Adjusting Accounts for Financial Statements Assignment

Chapter 3. Adjusting Accounts for Financial Statements SmartBook $1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. Unearned revenue would be debited for $700; Service revenue would be credited for $700 $1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. Supplies expense would be debited for $300; Supplies would be credited for $300. $200 of supplies were purchased at the beginning of the period and recorded as an asset. During the period, $90 of supplies were used. The adjustment to show the supplies used up would cause (assets) to be reduced and (expenses) to be increased, so net income would decline. $21,000 of equipment is purchased on December 1. It is estimated that it will have a life of 5 years and zero salvage value. Calculate the first month’s depreciation expense as of December 31 using the straight-line method. $350 $500 of supplies were purchased at the beginning of the period. By the end of the period, only $100 remains. The adjustment to show the $400 of supplies used would have the following effect(s). It would reduce assets, so total assets would be lower; It would increase expenses, so net income would be reduced. $800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry? Supplies expense would be debited for $600 A $300,000 building was purchased on December 1. It is estimated that it will have the life of 20 years and zero salvage value. Calculate the depreciation expense for the month of December using straightline depreciation. $1,250 A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below. Insurance expense would be debited for $300. A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid Insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: debit to Insurance expense for $400; credit to Prepaid insurance for $400 A plant asset can be defined by which of the following statements? It is a tangible long-term asset; It is reported on the balance sheet; It has a life within the business greater than one year; Its original cost (minus any salvage value) is expensed over its useful life Accrual basis accounting is: An accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred; An accounting system which is consistent with generally accepted accounting principles; An accounting system that best reflects business performance and increases the comparability of financial statements from period to period Accrual basis accounting recognizes (revenues) when earned and records (expenses) when (incurred) in order to adhere to the matching principle. All of the following are types of adjustments except: accrued cash An adjusting journal entry is made at the (end) of an accounting period. An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below. Debit Unearned revenues for $400. An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below. Debit unearned revenues for $400 At the end of the previous year, a customer owed Chocolates R US $500. On January 31 of the current year, the customer paid $900 total, which included the $500 owed plus $400 owed for the current month of January. What would be the journal entry on January 31 that reflects this? Accounts receivable will be credited for $500; Cash will be debited for $900; Service revenue would be credited for $400 At the end of the previous year, a customer owed Days Company $400. On February 1 of the current year, the customer paid $600 total, which included the $400 owed plus $200 owed through February 1 st. The journal entry on January 31 is? Accounts receivable will be credited for $400; Cash will be debited for $600; Service revenue would be credited for $200. By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry? Debit Salaries expense for $500 By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries (expense) account and (credit) the Salaries (payable) account. By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry? Debit salaries expense for $500 Cash basis accounting is defined as: an accounting system which recognizes revenues when cash is received and records expenses when cash is paid. Cash basis accounting recognizes revenues when cash is (received) and records expenses when cash is (paid). Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney’s customers have not yet been billed. Chimney’s customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction? Debit accounts receivable and credit services revenue. Choose the statement below that explains what “closing” means. Closing means to bring an account balance to zero. Closing means to transfer account balances from (temporary) accounts so that they will start with a (zero) balance at the beginning of the next period. Complete the following statement. The purpose of the closing process is to reset (temporary) account balances to zero and to transfer the changes in all of these accounts to the Retained (Earnings) account. Current assets are: cash and other resources that are expected to be sold, collected or used within one year Current items can be described as those expected to come due within one (year) and are listed in the order of how (quickly) they could be converted to or paid in cash. Define an adjusting journal entry. An adjusting journal entry is made at the end of and accounting period to reflect a transaction or event that is not yet recorded. Define the Salaries payable account by selecting the appropriate statement below. It reports amounts owed to employees and is a liability. Demonstrate your knowledge of preparing a post-closing trial balance by selecting the accounts below that would be included on it. Permanent accounts; Asset accounts; Liability accounts Describe an unclassified balance sheet. An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity. Describe the final step in the adjusting process. The final step is to create an adjusting journal entry to get from step 1 to step 2. Determine which of the following transactions may require adjustments. