Question 1

When a company makes an end-of-period adjusting entry that includes a credit to Prepaid Rent,the debit is usually made to:

Accepted Answer

Prepaid Rent is an asset account that represents rent paid in advance. When an adjusting entry is made to recognize the portion of the rent that has been used up (rent expense), the debit is made to Rent Expense.

Question 2

The adjusting entry required to record accrued expenses includes:

Accepted Answer

Accrued expenses are expenses that have been incurred but have not yet been paid. Therefore, the adjusting entry required to record accrued expenses includes a debit to an expense account and a credit to a liability account. This is because the expense has been recognized as incurred, but the payment has not yet been made, resulting in an increase in the company's liabilities. Therefore, the correct choice is D) A credit to liability.

Question 3

Allen Inc.took out a 1-year,8%,$100,000 loan on March 31,2015.Interest is due upon maturity of the loan.The loan and interest must be paid back on March 31,2016.As of December 31,2015,what amount,if any,should Allen Inc.report for interest payable?

Accepted Answer

Interest payable as of December 31, 2015, is calculated for 9 months (April to December) at 8% on $100,000, which equals $6,000.

Question 4

An example of an adjusting entry would not include:

Accepted Answer

Adjusting entries are made at the end of the accounting period to recognize economic events that have not yet been recorded, such as prepaid expenses, accrued expenses and unearned revenues. Paying salaries to company employees is a transaction that has already been recorded and does not require an adjusting entry. Choice A, B, and C all describe events that would require an adjusting entry.

Question 5

When a magazine sells subscriptions to customers,it is an example of:

Accepted Answer

Selling subscriptions to customers creates a liability for the magazine company, as they have received payment but haven't yet fulfilled their obligation of delivering the magazines to the customer. This is known as unearned revenue.

Question 6

During the year,Cheng Company paid salaries of $24,000.In addition,$8,000 in salaries has accrued by the end of the year but has not been paid.The year-end adjusting entry would include which one of the following?

Accepted Answer

The correct adjusting entry to record the accrued salaries would be to debit Salaries Expense for $8,000 (increasing the expense) and credit Salaries Payable for $8,000 (increasing the liability). This reflects the additional expense incurred but not yet paid by the end of the year.

Question 7

Which of the following regarding adjusting entries is correct?

Accepted Answer

Adjusting entries are needed because we use accrual-basis accounting. This is because accrual accounting recognizes revenue when it is earned and expenses when they are incurred, rather than when cash is received or paid out. Adjusting entries help to ensure that all revenue and expenses are properly recognized in the correct accounting period. Options A, B, and D are incorrect because adjusting entries are not recorded for all external transactions, are not solely related to cash inflows and outflows, and do not necessarily result in temporary accounts having a balance of zero.

Question 8

Adjusting entries:

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that the revenue recognition and matching principles are followed. They usually involve at least one income statement account and one balance sheet account. Adjusting entries do not always include the Cash account and are not recorded at the beginning of the accounting period. They also do not necessarily adjust the balances of revenue and expense accounts to zero.

Question 9

When a company makes an end-of-period adjusting entry,which includes a debit to Supplies Expense,the usual credit entry is made to:

Accepted Answer

If the adjusting entry includes a debit to Supplies Expense, it means that the company has used some of its supplies during the period. Therefore, the matching principle requires that the cost of the supplies used be recognized as an expense in the period they were used. The usual credit entry in this case is to Supplies, which reduces the balance of the asset account to reflect the amount of supplies that have been used. This is because supplies are typically recorded as an asset until they are used, at which point they are expensed.

Question 10

A list of all accounts and their balances after updating account balances for adjusting entries is referred to as:

Accepted Answer

An adjusted trial balance is a list of all accounts and their balances after adjusting entries have been made. It is used to ensure that the total debit balances equal the total credit balances, and it is an essential step in the preparation of financial statements.

Question 11

An adjusted trial balance:

Accepted Answer

An adjusted trial balance is a list of all accounts and their balances after adjusting entries have been made at the end of the accounting period. It is used to ensure that the total debits still equal the total credits, and to prepare financial statements.

