Ch03 the Adjusting Process

8/18/2019 Ch03 the Adjusting Process

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Chapter 3

The Adjusting Process

OBJECTIVES

Obj 1 Describe the nature of the adjusting process.Obj 2 Journalize entries for accounts requiring adjustment.

Obj 3 Summarize the adjustment process.

Obj 4 repare an adjusted trial balance.

QUESTION !I"

True # $a%se

No

&

O'jecti(e "i))icu%t* No& O'jecti(e "i))icu%t* No& O'jecti(e "i))icu%t*

+ !3"!1 #oderate +, !3"!2 #oderate 3- !3"!2 Difficult

. !3"!1 $as% +/ !3"!2 #oderate 30 !3"!2 Difficult3 !3"!1 #oderate .1 !3"!2 #oderate 32 !3"!2 Difficult

!3"!1 #oderate .+ !3"!2 #oderate 3, !3"!2 Difficult

- !3"!1 #oderate .. !3"!2 #oderate 3/ !3"!2 Difficult

0 !3"!1 #oderate .3 !3"!2 $as% 1 !3"!2 Difficult

2 !3"!1 $as% . !3"!2 #oderate + !3"!2 $as%

, !3"!1 $as% .- !3"!2 #oderate . !3"!3 Difficult

/ !3"!1 #oderate .0 !3"!2 #oderate 3 !3"!3 Difficult

+1 !3"!1 #oderate .2 !3"!2 #oderate !3"!3 Difficult

++ !3"!1 #oderate ., !3"!2 #oderate - !3"!3 Difficult

+. !3"!1 #oderate ./ !3"!2 $as% 0 !3"!3 $as%

+3 !3"!1 #oderate 31 !3"!2 $as% 2 !3"!3 #oderate

+ !3"!1 $as% 3+ !3"!2 #oderate , !3"!4 $as%

+- !3"!1 #oderate 3. !3"!2 #oderate / !3"!4 $as%

+0 !3"!1 $as% 33 !3"!2 $as%

+2 !3"!2 #oderate 3 !3"!2 Difficult

4atching

No

&


+ !3"!1 #oderate !3"!1 #oderate 2 !3"!1 Difficult

. !3"!1 #oderate - !3"!1 #oderate , !3"!1 Difficult3 !3"!1 #oderate 0 !3"!1 #oderate

11&


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Chapter 3/The Adjusting Process 12!

4u%tip%e Choice

No

&


+ !3"!1 #oderate ./ !3"!2 Difficult -2 !3"!2 $as%

. !3"!1 #oderate 31 !3"!2 Difficult -, !3"!2 #oderate

3 !3"!1 #oderate 3+ !3"!2 Difficult -/ !3"!2 #oderate

!3"!1 #oderate 3. !3"!2 #oderate 01 !3"!2 #oderate

- !3"!1 #oderate 33 !3"!2 Difficult 0+ !3"!2 #oderate

0 !3"!1 Difficult 3 !3"!2 Difficult 0. !3"!2 #oderate

2 !3"!1 Difficult 3- !3"!2 $as% 03 !3"!2 #oderate

, !3"!1 Difficult 30 !3"!2 #oderate 0 !3"!2 $as%

/ !3"!1 Difficult 32 !3"!2 $as% 0- !3"!2 $as%

+1 !3"!1 Difficult 3, !3"!2 #oderate 00 !3"!2 #oderate

++ !3"!1 Difficult 3/ !3"!2 #oderate 02 !3"!2 $as%+. !3"!1 Difficult 1 !3"!2 Difficult 0, !3"!2 Difficult

+3 !3"!1 #oderate + !3"!2 #oderate 0/ !3"!2 $as%

+ !3"!1 #oderate . !3"!2 $as% 21 !3"!2 $as%

+- !3"!1 $as% 3 !3"!2 $as% 2+ !3"!2 Difficult

+0 !3"!1 Difficult !3"!2 $as% 2. !3"!2 #oderate

+2 !3"!1 $as% - !3"!2 #oderate 23 !3"!2 #oderate

+, !3"!1 #oderate 0 !3"!2 $as% 2 !3"!3 #oderate

+/ !3"!1 #oderate 2 !3"!2 #oderate 2- !3"!3 Difficult

.1 !3"!1 $as% , !3"!2 $as% 20 !3"!3 Difficult

.+ !3"!1 #oderate / !3"!2 $as% 22 !3"!3 Difficult

.. !3"!1 #oderate -1 !3"!2 $as% 2, !3"!3 Difficult

.3 !3"!1 Difficult -+ !3"!2 $as% 2/ !3"!4 #oderate

. !3"!1 #oderate -. !3"!2 $as% ,1 !3"!4 #oderate

.- !3"!1 Difficult -3 !3"!2 $as% ,+ !3"!4 #oderate

.0 !3"!2 Difficult - !3"!2 $as% ,. !3"!4 #oderate

.2 !3"!2 #oderate -- !3"!2 $as%

., !3"!2 #oderate -0 !3"!2 $as%

E5ercise#Other

No

&


+ !3"!1 $as% ++ !3"!2 $as% .+ !3"!2 $as%

. !3"!1 $as% +. !3"!2 #oderate .. !3"!2 $as%

3 !3"!1 $as% +3 !3"!2 #oderate .3 !3"!2 $as%

!3"!2 #oderate + !3"!2 #oderate . !3"!3 #oderate

- !3"!2 #oderate +- !3"!2 $as% .- !3"!3 Difficult

0 !3"!2 $as% +0 !3"!2 #oderate .0 !3"!3 #oderate

2 !3"!2 #oderate +2 !3"!2 $as% .2 !3"!3 #oderate


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Chapter 3/The Adjusting Process 121

, !3"!2 #oderate +, !3"!2 #oderate ., !3"!3 Difficult

/ !3"!2 #oderate +/ !3"!2 $as% ./ !3"!3 $as%

+1 !3"!2 $as% .1 !3"!2 $as% 31 !3"!4 $as%

Pro'%e6No

&

O'jecti(e "i))icu%t* No

&

O'jecti(e "i))icu%t* No

&

O'jecti(e "i))icu%t*

+ !3"!1 #oderate - !3"!2 Difficult / !3"!2 Difficult

. !3"!2 Difficult 0 !3"!2 #oderate +1 !3"!3 Difficult

3 !3"!2 Difficult 2 !3"!2 #oderate ++ !3"!3 #oderate

!3"!2 Difficult , !3"!2 #oderate +. !3"!2'!3"!4 Difficult

Chapter 37The Adjusting Process

T!UE#$A8SE

1. (he s%stem of accounting )here re*enues are recorded )hen the% are earned and e+pensesare recorded )hen the% are incurred is called the cash basis of accounting.

ANS9 , D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

2. (he accrual basis of accounting requires re*enue be recorded )hen cash is recei*ed fromcustomers.

ANS9 , D-, $as% O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

3. enerall% accepted accounting principles require accrual"basis accounting.ANS9 ( D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

4. (he re*enue recognition concept states that re*enue should be recorded in the same periodas the cash is recei*ed.


. (he matching concept requires e+penses be recorded in the same period that the relatedre*enue is recorded.

ANS9 ( D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

5. (he financial statements measure precisel% the financial condition and results of operationsof a business.



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122 hapter 36(he djusting rocess

7. repaid 8ent is a deferred e+pense.ANS9 ( D-, $as% O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

9. n e+ample of deferred re*enue is :nearned 8ent.ANS9 ( D-, $as% O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

&. ccruals are needed )hen an unrecorded e+pense has been incurred or an unrecordedre*enue has been earned.


1!. -f the debit portion of an adjusting entr% is to an asset account; then the credit portion must be to a liabilit% account.


11. roper reporting of re*enues and e+penses in a period is due to the accounting periodconcept.


12. 8e*enue recognition concept requires that the reporting of re*enue be included in the period)hen cash for the ser*ice is recei*ed.

