Exam 3: Adjusting the Accounts

If a company pays rent in advance and debits a Rent Expense account, an adjusting entry is prepared at the end of the year if

On January 2, 2013, Gridstone Quarry purchased a general liability insurance policy for $3,600 for coverage for the calendar year. The entire $3,600 was charged to Insurance Expense on January 2, 2013. If the firm prepares monthly financial statements, the proper adjusting entry on January 31, 2013, will be

Jane Richards, CGA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will she make upon receipt of the payments?

Which of the following items is NOT classified as an adjusting entry? a) prepaid expenses B) accrued expenses C) unearned revenues D) owner's capital

The Larson Company prepared the following income statement using the cash basis of accounting: THE LARSON COMPANY Additional data: 1. Service revenue includes $40,000 collected from a customer for whom services were provided in 2012, and who was billed in 2012. 2. There are an additional $15,000 of expenses that were incurred on account, for which payment will not be made until 2014. 3. Depreciation on a company automobile for the year amounted to $7,000. This amount is not included in the expenses above. 4. On December 1, 2013, paid $1,600 for two months' rent (December and January). This amount is included in the expenses above. Instructions a. Prepare Larson's income statement on the accrual basis in conformity with generally accepted accounting principles. Show calculations and explain each change. b. Explain which basis (cash or accrual) provides a better measure of profit.

Accounts often need to be adjusted because

If an Interest Expense account is debited in an adjusting entry, then the account credited will be Interest Revenue.

Mount Allison University borrowed $20,000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements and uses months rather than days to calculate interest, the adjusting entry that the company should make for interest on September 30, would be

At December 31, 2014, before any year-end adjustments, Fawcett Foundry Company's Insurance Expense account had a balance of $725 and its Prepaid Insurance account had a balance of $2,900. It was determined that $1,500 of the Prepaid Insurance had not expired. The adjusted balance for Insurance Expense for the year would be

Accumulated depreciation is shown in the liability section of the Balance Sheet because its normal balance is a credit.

Accumulated depreciation is shown as a deduction from the asset on the company's Balance Sheet.

The annual depreciation expense is equal to the cost of the asset divided by the useful life of the asset (in years).

When using accrual basis accounting, financial statement preparers must a) provide a supplementary note detailing that accrual accounting has been used. B) state within a note that cash basis accounting is not acceptable under GAAP. C) provide no supplementary note because the underlying assumption is that accrual basis of accounting is used on all financial statements. D) none of the above.

Which of the following would NOT appear on a company's adjusted trial balance?

Three factors determine the amount of interest that has accumulated. Which factor listed below is NOT applicable in determining interest accumulation?

Expense recognition is tied to revenue recognition when

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be

Allen Coat Company purchased a delivery truck on June 1 for $18,000, paying $8,000 cash and signing a 5%, two-month note for the remaining balance, interest to be paid at maturity. The truck is expected to have a six-year useful life. Allen Coat Company prepares monthly financial statements. Instructions a. Prepare the general journal entry to record the acquisition of the delivery truck on June 1. b. Prepare any adjusting journal entries that should be made on June 30. c. Show how the delivery truck will be reflected on Allen Coat Company's balance sheet on June 30.

If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit

Revenue recognition is restricted to situations when the service has been performed and the revenue can be reliably measured and a collection is reasonably certain.