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Exam 3: Adjusting the Accounts

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Question 101

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Orange County Shop follows the revenue recognition principle. Orange County services a bicycle on July 31. The customer picks up the bike on August 1 and mails the payment to Orange County on August 5. Orange County receives the check in the mail on August 6. When should Orange County show that the revenue was recognized?

A) July 31
B) August 1
C) August 5
D) August 6

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Question 102

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Indicate (a) the type of adjustment (prepaid expense unearned revenue accrued revenue or accrued expense) and (b) the accounts before adjustment (overstated or understated) for each of the following: 1. Supplies of $400 have been used. 2. Salaries of $300 are unpaid. 3. Rent received in advance totaling $500 has been earned. 4. Services provided but not recorded total $700.

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Question 103

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In a service company revenue is recognized when the service is ______________.

An expense is recorded under the cash basis only when

State whether each situation is a prepaid expense (PE) unearned revenue (UR) accrued revenue (AR) or an accrued expense (AE). 1. Unrecorded interest on savings bonds is $180. 2. Property taxes that have been incurred but that have not yet been paid or recorded amount to $500. 3. Legal fees of $1200 were collected in advance. By year end 60 percent were still unearned. 4. Prepaid insurance had a $600 balance prior to adjustment. By year end 40 percent was still unexpired.

Monthly and quarterly time periods are called

The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the

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

Adjustments would not be necessary if financial statements were prepared to reflect net income from

Toole Company had the following transactions during 2016: $\bullet$ Sales of $4200 on account $\bullet$ Collected $2600 for services to be performed in 2017 $\bullet$ Paid $1630 cash in salaries $\bullet$ Purchased airline tickets for $450 in December for a trip to take place in 2017 What is Toole's 2016 net income using cash basis accounting?

Under IFRS income is defined as

On Friday of each week Knife Company pays its factory personnel weekly wages amounting to $48000 for a five-day work week. Instructions (a) Prepare the necessary adjusting entry at year end assuming December 31 falls on Thursday. (b) Prepare the journal entry for payment of the week's wages on the payday which is Friday January 1 of the next year.

One part of eight adjusting entries is given below. Instructions Indicate the account title for the other part of each entry. 1. Unearned Service Revenue is debited. 2. Prepaid Rent is credited. 3. Accounts Receivable is debited. 4. Depreciation Expense is debited. 5. Salaries and Wages Expense is debited. 6. Interest Payable is credited. 7. Service Revenue is credited (give two possible debit accounts). 8. Supplies Expense is debited.

The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.

For each of the following accounts indicate (a) the type of adjusting entry (prepaid expense accrued revenue etc.) and (b) the related account in the adjusting entry. 1. Depreciation Expense 2. Salaries and Wages Payable 3. Service Revenue 4. Supplies 5. Unearned Service Revenue

Kidman Company prepares monthly financial statements. Below are listed some selected accounts and their balances in the September 30 trial balance before any adjustments have been made for the month of September. $\begin{array}{c}\text { KIDMAN COMPANY}\\\text { Trial Balance (Selected Accounts)}\\ \text { September 30, 2016}\\\\\begin{array}{lrr}\hline&\text { Debit } & \text { Credit }\\ \text {Supplies } &\$3,200\\ \text {Prepaid Insurance } &4,200\\ \text { Equipment. } &18,200\\ \text {Accumulated Depreciation-Equipment. } &&\$1,000\\ \text { Unearned Rent Revenue. } &&1,200\\\end{array}\end{array}$ (Note: Debit column does not equal credit column because this is a partial listing of selected account balances) An analysis of the account balances by the company's accountant provided the following additional information: 1. A physical count of supplies revealed $1400 on hand on September 30. 2. A two-year life insurance policy was purchased on June 1 for $3600. 3. Equipment depreciated $3300 per year. 4. The amount of rent received in advance that remains unearned at September 30 is $700. Instructions Using the above additional information prepare the adjusting entries that should be made by Kidman Company on September 30.

Presented below are the basic assumptions and principles underlying financial statements.

What is the proper adjusting entry at June 30 the end of the fiscal year based on a prepaid insurance account balance before adjustment $15400 and unexpired amounts per analysis of policies of $5000?

Bichon Company purchased equipment for $6720 on December 1. It is estimated that annual depreciation on the equipment will be $1680. If financial statements are to be prepared on December 31 the company should make the following adjusting entry:

For each of the following oversights state whether total assets will be understated (U) overstated (O) or no affect (NA). $\underline{\quad\quad}$ 1. Failure to record revenue recognized but not yet received. $\underline{\quad\quad}$ 2. Failure to record expired prepaid rent. $\underline{\quad\quad}$ 3. Failure to record accrued interest on the bank savings account. $\underline{\quad\quad}$ 4. Failure to record depreciation. $\underline{\quad\quad}$ 5. Failure to record accrued wages. $\underline{\quad\quad}$ 6. Failure to record the recognized portion of unearned revenues.