ANS9 , D-, #oderate O/J !3"!1

0( S/ nal%tic ' - ,0"#easurement

13. 8e*enues and e+penses should be recorded in the same period in )hich the% relate.ANS9 ( D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

14. (he matching concept supports matching e+penses )ith the related re*enues.ANS9 ( D-, $as% O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

1. $*en though requires the accrual basis of accounting; some businesses prefer usingthe cash basis of accounting.


15. (he updating of accounts is called the adjusting process.ANS9 ( D-, $as% O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement


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17. djusting entries are made at the end of an accounting period to adjust accounts on the balance sheet.


19. djusting entries affect onl% e+pense and asset accounts.ANS9 , D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

1&. n adjusting entr% )ould adjust re*enue so it is reported )hen earned and not )hen cash isrecei*ed.


2!. n adjusting entr% )ould adjust an e+pense account so the e+pense is reported )hen

incurred.ANS9 ( D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

21. n adjusting entr% to accrue an incurred e+pense )ill affect total liabilities.ANS9 ( D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

22. (he difference bet)een deferred re*enue and accrued re*enue is that accrued re*enue has been recorded and needs adjusting and deferred re*enue has ne*er been recorded.

ANS9 , D-, #oderate O/J !3"!2


23. Deferrals are recorded transactions that dela% the recognition of an e+pense or re*enue.ANS9 ( D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

24. djustments for accruals are needed to record a re*enue that has been earned or an e+pensethat has been incurred but not recorded.


2. n unearned re*enue is a liabilit%.ANS9 ( D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

25. (he s%stematic allocation of land


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27. (he difference bet)een the balance of a fi+ed asset account and the balance of its relatedaccumulated depreciation account is termed the boo= *alue of the asset.


29. (he ccumulated Depreciation7;!!!. ssuming annual depreciation of >2;!!; the boo=*alue of the building one %ear later is >77;!!.


32. contra asset account for ?and )ill normall% appear in the balance sheet.ANS9 , D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

33. Depreciation $+pense is reported on the balance sheet as an addition to the related asset.ANS9 , D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

34. compan% pa%s >12;!!! for t)el*e month4;!!! and credit repaid 8ent; >4;!!!.

ANS9 , D-, Difficult O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

3. compan% pa%s >24! for a %earl% trade magazine on ugust 1. (he adjusting entr% onDecember 31 is debit :nearned Subscription 8e*enue; >1!! and credit Subscription8e*enue; >1!!.



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35. compan% depreciates its equipment >3! a %ear. (he adjusting entr% for December 31 isdebit Depreciation $+pense; >3! and credit $quipment; >3!.


37. compan% pa%s an emplo%ee >1;!!! for a fi*e da% )or= )ee=; #onda% " ,rida%. (headjusting entr% on December 31; )hich is a @ednesda%; is debit @ages $+pense; >2!! andcredit @ages a%able; >2!!.


39. compan% pa%s >;5!! for t)o season tic=ets on September 1. -f >1;4!! is earned b%December 31; the adjusting entr% made at that time is debit ash; >1;4!! and credit (ic=et8e*enue; >1;4!!.

ANS9 , D-, Difficult O/J !3"!2


3&. compan% does not realize that the last t)o da%4;!!!. (he amount of the journal entr% required to record insurance e+pense )ill be >2;!!if the amount of une+pired insurance applicable to future periods is >1;!!.

ANS9 ( D-, Difficult O/J !3"!2


41. (he mar=et *alue of a fi+ed asset is reflected in the /alance Sheet after the properadjustment is made.


42. -f the adjustment for accrued salaries at the end of the period is inad*ertentl% omitted; bothliabilities and o)ner


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44. -f the adjustment of the unearned rent account at the end of the period to recognize theamount of rent earned is inad*ertentl% omitted; the net income for the period )ill beo*erstated.

ANS9 , D-, Difficult O/J !3"!3


4. -f the adjustment for depreciation for the %ear is inad*ertentl% omitted; the assets on the balance sheet at the end of the period )ill be understated.


45. djusting journal entries are dated on the last da% of the period.ANS9 ( D-, $as% O/J !3"!3 0( S/ nal%tic ' - ,0"#easurement

47. /% ignoring and not posting the adjusting journal entries to the appropriate accounts; netincome )ill al)a%s be o*erstated.ANS9 , D-, #oderate O/J !3"!3 0( S/ nal%tic ' - ,0"#easurement

49. (he financial statements are prepared from the unadjusted trial balance.ANS9 , D-, $as% O/J !3"!4 0( S/ nal%tic ' - ,0"#easurement

4&. (he heading of an adjusted trial balance contains the heading A,or the #onth $ndedDecember 31; 2!!9.A



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4ATC:IN

Match these type of accounts with the following business transactions.

a. repaid e+pense

b. ccrued e+pensec. :nearned re*enued. ccrued re*enue

1. Ser*ices pro*ided b% an attorne% that ha*e not been recorded.2. aid for one %earBs insurance polic%3. 8etainage recei*ed b% the client for future legal representation.4. nnual propert% ta+es that are paid at the end of the %ear . $lectric bill to be paid ne+t month5. aid for a magazine subscription for the ne+t 5 months7. 8ecei*ed pa%ment for a magazine subscription for the ne+t 5 months

9. ro*ided tutoring for a student; in*oice to be sent at the beginning of the ne+t month to the parent for pa%ment.

1. ANS9 D D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

2. ANS9 D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement


4. ANS9 / D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

. ANS9 / D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement



9. ANS9 D D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement


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4U8TIP8E C:OICE

1. (he re*enue recognition concepta. is in not in conflict )ith the cash method of accounting

b. determines )hen re*enue is credited to a re*enue accountc. states that re*enue is not recorded until the cash is recei*edd. controls all re*enue reporting for the cash basis of accounting

ANS9 / D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

2. (he matching concepta. addresses the relationship bet)een the journal and the balance sheet b. determines )hether the normal balance of an account is a debit or creditc. requires that the dollar amount of debits equal the dollar amount of credits on a trial

balance

d. determines that e+penses related to re*enue be reported at the same time the re*enue isreportedANS9 D D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

3. :sing accrual accounting; re*enue is recorded and reported onl%a. )hen cash is recei*ed )ithout regard to )hen the ser*ices are rendered b. )hen the ser*ices are rendered )ithout regard to )hen cash is recei*edc. )hen cash is recei*ed at the time ser*ices are renderedd. if cash is recei*ed after the ser*ices are rendered

ANS9 / D-, #oderate O/J !3"!1


4. :sing accrual accounting; e+penses are recorded and reported onl%a. )hen the% are incurred; )hether or not cash is paid b. )hen the% are incurred and paid at the same timec. if the% are paid before the% are incurredd. if the% are paid after the% are incurred

ANS9 D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

. One of the accounting concepts upon )hich deferrals and accruals are based isa. matching b. costc. price"le*el adjustmentd. conser*atism



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Chapter 3/The Adjusting Process 12&

5. -f the effect of the debit portion of an adjusting entr% is to increase the balance of an e+penseaccount; )hich of the follo)ing describes the effect of the credit portion of the entr%Ca. decreases the balance of an stoc=holdersB equit% account b. increases the balance of an liabilit% account

c. increases the balance of an asset accountd. decreases the balance of an e+pense accountANS9 / D-, Difficult O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

7. -f the effect of the credit portion of an adjusting entr% is to increase the balance of a liabilit%account; )hich of the follo)ing describes the effect of the debit portion of the entr%Ca. increases the balance of a contra asset account b. increases the balance of an asset accountc. decreases the balance of an stoc=holdersB equit% accountd. increases the balance of an e+pense account

