Exam 3: Measuring Business Income: The Adjusting Process

Compute the amounts indicated for each of the following independent situations. Situation Beginning supp lies balance ? \ 2,100 \ 1,500 \ 1,400 Payments for supp lies during the year Ending supplies balance \ 2,500 \ 4,500 ? \ 1,700 Supp lies expense on the income statement \ 1,600 \ 1,600 \ 1,800 ?

A prepaid expense recorded initially as an expense is adjusted by crediting the asset account.

For each of the following, state whether you agree or disagree with the accounting treatment. What concepts support your view? a)A company records all revenue when earned, whether it has been collected or not. b)Payment of a three-year insurance policy is charged to insurance expense and not adjusted. c)Because the December telephone bill did not arrive until January, no telephone expense was recorded for December. d)Management of Classic Cars requires the accountants to prepare monthly financial statements.

The concept that requires that accountants accrue revenue at the end of the accounting period for work performed but not yet billed is the:

Accruals involve the recording of an expense or a revenue account:

Accrual accounting provides several opportunities for unethical accounting.

An asset account is debited when unearned revenue is recorded initially as a revenue.

Deferrals involve the recording of an expense or a revenue account:

The type of account and normal balance of accumulated amortization is:

On September 1, 2019, a company paid $8,400 in advance for two years insurance and debited prepaid insurance. The December 31, 2019, adjusting entry should include a debit to:

Given the following adjustment data, state whether the resulting adjustment will be a deferral or an accrual -Recorded service revenue received in advance from clients.

The concept of accrual accounting is accepted around the world.

Based on the partial trial balance and the partial adjusted trial balance shown below, prepare the six missing adjusting entries. The adjusting entries should be dated December 31. Unadjusted Account Trial Balance Adjusted Trial Balance Debit Credit Debit Credit Accounts Receivable 101,600 110,000 Supp lies 5,000 3,800 Prepaid Insurance 10,600 5,800 Accumulated Amortization 55,300 57,300 Salary Payable 1,500 Unearned Service Revenue 13,500 13,000 Service Revenue 215,900 224,800 Salary Expense 110,600 112,100 Insurance Expense 4,800 Supp lies Expense 1,200 Amortization Expense 2,000

The primary difference between deferred and accrued expenses is that accrued expenses:

Adjusting entries only involve income statement accounts.

Nuyen Services Company records the payment of $500 cash for a previously accrued expense and the accrual of $325 for another expense. The impact of these two entries on total expenses and net income is:

If the adjusting entry to record the current periods prepaid rent expired is omitted:

State the effect on net income, total assets, and total liabilities if the following adjustments were not made. a)Service revenue earned but not yet collected, $2,400. b)Utilities expense incurred but not yet recorded, $1,200. c)Unearned revenue earned during the period, $5,600. d)Supplies used during the period, $1,700. e)Amortization on buildings, $26,000. Item Effect on Net Income Effect on Total Assets Effect on Total Liabilities a) b) c) d) e)

Robert Rogers, a professional accountant, performed accounting services for a client in December. A bill was mailed to the client on December 30. Robert received a cheque in the mail on January 5. The recognition criteria for revenues requires that which of the following accounts appears on the balance sheet at December 31?

Revenue that has been earned but not yet collected is called an accrued revenue.