Question 12

On April 1,a $4,800 premium on a one-year insurance policy on equipment was paid and charged to Prepaid Insurance.At the end of the year,the financial statements would report:

Accepted Answer

At the end of the year, a portion of the insurance premium will have expired and will be recognized as Insurance Expense. The amount of the expense will be $4,800/12 months = $400 per month. Since the policy was purchased on April 1, there are 9 months left in the year (April to December). Therefore, the amount of the insurance expense for the year will be 9 months x $400/month = $3,600. The remaining portion of the premium, $4,800 - $3,600 = $1,200, will be reported as Prepaid Insurance on the balance sheet. Therefore, the correct answer is B) Insurance Expense, $3,600; Prepaid Insurance $1,200.

Question 13

The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:

Accepted Answer

The answer of The adjusting entry required when amounts previously...

Question 14

Which of the following is a possible adjusting journal entry?

Accepted Answer

Salaries Expense is an expense account that reflects the cost of salaries earned by employees during the accounting period. Salaries Payable is a liability account that reflects the wages earned by employees but not yet paid. Therefore, when preparing adjusting entries for salaries, we debit Salaries Expense to increase the expense and credit Salaries Payable to reflect the unpaid wages.

Question 15

Which of the following is true about adjusting entries?

Accepted Answer

Adjusting entries are necessary in accrual-basis accounting to ensure that revenues are recognized in the period in which they are earned and expenses are matched to the period in which they are incurred. This helps to provide a more accurate picture of a company's financial performance. Choices A, B, and C are incorrect. The conservatism principle is a separate accounting concept, adjusting entries are typically done at the end of the accounting period, and adjusting entries do not necessarily zero the balance of all income statement accounts.

Question 16

Making insurance payments in advance is an example of:

Accepted Answer

Making insurance payments in advance is an example of a prepaid expense, as it is a cost that has been paid in advance and will be recognized and expensed over time as the corresponding insurance coverage is utilized.

Question 17

Adjusting entries are primarily needed for:

Accepted Answer

Adjusting entries are primarily needed for accrual-basis accounting because it is necessary to record revenues and expenses in the period they are earned or incurred, regardless of when actual payment occurs. Adjusting entries ensure that the financial statements accurately reflect the company's financial position and performance.

Question 18

Prepayments occur when:

Accepted Answer

Prepayments occur when cash payment or an obligation to pay cash occurs before the expense recognition. This means that the payment is made in advance for an expense that will be recognized in a future accounting period. Examples of prepayments include rent paid in advance or insurance premiums paid in advance.

Question 19

At the beginning of December,Global Corporation had $2,000 in supplies on hand.During the month,supplies purchased amounted to $3,000,but by the end of the month the supplies balance was only $800.What is the appropriate month-end adjusting entry?

Accepted Answer

The supplies on hand at the end of the month is only $800, which means that $4,200 worth of supplies were used up during the month ($2,000 beginning balance + $3,000 purchases - $800 ending balance). Therefore, the appropriate adjusting entry is to debit Supplies Expense for $4,200 and credit Supplies for $4,200. Option A and D do not reflect the amount of supplies used up during the month. Option B is not appropriate because it does not reflect the reduction in the supplies on hand at the end of the month.

Question 20

Eve's Apples opened for business on January 1,2015,and paid for two insurance policies effective that date.The liability policy was $36,000 for eighteen-months,and the crop damage policy was $12,000 for a two-year term.What was the balance in Eve's Prepaid Insurance account as of December 31,2015?

Accepted Answer

The liability policy covers eighteen months, so as of December 31, 2015, half of the policy period has expired (i.e., 12 out of 18 months). Thus, the liability insurance has been used up or consumed for $36,000 x 12/18 = $24,000.

The crop damage policy covers two years, so as of December 31, 2015, only one year has expired, leaving one year still to be used up. Thus, the portion of the crop damage insurance that has been used up is $12,000/2 = $6,000.

Therefore, the balance in Eve's Prepaid Insurance account as of December 31, 2015, is $24,000 + $6,000 = $30,000.

Hence, the correct answer is B) $18,000.

Quiz 3: The Accounting Cycle: End of the Period