ANS9 D D-, Difficult O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

9. (he primar% difference bet)een deferred and accrued e+penses is that deferred e+pensesha*ea. been incurred and accrued e+penses ha*e not b. not been incurred and accrued e+penses ha*e been incurredc. been recorded and accrued e+penses ha*e not been incurredd. not been recorded and accrued e+penses ha*e been incurred

ANS9 / D-, Difficult O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

&. rior to the adjusting process; accrued e+penses ha*ea. not %et been incurred; paid; or recorded b. been incurred; not paid; but ha*e been recordedc. been incurred; not paid; and not recordedd. been paid but ha*e not %et been incurred

ANS9 D-, Difficult O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

1!. rior to the adjusting process; accrued re*enue hasa. been earned and cash recei*ed b. been earned and not recorded as re*enuec. not been earned but recorded as re*enued. not been recorded as re*enue but cash has been recei*ed



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11. Deferred e+penses ha*ea. not %et been recorded as e+penses or paid b. been recorded as e+penses and paidc. been incurred and paid

d. not %et been recorded as e+pensesANS9 D D-, Difficult O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

12. Deferred re*enue is re*enue that isa. earned and the cash has been recei*ed b. earned but the cash has not been recei*edc. not earned and the cash has not been recei*edd. not earned but the cash has been recei*ed


13. djusting entries area. the same as correcting entries b. needed to bring accounts up to date and match re*enue and e+pensec. optional under generall% accepted accounting principlesd. rarel% needed in large companies


14. djusting entries affect at least onea. income statement account and one balance sheet account

b. re*enue and the di*idend accountc. asset and one stoc=holdersB equit% accountd. re*enue and one capital stoc= account


1. (he general term emplo%ed to indicate an e+pense that has not been paid and has not %et been recognized in the accounts b% a routine entr% isa. capital b. deferralc. accruald. in*entor%

ANS9 D-, $as% O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement


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15. @hich of the follo)ing is not a characteristic of accrual basis of accountingCa. 8e*enues and e+penses are reported in the period in )hich cash is recei*ed or paid b. 8e*enues are reported in the income statement in the period in )hich the% are earnedc. Supports the matching concept

d. ll are correct.ANS9 D-, Difficult O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

17. enerall% accepted accounting principles requires that companies use the ofaccounting.a. cash basis b. deferral basisc. accrual basisd. account basis

ANS9 D-, $as% O/J !3"!1


19. @hich of the follo)ing supports the accrual basis of accountingCa. re*enue recognition concept b. cash conceptc. matching conceptd. re*enue recognition and matching concepts

ANS9 D D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

1&. (he cash basis of accounting records re*enues and e+penses )hen the cash is e+changed

)hile the accrual basis of accountinga. records re*enues )hen the% are earned and e+penses )hen the% are paid b. records re*enues and e+penses )hen the% are incurred.c. records re*enues )hen cash is recei*ed and e+penses )hen the% are incurred.d. records re*enues and e+penses )hen the compan% needs to appl% for a loan.


2!. /% matching re*enues and e+penses in the same period in )hich the% incur a. net income or loss )ill al)a%s be underestimated. b. net income or loss )ill al)a%s be o*erestimated.c. net income or loss )ill be properl% reported on the income statementd. net income or loss )ill not be determined.



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21. ll adjusting entries al)a%s in*ol*ea. onl% income statement accounts. b. onl% balance sheet accounts.c. the cash account.

d. at least one income statement account and one balance sheet account.ANS9 D D-, #oderate O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

22. repaid e+penses are e*entuall% e+pected toa. become e+penses )hen their future economic *alue e+pires. b. become re*enues )hen ser*ices are performed.c. become e+penses in the period )hen the% are paid.d. become re*enues )hen the liabilit% is no longer o)ed.


23. @hich of the follo)ing is considered to be unearned re*enueCa. oncert tic=ets sold for tonightBs performance. b. oncert tic=ets sold %esterda% on credit.c. oncert tic=ets that )ere not sold for the current performance.d. oncert tic=ets sold for ne+t monthBs performance.


24. @hich of the follo)ing is an e+ample of accrued re*enueCa. S)imming pool cleaning that has been for three months in ad*ance.

b. S)imming pool cleaning that has been pro*ided but has not been billed or paid.c. n agreement has been signed for s)imming pool cleaning for the ne+t three months.d. S)imming pool cleaning that has been pro*ided and paid on the same da%.


2. @hich of the follo)ing is considered to be an accrued e+penseCa. computer technician has installed the latest soft)are updates and )as paid on the same

da%. b. computer technician has been paid in ad*ance to install soft)are updates as the%

become a*ailable.c. computer technician has just signed an agreement )ith %ou regarding pricing for future

)or=.d. computer technician has installed the latest soft)are updates; but %ou ha*e not recei*ed

their in*oice for pa%ment.ANS9 D D-, Difficult O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement


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25. @hich account )ould normall% not require an adjusting entr%Ca. @ages $+pense b. ccounts 8ecei*ablec. ccumulated Depreciation

d. apital Stoc= ANS9 D D-, Difficult O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

27. @hich one of the accounts belo) )ould li=el% be included in an accrual adjusting entr%Ca. -nsurance $+pense b. repaid 8entc. -nterest $+pensed. :nearned 8ent


29. @hich one of the follo)ing accounts belo) )ould li=el% be included in a deferral adjustingentr%Ca. -nterest 8e*enue b. :nearned 8e*enuec. Salaries a%abled. ccounts 8ecei*able


2&. (he balance in the prepaid rent account before adjustment at the end of the %ear is >1;!!!;

)hich represents three months< rent paid on December 1. (he adjusting entr% required onDecember 31 isa. debit 8ent $+pense; >;!!!E credit repaid 8ent; >;!!! b. debit repaid 8ent; >1!;!!!E credit 8ent $+pense; >;!!!c. debit 8ent $+pense; >1!;!!!E credit repaid 8ent; >;!!!d. debit repaid 8ent; >;!!!E credit 8ent $+pense; >;!!!


3!. (he balance in the office supplies account on June 1 )as >;2!!; supplies purchased duringJune )ere >2;!!; and the supplies on hand at June 3! )ere >2;!!!. (he amount to be usedfor the appropriate adjusting entr% isa. >4;!! b. >2;!!c. >&;7!!d. >;7!!



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31. @hat is the proper adjusting entr% at June 3!; the end of the fiscal %ear; based on a prepaidinsurance account balance before adjustment; >1;!!; and une+pired amounts per anal%sisof policies; >4;!!Ca. debit -nsurance $+pense; >4;!!E credit repaid -nsurance; >4;!!

b. debit -nsurance $+pense; >1;!!E credit repaid -nsurance; >1;!!c. debit repaid -nsurance; >11;!!E credit -nsurance $+pense; >11;!!d. debit -nsurance $+pense; >11;!!!E credit repaid -nsurance; >11;!!!


32. (he entr% to adjust for the cost of supplies used during the accounting period isa. Supplies $+pense; debitE Supplies; credit b. apital Stoc=; debitE Supplies; creditc. ccounts a%able; debitE Supplies; creditd. Supplies; debitE credit apital Stoc=


33. business pa%s )ee=l% salaries of >2!;!!! on ,rida% for a fi*e"da% )ee= ending on thatda%. (he adjusting entr% necessar% at the end of the fiscal period ending on (hursda% isa. debit Salaries a%able; >15;!!!E credit ash; >15;!!! b. debit Salar% $+pense; >15;!!!E credit Di*idends; >15;!!!c. debit Salar% $+pense; >15;!!!E credit Salaries a%able; >15;!!!d. debit Dra)ing; >15;!!!E credit ash; >15;!!!


