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Exam 3: The Adjusting Process

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Question 1

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Argyle Designs has entered into a contract to design 20 new dresses for a customer. It will collect a total of $40,000 after the design services are complete. Argyle started design work on June 1. As of June 30, Argyle finished 4 of the 20 designs. Argyle will make an adjusting entry at the end of June to accrue $10,000 of service revenue.

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Question 2

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A business hired a repairman to overhaul their plumbing system. The repairman began work on September 15 and intends to complete it on October 15. The business will pay him $4,000 when the work is completed. As of September 30, the work was 50% complete. Provide the adjusting entry to accrue repair expense as of the end of September.

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Question 3

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On the first day of January, Patricia borrowed $2,000 on a one-year note payable bearing interest at 4% per year. The note specifies that principal and interest must be paid in full at the end of the one-year period. On June 30, the adjusted trial balance will show Interest Payable of:

The accounting principle that ensures that all expenses are recorded when they are incurred during the period, and compares those expenses against the revenues of the period is called the ________ principle.

To fill the unadjusted trial balance columns in a worksheet, the account balances before adjustments are copied directly from the:

The sum of all the depreciation expense recorded to date for a depreciable asset is called residual value.

Which of the following accounts does cash basis accounting ignore?

Qwerty Inc. prepaid $3,600 on November 1, 2014 for a one-year insurance premium. On January 1, 2015 of the next year (after December 31 adjustments) , the Prepaid Insurance account will have a debit balance of:

The revenue recognition principle guides accountants in:

At the end of the current year, the accountant for Colorful Graphics forgot to make an adjusting entry to accrue Wages Payable to the company's employees for the last week in December. The wages will be paid to the employees in January. Which of the following is an effect of this error?

The accountant of Linda Legal Services failed to make an adjusting entry for supplies that had been used for the year. Assume the supplies were initially recorded as an asset. Which of the following statements is true?

A contra account's normal balance (debit or credit) is the opposite of the normal balance of the related account.

Which of the following statements is true of accrual basis accounting?

On March 1, 2014, Nuggets Inc. paid $60,000 for office rent covering the three-month period ending May 31, 2014. Journalize the entry on March 1 by using the alternative treatment of prepaid expenses.

Financial statements are prepared from the balances in a(n) :

The accountant for Noble Jewelry Repair Services forgot to make an adjusting entry for Depreciation Expense for the current year. Which of the following is an effect of this error?

An adjusting entry is completed:

Unearned revenue is revenue that:

If a company fails to make an adjusting entry for prepaid expense, the assets will be overstated. Assume the prepaid expense is initially recorded as an asset.

Under cash basis accounting, revenue is recorded when it is earned, regardless of when cash is received.