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Exam 3: Accrual Basis of Accounting

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Question 51

True/False

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Temporary accounts for a corporation consist of the revenue, expense, and retained earnings accounts.

A) True
B) False

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Question 52

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On October 1, Tanaka entered into a lease agreement to rent out its old warehouse space it was no longer using. This agreement calls for Tanaka to receive $3,000 per month from the lessee, due and payable at the end of the 4-month lease term. At December 31, none of the rental payments from the lessee had yet been received. If Tanaka makes the appropriate adjusting entry, how much will be reported on the December 31 balance sheet as rent receivable?

A) $2,000
B) $8,000
C) $4,000
D) $9,000

E) A) and B)
F) C) and D)

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Question 53

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Assume December 31 is a Monday. Wages are paid every Friday, and the weekly payroll (for five days) amounts to $6,000. To record the correct amount of expense for December, the firm makes the following entry on December 31:

Couch Company obtained a $25,000, one-year, 12 percent bank loan on November 1 of the current year. Interest is payable at the end of the loan term. The company's adjusting entry needed on December 31 is:

An adjusting entry to record depreciation expense is an example of an adjustment that accrues an expense to reflect its incurrence during the accounting period even though it is not yet paid or recorded.

During July, wage expense of $27,000 was reported on the income statement of a company. If wages payable on July 1st was $2,000, and wages of $20,000 were paid during July, how much was accrued wages payable on July 31st?

On October 1, Boyd Insurance Company receives the insurance premium, in advance, from a customer for a 12-month insurance policy for $1,200. Assuming that the company fiscal year ends on December 31, what will be the adjustment on December 31?

Which of the following is a distinguishing characteristic of a deferral?

The book value of a building is equivalent to its historical cost.

A company's failure to record depreciation expense at the end of an accounting period results in:

Mrs. Beard's Bagels purchases its inventory, on account, daily. At December 31 the company had taken receipt of $40,000 of inventory from its suppliers which had not been recorded in the accounts. If Mrs. Beard makes the appropriate adjusting entry, how much will be reported on the December 31 balance sheet as accounts payable?

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was erroneously omitted. Which of the following statements is true?

Which of the following is a permanent account category?

Liberty Company sent a check for $48 to Wine Digest magazine on May 1 for a one year subscription. If Liberty's financial year ends on September 30, their financial statements will report:

In accounting for a corporation, the Retained Earnings account is closed at the end of each accounting period.

JT's Grill, an upscale restaurant on the beach, has just completed its first full year of operations on December 31. It provides meals both in its restaurant and catering. Selected balances before year-end adjustments follow. An analysis of the firm's records reveals the following: a. The balance in Prepaid Advertising represents the amount paid for newspaper advertising for 1 year. The agreement, which calls for the same amount of space each month, covers the period from February 1 of the current year to January 31 of the following year. JT's Grill did not advertise during its first month of operations. b. Equipment purchased January 1, has an estimated life of eight years. c. Utilities expense does not include the expense for December, estimated at $600. The bill will not arrive until January of the following year. d. At year-end, employees have earned $6,200 in wages that will not be paid until January. e. Supplies available at year-end amounted to $650. f. At year-end, unpaid interest of $200 has accrued on the notes payable. Determine the financial statement effect of the above adjustments using the following format. Next to each transaction in the column of the respective account classification, write the 1) name of each account affected by the transaction, and 2) the dollar amount and direction of the effect on Assets, Liabilities, Equity, Revenues and Expenses, for each of the adjustments necessary at the end of December:

Friendly Bakery has been in operation for twelve years. Selected balances for Friendly Bakery are shown below as of January 31 of the current year. Adjusting entries have already been posted. The firm uses a calendar-year accounting period but prepares monthly adjustments. a. During January, $2,600 worth of supplies were purchased. If the amount in Supplies Expense represents the January 31 adjustment for the supplies used in January, what was the January 1 beginning balance of Supplies? b. The insurance premium purchased was valid for one year. The amount in the Insurance Expense account represents the adjustment made at January 31 for January insurance expense. What was the amount of the premium and on what date did the insurance policy start? c. No beginning balance existed in Wages Payable or Wages Expense on January 1. How much cash was paid as wages during January? d. The truck has a useful life of five years, what is the monthly amount of depreciation expense and how many months has Friendly Bakery owned the truck?

Which of the following reflect the impact on liabilities and revenues, if unearned revenue is not adjusted when the revenue is earned?

M. Mabrey received $2,500 from a tenant on December 1 for five months' rent of an office. This rent was for December, January, February, March, and April. If Mabrey increased Cash and increased Unearned Rental Income for $2,500 on December 1, what necessary adjustment would be made on December 31?

A company provides services to clients during the period that are neither paid for, nor billed to the clients. What must the company do?