34. (he balance in the prepaid insurance account before adjustment at the end of the %ear is>1!;!!!. -f the additional data for the adjusting entr% is F1G Athe amount of insurance e+piredduring the %ear is >9;!!;A as compared to additional data stating F2G Athe amount ofune+pired insurance applicable to a future period is >1;!!;A for the adjusting entr%a. the debit and credit amount for F1G )ould be the same as F2G but the accounts )ould be

different b. the accounts for F1G )ould be the same as the accounts for F2G but the amounts )ould be

differentc. the accounts and amounts )ould be the same for both F1G and F2Gd. there is not enough information gi*en to determine the correct accounts and amounts



17/46


3. (he difference bet)een the balance of a fi+ed asset account and the related accumulateddepreciation account is termeda. historical cost b. contra asset

c. boo= *alued. mar=et *alueANS9 D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

35. (he adjusting entr% to record the depreciation of equipment for the fiscal period isa. debit Depreciation $+penseE credit $quipment b. debit Depreciation $+penseE credit ccumulated Depreciationc. debit ccumulated DepreciationE credit Depreciation $+pensed. debit $quipmentE credit Depreciation $+pense

ANS9 / D-, #oderate O/J !3"!2


37. s time passes; fi+ed assets other than land lose their capacit% to pro*ide useful ser*ices. (oaccount for this decrease in usefulness; the cost of fi+ed assets is s%stematicall% allocated toe+pense through a process calleda. equipment allocation b. depreciationc. accumulationd. matching

ANS9 / D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

39. (he entr% to adjust the accounts for )ages accrued at the end of the accounting period isa. @ages a%able; debitE @ages -ncome; credit b. @ages -ncome; debitE @ages a%able; creditc. @ages a%able; debitE @ages $+pense; creditd. @ages $+pense; debitE @ages a%able; credit


3&. (he supplies account has a balance of >1;!!! at the beginning of the %ear and )as debitedduring the %ear for >2;9!!; representing the total of supplies purchased during the %ear. -f>7! of supplies are on hand at the end of the %ear; the supplies e+pense to be reported onthe income statement for the %ear isa. >7! b. >3;!c. >3;9!!d. >3;!!



18/46


4!. compan% purchases a one"%ear insurance polic% on June 1 for >94!. (he adjusting entr%on December 31 isa. debit -nsurance $+pense; >3! and credit repaid -nsurance; >3! b. debit -nsurance $+pense; >29! and credit repaid -nsurance; >29!

c. debit -nsurance $+pense; >4&!; and credit repaid -nsurance; >4&!.d. debit repaid -nsurance; >72!; and credit ash; >72!ANS9 D-, Difficult O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

41. -f the prepaid rent account before adjustment at the end of the month has a debit balance of>1;5!!; representing a pa%ment made on the first da% of the month; and if the monthl% rent)as >9!!; the amount of prepaid rent that )ould appear on the balance sheet at the end ofthe month; after adjustment; isa. >9!! b. >4!!

c. >2;4!!d. >1;5!!ANS9 D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

42. Depreciation $+pense and ccumulated Depreciation are classified; respecti*el%; asa. e+pense; contra asset b. asset; contra liabilit%c. re*enue; assetd. contra asset; e+pense

ANS9 D-, $as% O/J !3"!2


43. (he t%pe of account and normal balance of ccumulated Depreciation isa. asset; credit b. asset; debitc. contra asset; creditd. contra asset; debit


44. (he t%pe of account and normal balance of :nearned 8ent isa. re*enue; credit b. e+pense; debitc. liabilit%; creditd. liabilit%; debit



19/46


4. Data for an adjusting entr% described as Aaccrued )ages; >2;!2!A means to debita. @ages $+pense and credit @ages a%able b. @ages a%able and credit @ages $+pensec. ccounts 8ecei*able and credit @ages $+pense

d. Dra)ing and credit @ages a%ableANS9 D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

45. Supplies are recorded as assets )hen purchased. (herefore; the credit to supplies in theadjusting entr% is for the amount of suppliesa. that are in the ending balance b. purchasedc. usedd. either used or remaining

ANS9 D-, $as% O/J !3"!2


47. -f there is a balance in the prepaid rent account after adjusting entries are made; it representsaFnGa. deferral b. accrualc. re*enued. liabilit%


49. -f there is a balance in the unearned subscriptions account after adjusting entries are made; itrepresents aFnGa. deferral b. accrualc. e+pensed. re*enue


4&. (he cost of office supplies to be used in future periods is ordinaril% sho)n on the balancesheet as aFnGa. stoc=holdersB equit% b. assetc. contra assetd. liabilit%



20/46


!. @hich of the follo)ing is an e+ample of a prepaid e+penseCa. Supplies b. ccounts 8ecei*ablec. :nearned Subscriptions

d. :nearned ,eesANS9 D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

1. (he une+pired insurance at the end of the fiscal period representsa. an accrued asset b. an accrued liabilit%c. an accrued e+pensed. a deferred e+pense

ANS9 D D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

2. ccrued re*enues )ould appear on the balance sheet asa. assets b. liabilitiesc. stoc=holdersB equit%d. prepaid e+penses


3. repaid ad*ertising; representing pa%ment for the ne+t quarter; )ould be reported on the balance sheet as aFnG

a. asset b. liabilit%c. contra assetd. e+pense


4. :nearned rent; representing rent for the ne+t si+ months< occupanc%; )ould be reported onthe landlord


21/46


. ccrued e+penses are ordinaril% reported on the balance sheet asa. assets b. liabilitiesc. fi+ed assets

d. prepaid e+pensesANS9 / D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

5. ,ees recei*able )ould appear on the balance sheet as aFnGa. asset b. liabilit%c. fi+ed assetd. unearned re*enue


7. (he general term emplo%ed to indicate a dela% of the recognition of an e+pense alread% paidor of a re*enue alread% recei*ed isa. depreciation b. deferralc. accruald. in*entor%


9. (he adjusting entr% for rent earned that is currentl% recorded in the unearned rent account is

a. :nearned 8ent; debitE 8ent 8e*enue; credit b. 8ent 8e*enue; debitE :nearned 8ent; creditc. :nearned 8ent; debitE repaid 8ent; creditd. 8ent $+pense; debitE :nearned 8ent; credit


&. @hich of the follo)ing pairs of accounts could not appear in the same adjusting entr%Ca. Ser*ice 8e*enue and :nearned 8e*enue b. -nterest -ncome and -nterest $+pensec. 8ent $+pense and repaid 8entd. Salaries a%able and Salaries $+pense



22/46


5!. (he unearned rent account has a balance of >4!;!!!. -f >3;!!! of the >4!;!!! is unearned atthe end of the accounting period; the amount of the adjusting entr% isa. >3;!!! b. >4!;!!!

c. >37;!!!d. >43;!!!ANS9 D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

51. (he follo)ing adjusting journal entr% )as found on page 4 of the journal. Select the beste+planation for the entr%.

:nearned 8e*enue 4;!!

,ees earned 4;!!

CCCCCCCCCCCCCCCC

a. 8ecord pa%ment of fees earned b. 8ecord fees earned at the end of the monthc. 8ecord fees that ha*e not been earned at the end of the monthd. 8ecord the pa%ment of fees to be earned.



Supplies $+pense 35! Supplies 35!

CCCCCCCCCCCCCCCC

a. djust supplies in*entor% to actual b. 8ecord purchase of suppliesc. djust supplies e+pensed. 8ecord sale of supplies



@ages $+pense 2;

@ages a%able 2;

CCCCCCCCCCCCCCCC


23/46


a. 8ecord the pa%ment of )ages b. 8ecord )ages to be paid this monthc. 8ecord )ages paid in ad*anced. 8ecord )ages e+pense incurred and to be paid ne+t month


54. @hat affect )ill this adjustment ha*e on the accounting recordsC

:nearned 8e*enue 4;!!

