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Exam 3: Adjusting the Accounts

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Question 91

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If a company fails to make an adjusting entry to record supplies expense, then

A) stockholders' equity will be understated.
B) expense will be understated.
C) assets will be understated.
D) net income will be understated.

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Question 92

Multiple Choice

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Depreciation is the process of

A) valuing an asset at its fair value.
B) increasing the value of an asset over its useful life in a rational and systematic manner.
C) allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
D) writing down an asset to its real value each accounting period.

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Question 93

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Identify the impact on the balance sheet if the following information is not used to adjust the accounts. 1. Supplies consumed totaled $3,000. 2. Interest accrues on notes payable at the rate of $200 per month. 3. Insurance of $450 expired during the month. 4. Plant and equipment are depreciated at the rate of $1,200 per month.

On July 1, 2018, Jeffrey Underwriters Associates received $8,000 from a client for a 2-year insurance policy. Instructions Prepare the necessary journal entries for Jeffrey Underwriters Associates on July 1 and December 31.

Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger.

Crue Company had the following transactions during 2018: $\bullet$ Sales of $4,800 on account $\bullet$ Collected $2,000 for services to be performed in 2019 $\bullet$ Paid $1,625 cash in salaries $\bullet$ Purchased airline tickets for $250 in December for a trip to take place in 2019 What is Crue's 2018 net income using accrual accounting-basis after accrual?

If an adjusting entry is not made for an accrued revenue,

At March 1, 2018, Minutemen Corp. had supplies on hand of $500. During the month, Minutemen purchased supplies of $1,200 and used supplies of $1,500. The March 31 adjusting journal entry should include a

Adjusting entries are

The ______________ principle gives accountants guidance as to when revenue is to be recorded.

Unearned revenues are

Yo La Corporation issued a one-year, 6%, $100,000 note on August 31, 2018. Interest expense for the year ended December 31, 2018 was

The adjusted trial balance of C.S. Financial Planners appears below. Using the information from the adjusted trial balance, you are to prepare for the month ending December 31, 2018: 1. an income statement. 2. a retained earnings statement. 3. a balance sheet.

Revenue received before services are performed and expenses paid before being used or consumed are both initially recorded as liabilities.

Dinosaur Junior Corporation purchased a one-year insurance policy in January 2018 for $75,000. The insurance policy is in effect from May 2018 through April 2019. If the company neglects to make the proper year-end adjustment for the expired insurance

Unearned revenue is a prepayment that requires an adjusting entry when services are performed.

An adjusted trial balance should be prepared before the adjusting entries are made.

The adjusted trial balance of Sodajerk Company at December 31, 2018 includes the following accounts: Retained Earnings $12,600; Dividends $7,000; Service Revenue $38,000; Salaries and Wages Expense $13,000; Insurance Expense $2,000; Rent Expense $3,500; Supplies Expense $2,500; and Depreciation Expense $2,000. Prepare a retained earnings statement for the year.

Hal Corp. prepared the following income statement using the cash basis of accounting: $\begin{array}{c}\text { HAL CORP.}\\\text { Income Statement, Cash Basis}\\\text { For the Year Ended December 31, 2018}\\\\\begin{array}{llr}\text { Service revenue (does not include } \$ 25,000 \text { of services rendered on account }\\ \text { because the collection will not be until 2019) } &\$370,000\\ \text { Expenses (does not include \$ 15,000 of expenses on account because} &\\ \text { payment will not be made until 2019) } & \underline{220,000}\\ \text { Net income} & \underline{\$150,000}\\\end{array}\end{array}$ Additional data: 1. Depreciation on a company automobile for the year amounted to $6,000. This amount is not included in the expenses above. 2. On January 1, 2018, paid for a two-year insurance policy on the automobile amounting to $1,800. This amount is included in the expenses above. Instructions (a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change. (b) Explain which basis (cash or accrual) provides a better measure of income.

On February 1, Results Income Tax Service received a $3,000 cash retainer for tax preparation services to be rendered equally over the next 4 months. The full amount was credited to the liability account Unearned Service Revenue. Assuming that the revenue is recognized equally over the 4-month period, what balance would be reported on the February 28 balance sheet for Unearned Service Revenue?