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Exam 3: The Adjusting Process

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Question 41

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If a company is using the accrual basis accounting method,when should it record its earned revenue?

A) when cash is received,even though services may be rendered at a later date
B) when services are rendered,even though cash may be received at a later date
C) when services are completely rendered and cash is received
D) when cash is received,30 days after the completion of the services

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Question 42

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In the case of a prepaid expense,the adjusting entry required at the end of a period will consist of a debit to the Prepaid Expense account.Assume the prepaid expense was initially recorded as an asset.

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Question 43

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The entry to record depreciation includes a credit to the ________.

The matching principle states that ________.

The accountant of Delta Inc.failed to make an adjusting entry to record $6,000 of unearned service revenue that has now been earned.Assume the unearned revenue was initially recorded as a liability.Which of the following statements is true?

Elsdon Inc.borrowed $21,000 on a one-year Note Payable with an interest rate of 10% per year on June 1.It will repay the principal and interest at the end of the one-year period.The company makes accrual adjustments at the end of each month.The company should record interest expense of $2,100 on June 30.

Pluto Inc.sells tickets in advance for its weekly productions and records the proceeds as Unearned Revenue.At the end of each month,the company makes an adjusting entry to account for the tickets used during the month (ticket revenue.) On March 1,the Unearned Revenue account had a credit balance of $4,000.During March,it sold 300 tickets at $20 each and 250 tickets were used during the month.What is the balance in Unearned Revenue at the end of March?

On April 1,Balsa Inc.purchased office supplies for $1,500.At the end of April,they took a count of the remaining supplies and found that there was $500 of supplies left.Please provide the adjusting entry needed at the end of April.(Ignore explanation)Assume the office supplies were initially recorded as an asset.Assume there were no office supplies on hand prior to the purchase on April 1.

Healthy Living,a diet magazine,collected $480,000 in subscription revenue on May 31.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual method of accounting.What is the balance in the Unearned Revenue account as of December 31?

On January 1,Unearned Revenue of Maywood Inc.had a beginning balance of $2,000.During January,the company earned $1,000 of the unearned revenue.The company also collected $6,000 from a new customer for services to be rendered the following month.At the end of January,the Unearned Revenue account had a balance of $6,000.

Sierra Event Planning Services Inc.records prepaid expenses and unearned revenues using the alternative treatments.It makes adjusting entries as needed to bring its books to the full accrual basis once a year at the end of the year.On December 15,it collected $1,000 from a customer in advance for a series of events that will start late December and end in March.At the end of the year,it rendered approximately 10% of the services for its customer.The adjusting entry on December 31 will include a debit to Service Revenue for $900.

Saturn Inc.signed a one-year $12,000 note payable at 8% interest on May 1,2015.How much interest expense must be accrued on May 31,2015?

Henry Tax Planning Service bought communications equipment for $9,600 on January 1,2015.It has an estimated useful life of 5 years and zero residual value.Henry uses the straight-line method to calculate depreciation and records depreciation expense in the books at the end of every month.As of June 30,2015,the balance in the Accumulated Depreciation account for this equipment is ________.

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.

Classic Artists' Services hired a maintenance man to maintain a building that it will use for office purposes.The maintenance man will begin work on February 1 and work through till May 31.Classic Artists' will pay the maintenance man $4,000 at the end of May.It accrues Maintenance Expense at the end of every month.What is the balance in the Accounts Payable account for amounts owed to the maintenance man at the end of March?

Generally Accepted Accounting Principles (GAAP)require the use of accrual accounting.

When does a company account for earned revenue if it follows cash basis accounting?

Healthy Living,a diet magazine,collected $480,000 in subscription revenue on May 31st.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual method of accounting.What is the amount of Subscription Revenue that has been earned by the end of December?

What is the effect of the adjusting entry for Depreciation Expense?

Which of the following accounting elements does the matching principle help to match?