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Exam 3: The Adjusting Process

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Question 61

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Unearned revenue is a liability.

A) True
B) False

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Question 62

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If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and stockholders' equity will be understated for the period.

A) True
B) False

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Question 63

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Which account would normally not require an adjusting entry?

The following adjusting journal entry does not include an explanation. Select the best explanation for the entry. $\begin{array} { | c | c | c | } \hline \text { Unearned Revenue } & 7,500 & \\\hline \text { Fees Earned } & & 7,500 \\\hline ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? & & \\\hline\end{array}$

The revenue recognition concept

Using the following account balances for Garry's Tree Service, prepare a trial balance. $\begin{array}{|l|l|}\hline \text { Cash } & \$ 25000 \\\hline \text { Supplies } & 1,000 \\\hline \text { Accounts Payable } & 7,000 \\\hline \text { Common Stock } & 32,910 \\\hline \text { Wage Expense } & 2,000 \\\hline \text { Machinery } & 18,350 \\\hline \text { Wages Payable } & 3,600 \\\hline \text { Service Revenue } & 21,000 \\\hline \text { Rent Expense } & 11,500 \\\hline \text { Unearned Revenue } & 1,500 \\\hline \text { Accumulated Depreciation-Machinery } & 7,340 \\\hline \text { Prepaid Rent } & 12,200 \\\hline \text { Dividends } & 3,300 \\\hline\end{array}$

For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs.

The general term used to indicate delaying the recognition of an expense already paid or of a revenue already received is

For the year ending December 31, Beard Clinical Supplies Co. mistakenly omitted adjusting entries for 1) $9,800 of unearned revenue that was earned, 2) earned revenue that was not billed of $10,200, and 3) accrued wages of $7,000. Indicate the combined effect of the errors on a) revenues, b) expenses, and c) net income.

A one-year insurance policy was purchased on June 1 for $2,400. The adjusting entry on December 31 would be: $\begin{array} { | c | c | c | c | c | } \hline \text { Date } & \text { Description } & \text { Post. Ref. } & \text { Debit } & \text { Credit } \\\hline & & & & \\\hline & & & & \\\hline\end{array}$

The balance in the office supplies account on January 1 was $7,000, supplies purchased during January were $3,000, and the supplies on hand at January 30 were $2,000. The amount to be used for the appropriate adjusting entry is

Listed below are accounts to use for transactions a) through j), each identified by a number. Following this list are the transactions. You are to indicate for each transaction the accounts that should be debited and credited by placing the account numbers) in the appropriate box.

The difference between the balance of a fixed asset account and the balance of its related accumulated depreciation account is termed the book value of the asset.

The systematic allocation of land's cost to expense is called depreciation.

The balance in the prepaid rent account before adjustment at the end of the year is $32,000, which represents four months' rent paid on December 1. The adjusting entry required on December 31 is

DogMart Company records depreciation for equipment. Depreciation for the period ending December 31 is $1,400 for office equipment and $2,650 for production equipment. Prepare the two entries to record the depreciation. ِ

Ski Master Company pays weekly salaries of $18,000 on Friday for a five-day week ending on that day. Journalize the necessary adjusting entry at the end of the accounting period, assuming that the period ends on Wednesday.

By ignoring and not posting the adjusting journal entries to the appropriate accounts, net income will always be overstated.

What effect will this adjustment have on the accounting records? $\begin{array} { | c | c | c | } \hline \text { Unearned Revenue } & 6,375 & \\\hline \text { Fees Earned } & & 6,375 \\\hline\end{array}$

The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in past periods.