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month; Supplies were purchased at the beginning of the year, but not all were used; Six months of rent were paid in advance; A 24-month insurance policy was prepaid; Equipment was purchased in the middle of the year Explain a contra account by filling in the following blanks. A contra account is an account that is linked with another (account). It has an (opposite) balance and is (subtracted) from the other account’s balance. Explain the difference between the unadjusted and the adjusted trial balance. The adjusted trial balance is prepared after adjusting entries have been recorded and posted Explain what a contra account is by choosing the statement(s) below that correctly describe(s) a contra account. Accumulated Depreciation is an example of a contra account; A contra account has an opposite normal balance than its linked account; A contra account would be subtracted from another account; A contra account is linked with another account Explain what unearned revenues are by choosing the correct statement below. Unearned revenues refer to cash received in advance of providing a service or product Explain what unearned revenues are by selecting the statements below which are correct. They are a liability; They are also called deferred revenues; They refer to cash received in advance of performing a service or product; They are reported on a balance sheet Explain your understanding of the closing process by choosing the correct statements below. The closing process helps to summarize a period’s revenues and expenses; The closing process resets the balances in temporary accounts to zero Explain your understanding of what an accrued expense is by selecting the statements below which are correct. They refer to costs that are incurred in a period, but are both unpaid and unrecorded; They are reported on an income statement; Examples of accrued expenses are wages expense and interest expense; Adjustments involve increasing both an expense and a liability account Identify which group of accounts may require adjustments at the end of the accounting period. Unearned revenue; Supplies; Prepaid Rent Identify which of the accounts below would be classified as a current asset. Prepaid rent, office supplies, accounts receivable, cash Identify which of the following steps in the accounting cycle is optional. Reversing journal entries In preparing a post-closing trial balance, which of the following statements are correct? The total of all debit balances will equal the total of all credit balances; All permanent accounts with a balance in the general ledger will be included; The retained earnings account on the post-closing trial balance will include the net income or net loss for the period List the order in which financial statements are prepared. 1. Income statement 2. Statement of retained earnings 3. Balance sheet 4. Statement of cash flows McDarrel’s records $500 of accrued salaries on December 31. Three days later, on January 3, total salaries of $4,000 (including the $500 accrued at year end) are paid. Demonstrate the required journal entry on January 3 by selecting from the choices below. Salaries payable will be debited for $500; Cash would be credited for $4,000; Salaries expense would be debited for $3,500. On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following sentence. The required adjusting entry would be to debit the (accounts receivable) account and (credit) the (service revenue) account. On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below. Debit Accounts receivable for $600 Place the steps in the adjusting process in the correct order in which they would be performed. 1. Determine what the current account balance is. 2. Determine what the correct account balance should be. 3. Record an adjusting entry. Recall the order in which financial statements are prepared. Income statement, statement of retained earnings, balance sheet, statement of cash flows Review and complete the following statement regarding the Income Summary account. The Income Summary account is (credited) for the sum of all revenue accounts and is (debited) for the sum of all expense accounts and its balance will be transferred to the (retained earnings) account. Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used in preparing financial statements. The adjusted trial balance includes all accounts and balances appearing in financial statements; Financial statements are prepared more easily using the adjusted trial balance than with the general ledger; The income statement is the first financial statement and prepared after preparing the adjusted trial balance; The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings Review the statements below and select the items that are correct regarding the operating cycle for a business. The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods or services; The length of a company’s operating cycle depends on its activities; Most companies use a one-year period or operating cycle in deciding which assets and liabilities are current; Most operating cycles are less than one year Select the statement below that explains how to use the Income Summary account. The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts. Sheldon Company had $500 for one day of accrued salaries on December 31 of the prior year. On January 4 of the current year, total salaries for the five-day week are paid. The journal entry to record the payment of salaries on January 4 includes: Debit to Salaries Payable for $500; Debit to Salaries Expense for $2,000 Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation. 