,ees earned 4;!!

a. -ncrease net income b. -ncrease re*enues reported for the periodc. Decrease liabilities

d. ll are true.ANS9 D D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

5. @hat affect )ill this adjusting journal entr% ha*e on the accounting recordsC

Supplies $+pense 579

Supplies 579

a. -ncrease income b. Decrease net income

c. Decrease e+pensesd. -ncrease assets


55. @hat affect )ill the follo)ing adjusting journal entr% ha*e on the accounting recordsC

Depreciation $+pense 1;!!

ccumulated Depreciation 1;!!

a. -ncrease net income

b. -ncrease re*enuesc. Decrease e+pensesd. Decrease net boo= *alue



24/46


57. Ho) )ill the follo)ing adjusting journal entr% affect the accounting equationC.

:nearned Subscriptions 12;!!!

Subscriptions earned 12;!!!

a. -ncrease assets; increase re*enues b. -ncrease liabilities; increase re*enuesc. Decrease liabilities; increase re*enuesd. Decrease liabilities; decrease re*enues


59. @hich of the follo)ing is not true regarding DepreciationCa. Depreciation allocates the cost of a fi+ed asset o*er its estimated life. b. Depreciation e+pense reflects the decrease in mar=et *alue each %ear.

c. Depreciation is an allocation not a *aluation method.d. Depreciation e+pense does not measure changes in mar=et *alue.


5&. (he account t%pe and normal balance of repaid $+pense isa. re*enue; credit b. e+pense; debitc. liabilit%; creditd. asset; debit

ANS9 D D-, $as% O/J !3"!2


7!. (he account t%pe and normal balance of ccumulated Depreciation isa. re*enue; credit b. e+pense; debitc. asset; creditd. asset; debit


71. @hich of the follo)ing is an e+ample of an accrued e+penseC

a. Salar% o)ed but not %et paid b. ,ees recei*ed but not %et earnedc. Supplies on handd. t)o"%ear premium paid on a fire insurance polic%



25/46


72. (he net boo= *alue of a fi+ed asset is determined b%a. Original cost less accumulated depreciation b. Original cost less depreciation e+pensec. Original cost less accumulated depreciation plus depreciation e+pense

d. Original cost plus accumulated depreciationANS9 D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

73. (he balance in the supplies account; before adjustment at the end of the %ear is >52. (he proper adjusting entr% if the amount of supplies on hand at the end of the %ear is >32 )ould bea. debit ash >32; credit Supplies >32 b. debit Supplies $+pense >3!!; credit Supplies >3!!c. debit Supplies $+pense>32; credit Supplies >32d. debit Supplies >3!!; credit Supplies $+pense >3!!


74. (he net income reported on the income statement is >&!;!!!. Ho)e*er; adjusting entriesha*e not been made at the end of the period for supplies e+pense of >2;7!! and accruedsalaries of >1;3!!. 0et income; as corrected; isa. >97;3!! b. >&!;!!!c. >99;7!!d. >95;!!!

ANS9 D D-, #oderate O/J !3"!3


7. t the end of the fiscal %ear; the usual adjusting entr% to repaid -nsurance to record e+piredinsurance )as omitted. @hich of the follo)ing statements is trueCa. (otal assets at the end of the %ear )ill be understated. b. Stoc=holdersB equit% at the end of the %ear )ill be understated.c. 0et income for the %ear )ill be o*erstated.d. -nsurance $+pense )ill be o*erstated.



26/46


75. t the end of the fiscal %ear; the usual adjusting entr% for depreciation on equipment )asomitted. @hich of the follo)ing statements is trueCa. (otal assets )ill be understated at the end of the current %ear. b. (he balance sheet and income statement )ill be misstated but the statement of retained

earnings )ill be correct for the current %ear.c. 0et income )ill be o*erstated for the current %ear.d. (otal liabilities and total assets )ill be understated.


77. t the end of the fiscal %ear; the usual adjusting entr% for accrued salaries o)ed toemplo%ees )as omitted. @hich of the follo)ing statements is trueCa. Salar% $+pense for the %ear )as understated. b. (he total of the liabilities at the end of the %ear )as o*erstated.c. 0et income for the %ear )as understated.

d. Stoc=holdersB equit% at the end of the %ear )as understated.ANS9 D-, Difficult O/J !3"!3 0( S/ nal%tic ' - ,0"#easurement

79. (he adjusting entr% to adjust supplies )as omitted at the end of the %ear. (his )ould effectthe income statements b% ha*inga. e+penses understated and therefore net income o*erstated b. re*enues understated and therefore net income understatedc. e+penses understated and therefore net income understatedd. e+penses o*erstated and therefore net income understated

ANS9 D-, Difficult O/J !3"!3


7&. @hich of the accounts belo) )ould appear on an adjusted trial balance but probabl% )ouldnot appear on the trial balanceCa. ,ees $arned b. ccounts 8ecei*ablec. :nearned ,eesd. Depreciation $+pense


9!. @hich of the accounting steps in the accounting process belo) )ould be completed lastCa. preparing the adjusted trial balance b. postingc. preparing the financial statementsd. journalizing



27/46


91. @hen is the adjusted trial balance preparedCa. /efore adjusting journal entries are posted b. fter adjusting journal entries are posted.c. fter the adjusting journal entries are journalized

d. /efore the adjusting journal entries are journalized.ANS9 / D-, #oderate O/J !3"!4 0( S/ nal%tic ' - ,0"#easurement

92. @hat is the purpose of the adjusted trial balanceCa. to *erif% that all of the adjusting entries ha*e been posted b. to *erif% that the net income Iloss is correctl% reportedc. to *erif% that no adjusting journal entr% has been omitted.d. to *erif% that the debits and credits balance


E;E!CISE#OT:E!

1. $+plain the difference bet)een accrual basis accounting and cash basis accounting.ANS9

ccrual basis accounting reports re*enues and e+penses in the period in )hich the e*enthappened regardless is cash )as e+changed at the time. ash basis accounting reports re*enuesand e+penses )hen cash is recei*ed or paid.D-, $as% O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement

2. -ndicate )ith a Kes or 0o )hether or not each of the follo)ing accounts normall% requiresan adjusting entr%.

1. ash2. repaid $+penses3. Depreciation $+pense4. ccounts a%able. ccumulated Depreciation5. $quipment

ANS9

1. 0o2. Kes3. Kes4. Kes. Kes5. 0oD-, $as% O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement (O $+ample $+ercise 3"1


28/46


3. lassif% the follo)ing items as F1G prepaid e+pense; F2G unearned re*enue; F3G accruede+pense; or F4G accrued re*enue.

FaG ,ees recei*ed but not %et earned.

FbG ,ees earned but not %et recei*ed.FcG ccumulated depreciation.FdG ropert% ta+ accrual

ANS9

FaG unearned re*enueFbG accrued re*enueFcG prepaid e+penseFdG accrued e+penseD-, $as% O/J !3"!1 0( S/ nal%tic ' - ,0"#easurement (O $+ample $+ercise 3"2

4. $mplo%ees at #"orp earn >!! per da%. (he% are paid each ,rida% for a fi*e"da%)or=)ee=. (he adjusting entr% on December 31; 2!!7 assuming the %ear ends on #onda%)ould be

"ate "escription Post

!e)

"e'it Credit

ANS9


!e)

"e'it Credit

126316! @ages $+pense !!.!!

@ages a%able !!.!!

D-, #oderate O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement


29/46


. n insurance polic% )as purchased on pril 1; 2!!7 for >2;4!!.!!. t the end of the %ear;>9!! )as deemed e+pired. (he adjusting entr% on December 31; 2!!7 )ould be


!e)

"e'it Credit

ANS9


!e)

"e'it Credit

126316! -nsurance $+pense 9!!.!!

repaid -nsurance 9!!.!!


5. Depreciation on Office $quipment is >4;7!!.!!. (he adjusting entr% on December 31; 2!!7)ould be


!e)

"e'it Credit

ANS9


!e)

"e'it Credit

126316! Depreciation $+pense 4;7!!.!! ccumulatedDepreciation" Office $quipment 4;7!!.!!


