously received in advance will increase the revenues of the company, which will ultimately lead to an increase in net income. The accounting equation is:

Assets = Liabilities + Equity

Since there is no change in the assets or liabilities, an increase in revenue will directly increase equity and net income. Therefore, the correct choice is D, Net income increases.

Question 4

Failure to record dividends paid would result in which of the following?

Accepted Answer

Failure to record dividends paid would result in an overstatement of retained earnings, which in turn would overstate stockholders' equity.

Question 5

Roman Industries' plant operates five days per week with a daily payroll of $6,000.Employees are paid every Saturday for the workweek just completed (Monday through Friday).The last day of the month is Wednesday,March 31.What is the amount of Wages Expense recorded on the next payday,Saturday,April 3?

Accepted Answer

The answer of Roman Industries' plant operates five days per...

Question 6

Failure to record amounts earned for services provided to customers but not yet paid results in which of the following

Accepted Answer

Failing to record earned revenues that have not yet been paid results in revenues being understated, which in turn causes net income and therefore stockholders' equity to be understated. Since the revenue would increase accounts receivable (an asset), not recording it also means total assets are understated.

Question 7

Masters Company borrowed on a one-year,10%,$150,000 note on May 1,with interest and principal to be paid at maturity.How much interest payable will be reported on Masters' balance sheet as of November 30 of the same year?

Accepted Answer

The interest payable for a six-month period (from May 1 to November 30) can be calculated as follows: 
Interest = Principal x Rate x Time 
= $150,000 x 10% x 6/12 
= $7,500 
Therefore, option B is the correct answer.

Question 8

Innovate Company borrowed on a one-year,10%,$150,000 note on May 1,2017 with interest and principal to be paid at maturity.How much interest should Innovate Company report on its income statement for the year ending December 31,2017?

Accepted Answer

The interest for 8 months (May to December) is calculated as $150,000 * 10% * (8/12) = $10,000. However, since the question asks for the interest to be reported on the income statement for the year ending December 31, 2017, only the interest accrued during this period is considered, which is $10,000, not the total annual interest.

Question 9

Carrington & Co.rented office space to a tenant on January 31 and received a total of $9,000 for the first three months of rent.The amount was recorded as Rent Collected in Advance when received.Adjustments are recorded only at the end of every quarter.What effect does the adjustment at March 31 have on Carrington's net income for the quarter ending March 31?

Accepted Answer

The adjustment at March 31 will recognize two months of rent as earned revenue, increasing net income by $6,000 ($9,000 / 3 months * 2 months).

Question 10

Which one of the following adjustments decreases net income for the period?

Accepted Answer

Recognition of depreciation on plant assets decreases net income for the period because it is an expense that reduces the company's earnings. Depreciation expense reflects the wear and tear on tangible assets over time, and when recognized, it decreases the net income as it is subtracted from revenues in the income statement.

Question 11

Which one of the following adjustments increases net income for the period?

Accepted Answer

Recognition of interest on a note receivable increases net income because it represents additional income earned by the company during the period.

Question 12

CBA Corp.has grown significantly over the past year.One area that has plagued the controller of CBA is the reconciliation of supplies expense.The end-of-year supplies on hand totaled $20,purchases totaled $500,and supplies on hand at the beginning of the year amounted to $300.How much will CBA report as supplies expense for the current year?

Accepted Answer

The supplies expense for the current year can be calculated as follows:

Cost of supplies purchased = $500 
Less: Supplies on hand at the beginning of the year = $300 
Supplies used during the year = $200 ($500 - $300) 
Add: Supplies on hand at the end of the year = $20

Total supplies expense for the current year = $220 ($200 + $20)

Therefore, the correct answer is B) $780, which is the total supplies expense for the year.

Question 13

Based on its income for the month,Reel Company estimates that federal income taxes for the month of May will be $11,000.What is the effect of the adjustment on the financial statements?

Accepted Answer

The adjustment results in an increase in income tax expense, as the estimated amount of federal income taxes for the month of May is higher than initially expected. This expense will lower net income and, ultimately, retained earnings. There is no effect on income taxes payable, as this represents taxes that are owed but have not yet been paid, whereas this adjustment is based on an estimate of taxes owed for the current period.

Question 14

The asset account,Supplies,has a balance of $700 on January 1.During January,the company purchased $16,000 of supplies on account and the liability was appropriately recorded.A count of supplies at the end of January indicates a balance of $900.Which one of the following is a correct amount to be reported on the company's financial statements for the month ending January 31?

Accepted Answer

The correct amount to be reported as Supplies Expense is $15,800. This is calculated by starting with the initial supplies balance of $700, adding purchases of $16,000 to get a total of $16,700, and then subtracting the ending supplies balance of $900. The calculation is $16,700 (total supplies available) - $900 (ending balance) = $15,800 used during the month.

Question 15

Longitude Company borrowed on a two-year,10%,$150,000 note on May 1,with interest and principal to be paid at maturity.How much interest will Longitude report on its income statement for the year ending December 31?

Accepted Answer

The interest for one year on a $150,000 note at 10% is $15,000. However, since the note was taken out on May 1, only 8 months of interest accrues within the year ending December 31. Thus, the interest for 8 months is $150,000 \times 10\% \times \frac{8}{12} = $10,000.$

Question 16

Failure to record the supplies used during the year would result in which of the following?

Accepted Answer

Failure to record the supplies used would mean that expenses are understated, leading to an overstatement of net income and, consequently, an overstatement of stockholders' equity.

Question 17

Jogg Corp.'s plant operates five days per week with a daily payroll of $50,000.Employees are paid every Tuesday for the prior week's work (Monday through Friday).The last day of the month is Tuesday,April 30.What effect does the accrual at April 30 have on Jogg's net income?

Accepted Answer

Since April 30 is a Tuesday, Jogg Corp. will have to accrue an additional two days of payroll (April 29 and April 30) for the week prior. This means they will need to accrue an additional $100,000 ($50,000 x 2) in payroll expenses. Therefore, the effect on Jogg Corp.'s net income will be a decrease of $100,000.

Question 18

Failure to record the earned portion of unearned revenue would result in which of the following?

Accepted Answer

Failure to record the earned portion of unearned revenue would result in net income being understated. Unearned revenue is a liability account used to record advance payment for goods and services that have not yet been delivered or rendered. When the goods or services are delivered or rendered, the unearned revenue is recognized as revenue. If the earned portion of unearned revenue is not recorded, revenue will be understated, and net income will also be understated. This error will affect the accuracy of the financial statements.

Question 19

Which of the following adjusting entries involves the Cash account?

Accepted Answer

None of these adjusting entries involve the Cash account. Adjusting entries typically involve balance sheet accounts such as assets, liabilities, and equity, but do not directly impact the Cash account.

Question 20

Failure to record accrued interest expense would result in which of the following?

Accepted Answer

Accrued interest is an expense that has been incurred but not yet paid or recorded. If the accrued interest expense is not recorded, it would result in the understatement of liabilities because the interest payable to lenders or bondholders is a liability for the company. As a result, the financial statements would be misleading, and users would not have an accurate representation of the company's financial position.

Quiz 4: Income Measurement and Accrual Accounting