Exam 3: Adjusting the Accounts

An adjusting entry will always debit an asset to increase the asset.

Once an unadjusted trial balance has been prepared, the next step in the accounting cycle is

A dress shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and payment from the customer is received on December 10. The dress shop follows GAAP and recognizes revenue accordingly. When is the $1,000 considered to be earned?

The following amounts are taken from the unadjusted trial balance of Woodstock Company at its year end, April 30 and are their normal balance (debit or credit). Woodstock records all prepaid expenses and revenue in their respective expense or revenue accounts when paid or received. Woodstock records adjusting entries annually when preparing its year end financial statements. The following transactions are included in the above account balances: 1. On April 1, through a $2,100 cheque, Woodstock's accountant paid both April and May rent and posted the full amount to Rent Expense 2. On April 22 supplies were purchased on account for $740. On April 30 a count of actual supplies on hand shows the remaining supplies to be $81. 3. On January 1 a customer paid $8,000 in advance for a service contract. As of April 30 the work was 40% complete. Instructions a. Journalize the transactions described as (1) through (3). Include the date, but no explanation is required. b. Prepare any adjusting entries required at April 30. c. Determine the adjusted ending balances of the accounts listed above. Indicate whether the ending balance is a debit or credit. d. Assuming that profit before adjusting entries were made is $12,850, calculate the adjusted profit.

The fiscal year of the company must be the same as a calendar year.

Expenses should be recognized, excluding transactions with owners, when which of the following occurs?

Presented below are the trial balance and adjusted trial balance for Dionne Company on December 31. Instructions Prepare in journal form, with explanations, the adjusting entries that explain the changes in the balances from the trial balance to the adjusted trial balance.

Revenue will be recognized when the following occurs as a result of a business activity with a customer.

The following ledger accounts are used by Crawford Indoor Paintball Park: Cash Accounts Receivable Prepaid Printing Prepaid Rent Unearned Admissions Revenue Interest Payable Interest Expense Printing Expense Rent Expense Admissions Revenue Concessions Revenue Instructions For each of the transactions below, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on September 30, the end of the fiscal year. a. On September 1, paid rent on the indoor park facility for three months, $180,000. b. On September 1, sold season tickets for admission to the indoor park. The tickets can be used for a period of one year. Season ticket sales totalled $900,000. c. On September 1, borrowed $150,000 from First Canadian Bank by issuing a 5% note payable due in three months, interest due on maturity. d. On September 6, schedules for 8 competition days in September, 10 days in October, and 7 competition days in November were printed for $3,000. e. Concessions are operated by an independent company, who pays Crawford 10% of the gross receipts. The accountant for the concessions company reported that gross receipts for September were $140,000. The amount due to Crawford will be remitted by October 11.

The difference between the cost of a long-lived asset and its related accumulated depreciation is referred to as the

Unearned revenue is a cash payment which has been received in advance and it is recorded as an asset of the business.

A business will divide the life of its business into specific accounting periods because

There is always a direct relationship between revenues and expenses.

The normal balance of the accumulated depreciation is always a debit.

If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, then failure to make an adjusting entry will cause

An adjusting entry requiring a debit to Unearned Revenue indicates that the initial transaction was charged to a liability account.

Presented below are the trial balance and adjusted trial balance for Lankford Company on December 31. Instructions Prepare in journal form, with explanations, the adjusting entries that explain the changes in the balances from the trial balance to the adjusted trial balance.

When the original entry for prepaid insurance is debited to Insurance Expense, the adjusting entry would debit Insurance Expense and credit Prepaid Insurance.

One part of an adjusting entry is given below. 1. Unearned Revenue is debited. 2. Prepaid Rent is credited. 3. Accounts Receivable is debited. 4. Depreciation Expense is debited. 5. Utilities Expense is debited. 6. Interest Payable is credited. 7. Service Revenue is credited (give two possible debit accounts). 8. Interest Receivable is debited. Instructions Indicate the account title for the other part of the entry.

If an Expense account is debited when the payment for a prepaid expense is made, no adjusting entry is required.