30/46


D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

7. one"%ear insurance polic% )as purchased on pril 1; 2!!7 for >2;4!!.!!. (he adjusting

entr% on December 31; 2!!7 )ould be"ate "escription Post

!e)

"e'it Credit

ANS9


!e)

"e'it Credit

126316!7 -nsurance $+pense 1;9!!.!!

repaid -nsurance 1;9!!.!!


9. (here )as a >1;!! balance in the supplies account at the beginning of the period. Duringthe period; the supplies account )as increased b% >3;!!! for supplies purchased. t the end

of the period before adjustment; >! of supplies )ere on hand. Journalize the necessar%adjusting entr%.

ANS9

Supplies $+pense 3;&! Supplies 3;&!


&. On Januar% 1st 0etSolutions purchased t)o %ear liabilit% insurance polic% for >3!;!!!.!! pa%ing cash at the time of purchase. (his *alue )as recorded to repaid -nsurance. -n the

space belo) )rite the adjusting entr% for Januar% 31st.ANS9

Jan 31 -nsurance $+pense 1;2!.!!repaid -nsurance 1;2!.!!

djusting entr% " -nsurance e+p F>3!;!!!.!! 6 24monthsG


31/46



1!. (he compan% records depreciation to Office $quipment and roduction $quipment.

Depreciation for the period ending December 31st are >2;1!!.!! for Office $quipment and>3;&!.!! for roduction $quipment. 8ecord these declarations to separate e+pense andaccumulated depreciation accounts for ma+imum detail.

ANS9

Dec 31st Depreciation $+pense " Office $quipment 2;1!!.!!ccumulated Depreciation " Office $quipment 2;1!!.!!

Dec 31st Depreciation $+pense " roduction $quipment 3;&!.!!ccumulated Depreciation " roduction $quipment 3;&!.!!

/% utilizing separate e+pense accounts greater anal%sis can be accomplished on the cost of

production and the cost of general and administrati*e issues.D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement

11. On #a% 1 a business paid >4;9!! for t)el*e month liabilit% insurance polic%. (hen; on June1 the same business entered into a t)o %ear rental contract for equipment for >12;!!!.Determine the follo)ing amountsFaG prepaid insurance as of #a% 31FbG insurance e+pense for the month of JuneFcG prepaid equipment rental as of June 3!FdG equipment rent e+pense for the month of June

ANS9FaG >4;4!!FbG >4!!FcG >11;!!FdG >!!


12. -n the %ear 2!!7; the compan% is estimating its propert% ta+ to be >3;5!! for the %ear.FaG Ho) much should the compan% accrue each month for propert% ta+esCFbG @hat is the amount that the ropert% (a+ ccrual account )ill ha*e at the end

of Jul% 2!!7CFcG repare the adjusting journal entr% for the month of October 2!!7.


32/46


ANS9

FaG >3!!FbG >2;1!!FcG ropert% (a+ $+pense 3!!

ropert% (a+ ccrual 3!!8ecord ropert% (a+ ccrual for the month of October


13. On Januar% 1st 0etSolutions prepa%s the %earBs rent; >19;!!!.!! to its landlord. -n the space belo) )rite the journal entr% for the pa%ment of the annual rent utilizing a asset account.

ANS9

Jan 1 repaid 8ent 19;!!!.!!ash 19;!!!.!!

repaid annual rent and capitalized the *alue.


14. On December 1; 2!!7; >7;!! )as recei*ed for ser*ices to be performed from December 1;2!!7 until #a% 31; 2!!9. #a=e the December 31; 2!!7 adjusting journal entr% if the:nearned ,ees at the end of December 2!!7 )as >4;2!!.

ANS9

:nearned ,ees 3;3!! ,ees $arned 3;3!!


1. On December 31st the accounts of 0etSolutions sho) >1;9!.!! in the Office Suppliesaccount. n inspection of the supplies loc=er sho)s onl% >34!.!! )orth of supplies. @ritethe adjusting entr%.

ANS9

Dec 31st Office Supplies $+pense 1;1!.!!Office Supplies 1;1!.!!



33/46


15. Depreciation on equipment for the %ear is >24!!.FaG 8ecord the journal entr% if the compan% adjusts its account once a %ear.FbG 8ecord the journal entr% if the compan% adjusts its account on a monthl% basis.

ANS9

FaGDepreciation $+pense 24!! ccumulated Depreciation"$quipment 24!!

FbGDepreciation $+pense 2!! ccumulated Depreciation"$quipment 2!!


17. (he compan% determines that the interest e+pense on a note pa%able for period endingDecember 31st is >5.!!. (his amount is pa%able on Januar% 1st. @rite the t)o journalentries associated )ith this information.

ANS9

Dec 31st -nterest $+pense 5.!!-nterest a%able 5.!!

Jan 1st -nterest a%able 5.!!ash 5.!!

D-, $as% O/J !3"!2


19. On Januar% 2nd 0etSolutions prepaid >19;!!!.!! rent for the %ear. @rite the adjusting entr%for rent e+pense on Januar% 31st in the space belo).

ANS9

Jan 31 8ent $+pense 1;!!.!!repaid 8ent 1;!!.!!

djusting entr% " 8ent " >19;!!!.!! 6 12 months.


1&. (he prepaid insurance account had a beginning balance of >7;&!! and )as debited for>4;&!! of premiums paid during the %ear. Journalize the adjusting entr% required at the endof the %ear assuming the amount of une+pired insurance related to future periods is >;5!!.

ANS9

-nsurance $+pense 7;2!!repaid -nsurance 7;2!!

-nsurance e+pired.


34/46


D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement (O $+ample $+ercise 3"3

2!. (he balance in the unearned fees account; before adjustment at the end of the %ear; is

>12;3!!. Journalize the adjusting entr% required if the amount of unearned fees at the end ofthe %ear is >3;9!!.ANS9

:nearned ,ees 9;!!,ees $arned 9;!!


21. t the end of the current %ear; >9;9!! fees ha*e been earned but ha*e not been billed toclients. Journalize the adjusting entr% to record the accrued fees.

ANS9ccounts 8ecei*able 9;9!!,ees $arned 9;9!!

D-, $as% O/J !3"!2 0( S/ nal%tic ' - ,0"#easurement (O $+ample $+ercise 3"

22. 8oller S=ates ompan% pa%s )ee=l% salaries of >1;!!! on ,rida% for a fi*e"da% )ee=ending on that da%. Journalize the necessar% adjusting entr% at the end of the accounting period; assuming that the period ends on (uesda%.

ANS9

Salaries $+pense 5;!!!Salaries a%able 5;!!!


23. (he estimated amount of depreciation on equipment for the current %ear is >5;7!!.Journalize the adjusting entr% to record the depreciation.

ANS9

Depreciation $+pense 5;7!!ccumulated Depreciation 5;7!!

Depreciation on equipment



35/46


24. t Januar% 31; the end of the first month of the %ear; the usual adjusting entr% transferringe+pired insurance to an e+pense account is omitted. @hich items )ill be incorrectl% stated; because of the error; on FaG the income statement for Januar% and FbG the balance sheet as ofJanuar% 31C lso indicate )hether the items in error )ill be o*erstated or understated.

ANS9FaG -nsurance e+pense For e+pensesG )ill be understated. 0et income )ill beo*erstated.

FbG repaid insurance For assetsG )ill be o*erstated. Stoc=holdersB equit% )ill beo*erstated.


2. t the end of June; the first month of the %ear; the usual adjusting entr% transferring rentearned to a re*enue account from the unearned rent account )as omitted. -ndicate )hich

items )ill be incorrectl% stated; because of the error; on FaG the income statement for Juneand FbG the balance sheet as of June 3!. lso indicate )hether the items in error )ill beo*erstated or understated.

ANS9

FaG 8ent re*enue For re*enuesG )ill be understated. 0et income )ill be understated.FbG 8etained earnings at the end of the period )ill be understated. :nearned rent For

liabilitiesG )ill be o*erstated.