1. Prepare an unadjusted trial balance. 2. Journalize and post adjusting entries. 3. Prepare an adjusted trial balance. 4. Prepare financial statements. Some of the steps in the accounting cycle are listed below. Place them in the correct order of use. 1. Journalize transactions into the journal. 2. Journalize and post the adjusting entries. 3. Prepare the adjusted trial balance. 4. Prepare the financial statements. 5. Journalize and post closing entries. 6. Prepare post-closing trial balance. StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December: credit services revenue; debit accounts receivable The expense recognition (matching) principle aims to record (expenses) in the same accounting period as the (revenues) that are earned as a result of those costs. This principle is a major part of the (adjusting) process. The time span from when cash is used to purchase goods until cash is received from the sale of goods is called the (operating) cycle. What is a plant asset? A plant asset refers to a long-term tangible asset used to produce and sell products or services What is depreciation? Depreciation is the process of allocating the costs of long-term assets over their expected useful life. What is the difference between an adjusted trial balance and an unadjusted trial balance? The adjusted trial balance is used to prepare financial statements; The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted; The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. What is the purpose of the Accumulated Depreciation account? The account allows both the original cost of plant assets and the total depreciation taken to be shown simultaneously Which of the accounts below are considered accrued expenses? Wages expense, Interest expense Which of the following adjustments would be required at the end of the period? (Check all that apply.) Deferred Expenses; Deferred Revenues; Accrued Expenses; Accrued Revenues Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply.) One-year; Six-month; One-month Which of the following describe the Salaries payable account? It is a liability account; It is increased with a credit; It reports amounts owed to employees; It is reported on the balance sheet Which of the following is (are) true timeliness and the importance of periodic reporting? (Check all that apply.) The value of information is often linked to its timeliness; Businesses report financial information at regular intervals to ensure timeliness of data; Useful information must reach decision makers frequently Which of the following lists contains only temporary accounts? Wages Expense, Income Summary; Dividends Which of the following statements about the Accumulated depreciation account is (are) correct? The Accumulated depreciation account allows the original cost of the asset to remain in the plant asset account; Accumulated depreciation is a contra account; Accumulated depreciation is subtracted from its plant asset on the balance sheet; Accumulated depreciation accumulated the total depreciation taken on an asset since its purchase. Which of the following statements are true regarding depreciation? Depreciation is recorded through an adjusting entry; Depreciation is the process of allocating the cost of an asset to the period the asset benefits; Depreciation is recognized at the end of an accounting period; Depreciation is the original cost of an asset minus any residual value and this amount is expensed over its useful life Which of the following statements describes the expense recognition (matching) principle? (Check all that apply.) Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses; Matching of expenses with revenues is a major part of the adjusting process Which of the lists below contains only permanent accounts? Retained Earnings; Accounts Payable; Accumulated Depreciation Which of the statements below describe(s) a permanent account? A permanent account’s balance is carried forward to the next accounting period; A permanent account is reported on the balance sheet Which of the statements below describe(s) a temporary account? A temporary account has a balance for only one period; A temporary account is closed at the end of an accounting period Which of the statements below explains the accounting cycle? The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements. Which of the statements below is (are) correct regarding the accounting cycle? The cycle contains steps for adjusting and closing accounts; The accounting cycle contains 10 steps; The accounting cycle refers to steps followed by a company to prepare its financial statements; The accounting cycle is a series of steps repeated each reporting period Which of the statements below is correct regarding the difference between a temporary account and a permanent account? A temporary account will not appear on a post-closing trial balance. Which statements below are true regarding permanent and temporary accounts? Retained Earnings is a permanent account, but Dividends is a temporary account; Temporary accounts are reported on the income statement; Temporary accounts have a balance for one period only; Permanent accounts will appear on a post-closing trial balance; Permanent accounts are reported on the balance sheet