D-, Difficult O/J !3"!3 0( S/ nal%tic ' - ,0"#easurement

25. Salaries of >3;!! are paid for a fi*e"da% )ee= on ,rida%. (he month ended on (uesda%.repare the adjusting journal entr%.ANS9

Salaries $+pense 1;4!! Salaries a%able 1;4!!


27. ccrued salaries of >92 o)ed to emplo%ees for December 2&; 3!; and 31 are not ta=en intoconsideration in preparing the financial statements for the %ear ended December 31. -ndicate)hich items )ill be erroneousl% stated; because of the error; on FaG the income statement forthe %ear and FbG the balance sheet as of December 31. lso indicate )hether the items inerror )ill be o*erstated or understated.

ANS9

FaG Salar% e+pense For e+pensesG )ill be understated. 0et income )ill beo*erstated.

FbG Salaries pa%able For liabilitiesG )ill be understated. 8etained earnings )ill beo*erstated.


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29. On Januar% 1st; 0etSolutions had a debit balance of >1;2!.!! in the Office Supplies

account. During the month; 0etSolutions purchased >24.!! and >51!.!! of office suppliesand journalized them to the Office Supplies asset account upon purchasing. On Januar% 31stan inspection of the office supplies cabinet sho)s that onl% >91!.!! of Office Suppliesremains in the loc=er. @rite the Januar% 31st adjusting entr% for Office Supplies in the space belo).

ANS9

Jan 31 Office Supplies $+pense 1;2&.!!Office Supplies 1;2&.!!

djusting entr% " Office Supplies

/eginning balance >1;2!.!!

lus purchases >24.!!51!.!! 9.!!*ailable 2;1!.!!?ess ending balance 91!.!!eriod e+pense >1;2&.!!


2&. ,or the %ear ending December 31; 2!!9; #edical o. mista=enl% omitted adjusting entriesfor F1G >7;9!! of unearned re*enue that )as earned; F2G earned re*enue that )as not billed of

>&;!!; and F3G accrued )ages of >;!!!. -ndicate the combined effect of the errors on FaGre*enues; FbG e+penses; and FcG net income for 2!!9.ANS9

FaG 8e*enues )ere understated b% >17;3!!.FbG $+penses )ere understated b% >;!!!FcG 0et income )as understated b% >12;3!!.D-, $as% O/J !3"!3 0( S/ nal%tic ' - ,0"#easurement (O $+ample $+ercise 3"9

3!. ,or each of the follo)ing errors; considered indi*iduall%; indicate )hether the error )ouldcause the adjusted trial balance totals to be unequal. -f the error )ould cause the adjustedtrial balance total to be unequal; indicate )hether the debit or credit total is higher and b%ho) much.FaG (he adjustment for unearned fees of >2;5! )as journalized as a debit to

ccounts a%able for >2;5! and a credit to ,ees earned of >2;5!.FbG (he adjustment for supplies e+pense of >475 )as journalized as a debit to

Supplies $+pense for >745 and a credit to Supplies for >475.


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ANS9

FaG (he totals are equal e*en though the debit should ha*e been made to :nearned,ees instead of ccounts a%able.

FbG (he debit total e+ceeds the credit total b% >27!.

D-, $as% O/J !3"!4 0( S/ nal%tic ' - ,0"#easurement (O $+ample $+ercise 3"&

P!OB8E4

1. $+plain the difference bet)een

FaG ccrued re*enues and unearned re*enues.FbG ccrued e+penses and prepaid e+penses.FcG i*e an e+ample of each.

ANS9FaG ccrued re*enues are ser*ices that ha*e been pro*ided but not %et billed andthe cash pa%ment for these ser*ices has not been recei*ed. :nearned re*enuesare pa%ments ha*e been recei*ed for ser*ices to be pro*ided in the future.

FbG ccrued e+penses are e+penses that ha*e incurred but ha*e not been paid orrecorded in the accounting records. repaid e+penses are e+penses that ha*e been paid for and ha*e economic benefits in future accounting periods.

FcG ccrued re*enues " FLaried e+amples )ill be gi*en b% studentsG:nearned re*enues " FLaried e+amples )ill be gi*en b% studentsGccrued e+penses " FLaried e+amples )ill be gi*en b% studentsGrepaid e+penses " FLaried e+amples )ill be gi*en b% studentsG



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2. ,or each of the follo)ing; journalize the necessar% adjusting entr%

FaG business pa%s )ee=l% salaries of >1;!!! on ,rida% for a fi*e"da% )ee=ending on that da%. Journalize the necessar% adjusting entr% at the end of the

fiscal period; assuming that the fiscal period ends F1G on @ednesda%; F2G on(hursda%.FbG (he balance in the prepaid insurance account before adjustment at the end of

the %ear is >14;!!!. Journalize the adjusting entr% required under each of thefollo)ing alternati*es F1G the amount of insurance e+pired during the %ear is>4;!!; F2G the amount of une+pired insurance applicable to a future period is>1;!!.

FcG On Jul% 1 of the current %ear; a business pa%s >35;!!! to the cit% for licenseta+es for the coming fiscal %ear. (he same business is also required to pa% anannual propert% ta+ at the end of the %ear. (he estimated amount of the current%ear3;2!!. F1G Journalize the t)o adjusting

entries required to bring the accounts affected b% the ta+es up to date as of Jul%31. F2G @hat is the amount of ta+ e+pense for Jul%CFdG (he estimated depreciation on equipment for the %ear is >24;!!!.

ANS9

FaG F1G Salar% $+pense &;!!! Salaries a%able &;!!!

F2G Salar% $+pense 12;!!! Salaries a%able 12;!!!

FbG F1G -nsurance $+pense 4;!! repaid -nsurance 4;!!

F2G -nsurance $+pense 12;!! repaid -nsurance 12;!!

FcG F1G (a+es $+pense 3;!!! repaid ?icense (a+es 3;!!!

(a+es $+pense 3;2!! ropert% (a+es a%able 3;2!!

F2G >5;2!! F>3;!!! M >3;2!!G

FdG Depreciation $+pense 24;!!! ccumulated Depreciation " $quipment 24;!!!



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3. On 0o*ember 1st clients of 0etSolutions prepaid >2;2!.!! for ser*ices to be pro*ided inthe future at a rate of >!.!! per hour.FaG Journalize the receipt of this cash.FbG s of 0o*ember 3!th 0etSolutions sho)s that 1 hours of ser*ices ha*e been

pro*ided on this agreement. Journalize the recognition of this determination.FcG Determine the *alue of unearned fees obligation in hours and dollars.

ANS9

FaG 0o* 1st ash 2;2!.!!:nearned Ser*ice ,ees 2;2!.!!

FbG 0o* 3!th :nearned Ser*ice ,ees 7!.!!Ser*ice ,ees 7!.!!

FcG (he original prepaid fees " >2;2!.!! 6 >!.!! per hour N 4 hours

0o*ember ser*ice fees earned 7!.!! 1 hours/alance of unearned ser*ice fees >1;!!.!! 3! hours


4. ,or each of the follo)ing; journalize the adjusting entr% on Januar% 31st.FaG (he compan% incurs a a%roll a%able of >4!.!! per )ee=da% of operations.

(he #onda%s of Januar% are the 3rd; the 1!th; the 17th; the 24th; and the 31st.a%da%s are e*er% other ,rida% )ith pa%da%s of Januar% 7th 21st and,ebruar% 4th for the t)o )ee=s ending that date. (he ,rida%; Januar% 21st

pa%da% is complete and paid )ith no continuing for)ard pa%roll liabilit%. @ritethe adjusting entr% for Januar% 31st in the space belo)

FbG (he compan% pa%s pa%roll obligations on ,ebruar% 4th. 0o re*ersing entriesha*e been made. 8ecord the pa%roll obligations of ,ebruar% and )rite the journal entr% to pa% pa%roll on ,ebruar% 4th in the space belo)

FcG (he compan% has fi+ed assets that scheduled depreciation is >4;!!! annually.@rite the adjusting entr% to recognize the monthly depreciation for Januar% inthe space belo)

FdG (he compan%Bs Office Supplies account sho)s a debit balance of >2;52.!!.n inspection of the office supplies loc=er on Januar% 31st re*eals onl%>&5.!! )orth of supplies. @rite the adjusting entr% for Office Supplies in thespace belo)


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. On December 1th 0etSolutions contacts an independent contractor to help )ith a project.(he contractor completes the project on December 2&th and submits an in*oice for>2;7!.!! )hich requires pa%ment on Januar% 1th.FaG @rite all of the journal entries necessar% for this series of e*ents.

FbG $+plain; briefl%; )h% %ou )rote this6these journal entries.ANS9FaG Dec 2&th rofessional Ser*ices $+pense 2;7!.!!

ccounts a%able 2;7!.!!

Jan 1th ccounts a%able 2;7!.!!ash 2;7!.!!

FbG (he first journal entr% is required to place the cost or e+pense of theindependent contractor to the correct period for )hich the ser*ices )ererecei*ed. (his journal entr% created an e+pense in DecemberBs -ncome

Statement and a liabilit% on DecemberBs /alance Sheet. (he second )as to pa%the contractor )hen the pa%ment )as due. (his remo*ed the liabilit% b%resol*ing it )ith a cash pa%ment. (his journal entr% did not affect Januar%Bsincome statement.


5. On 0o*ember 1th 0etSolutions purchases an ad*ertising campaign for the month ofDecember. 0etSolutions paid cash of >1;92.!! to attain the best pricing a*ailable.FaG @rite all necessar% journal entries for this situation through December 31st.

FbG $+plain; briefl%; )h% %ou )rote this6these journal entries.ANS9FaG 0o* 1th repaid d*ertising 1;92.!!

ash 1;92.!!

Dec 31st d*ertising $+pense 1;92.!!repaid d*ertising 1;92.!!

FbG :nder the matching concept; charging the d*ertising $+pense account in 0o*ember )ould ha*e placed that cost into the )rong period since thecampaign )as to run in December. (he correct journal entr% creates an asset;repaid d*ertising; for 0o*ember. (he December 31st entr% recognizes the period e+pense and eliminates the prepaid asset.



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ANS9


!e)

"e'it Credit

Dec 31 ccounts 8ecei*able 5;!!!

8e*enues 5;!!!

Dec 31 Supplies $+pense ;!!

Supplies ;!!

Dec 31 @ages $+pense 4;5!!

@ages a%able 4;5!!

Dec 31 Depreciation $+pense 3;2!!

ccumulated Depreciation 3;2!!

Dec 31 8ent $+pense &;3!!

repaid 8ent &;3!!


&. repare the follo)ing adjustments in good journal entr% format.

FaG (he beginning balance of the Supplies account )as >31. During the month thecompan% bought additional supplies in the amount of >93!. t the end of themonth a ph%sical in*entor% sho)ed >59 of unused supplies.

FbG (he compan% has a 0ote a%able in the amount of >1!;!!! at an 8 of 12P.(he note )ill be paid at the end of 5 months. (he interest e+pense for themonth needs to be recorded.

FcG (here are t)o emplo%ees at the 0orth ar= Store. One is a manager that gets paid on the 1th of e*er% month for his )or= during the first part of the monthand on the 1st of the follo)ing month for the second part of the month. Hismonthl% salar% is >2;!!. (he other emplo%ee is an administrati*e assistant)ho gets a )ee= pa% of >4!. (he last da% of the month fell on (hursda%.

FdG (he unearned re*enue account sho)s a balance of >3;!!!. ccording to themanager 5!P of that amount has been earned.

FeG t the end of the month >9;4!! of ser*ices had been performed but not %et billed.


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ANS9

FaG Supplies $+pense 77Supplies 77

FbG -nterest $+pense 1!!

-nterest a%able 1!!FcG @ages and Salar% $+pense 1;51!@ages and Salar% a%able 1;51!

FF>2;!! 62GMF>4!6Q4GGFdG :nearned 8e*enues 21;!!!

,ees $arned 21;!!!F>3;!!! Q 5!PG

FeG ccounts 8ecei*able 9;4!!,ees $arned 9;4!!

D-, Difficult O/J !3"!2


1!. t the end of the fiscal %ear; the follo)ing adjusting entries )ere omitted

FaG 0o adjusting entr% )as made to transfer the >2;!! of prepaid insurancefrom the asset account to the e+pense account.

FbG 0o adjusting entr% )as made to record accrued fees of >7! for ser*ices pro*ided to customers.

ssuming that financial statements are prepared before the errors are disco*ered; indicatethe effect of each error; considered indi*iduall%; b% inserting the dollar amount in the

appropriate spaces. -nsert A!A if the error does not affect the item.

$rror FaG $rror FbGO*er"stated

:nder"stated

O*er"stated

:nder"stated

F1G ssets at December 31)ould be > > > >

F2G ?iabilities at Dec. 31)ould be > > > >

F3G 0et income for the%ear )ould be > > > >

F4G 8etained earnings atDec. 31 )ould be > > > >


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ANS9

$rror FaG $rror FbGO*er"stated

:nder"stated

O*er"stated

:nder"stated

F1G ssets at December 31)ould be >2;!! > "!" > "!" >7!

F2G ?iabilities at Dec. 31)ould be > "!" > "!" > "!" > "!"

F3G 0et income for the%ear )ould be >2;!! > "!" > "!" >7!

F4G 8etained earnings atDec. 31 )ould be >2;!! > "!" > "!" >7!


11. On June 3!; a business estimates depreciation on equipment used during the first %ear ofoperations to be >1;!!. FaG Journalize the adjusting entr% required as of June 3!. FbG -f theadjusting entr% in FaG )ere omitted; )hich items )ould be erroneousl% stated on F1G theincome statement for the %ear and F2G the balance sheet as of June 3!C

ANS9

FaG Depreciation $+pense 1;!! ccumulated Depreciation " $quipment 1;!!

FbG F1G Depreciation e+pense )ould be understated. 0et income )ould beo*erstated.

F2G ccumulated depreciation )ould be understated; and total assets )ould beo*erstated. 8etained earnings )ould be o*erstated.



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12. Journalize the si+ entries that adjust the accounts at December 31. One of the accounts )asaffected b% t)o different adjusting entries.

:nadjusted

(rial /alance

djusted

(rial /alanceash 3;!!! 3;!!!ccounts 8ecei*able 3!;!!! 3!;!!Supplies 1;7!! 1!!repaid -nsurance 2;!!! 4!!$quipment &;!!! &;!!!ccumulated Depreciation 1;!!@ages a%able 4;!!!:nearned ,ees 5;!!! 1;!!apital Stoc= 2!;!!! 2!;!!!,ees $arned 52;!!! 57;!!!

@ages $+pense 42;3!! 45;3!!Supplies $+pense 1;5!!-nsurance $+pense 1;5!!Depreciation $+pense 1;!!(otal 99;!!! 99;!!! &4;!!! &4;!!!

ANS9

ccounts 8ecei*able !! ,ees $arned !!

Supplies $+pense 1;5!!

Supplies 1;5!!

-nsurance $+pense 1;5!! repaid -nsurance 1;5!!

Depreciation $+pense 1;!! ccumulated Depreciation 1;!!

:nearned ,ees 4;!! ,ees $arned 4;!!

@ages $+pense 4;!!! @ages a%able 4;!!!

D-, Difficult O/J !3"!2 ' !3"!4 0( S/ nal%tic ' - ,0"#easurement

Ch03 the Adjusting Process

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Transcript of Ch03 the Adjusting Process