Exam 3: Adjusting the Accounts

Under the accrual basis of accounting

An expense is recognized when there is an increase in assets or a decrease in liabilities from consuming a service or asset in the company's business activities with its customers.

Which of the statements below is NOT true?

Before month-end adjustments are made, the February 28 trial balance of Joe's Enterprise contains revenue of $9,000 and expenses of $4,400. Adjustments are necessary for the following items: Depreciation for February is $1,300. Revenue earned but not yet billed is $2,800. Accrued interest expense is $700. Revenue collected in advance that is now earned is $3,500. Portion of prepaid insurance expired during February is $400. Instructions Calculate the correct profit for Joe's Income Statement for February.

Shediac Bay Marina has a September 30 year end. On August 15, 2014, it purchased a new marine crane to assist it with the autumn pull out of the boats in the marina. The physical life of the crane is expected to be 15 years, but Shediac plans to keep the crane for only 10 years and then trade it in for a newer model. The original cost of the crane is $50,000. The amount of depreciation that Shediac should show in its financial statements for the year ended September 30, 2014 is

The following amounts are taken from the unadjusted trial balance of Candy Cane Lighting at its year end, November 30, and are their normal balance (Debit or Credit). Candy Cane records all prepaid expenses and revenue in their respective expense or revenue accounts when paid or received. Candy Cane records adjusting entries annually when preparing its year end financial statements. The following transactions are included in the above account balances: 1. On November 1, through a $1,200 cheque, Candy Cane's bookkeeper paid both November and December rent and posted the full amount to Rent Expense 2. On November 15 supplies were purchased on account for $225. On November 30 a count of actual supplies on hand shows the remaining supplies to be $60. 3. On August 31 a customer paid $4,600 in advance for a service contract. As of November 30 $2,300 of the work was 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 November 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 $4,600, calculate the adjusted Profit.

In the accrual basis of accounting, revenue is recognized when the cash for the transaction is received.

A liability-revenue relationship exists with

On December 31, 2013, Polski Company prepared an income statement and balance sheet and failed to take into account three adjusting entries. The incorrect income statement showed Profit of $40,000. The incorrect balance sheet showed total assets, $130,000; total liabilities, $60,000; and owner's equity, $70,000. The data for the three adjusting entries were: 1. Depreciation of $9,000 was not recorded on equipment. 2. Wages amounting to $10,000 for the last two days in December were not paid and not recorded. The next payroll will be in January. 3. Rent of $7,000 was paid for two months in advance on December 1. The entire amount was debited to Prepaid Rent when paid. Instructions Complete the following table to correct the financial statement amounts shown (indicate deductions with parentheses):

Depreciation Expense for a period can be calculated by taking the

Land is not a depreciable asset because

You receive $45,000 in year 1 for a job to be started and completed in year 2. However, you purchase materials and supplies to prepare for the upcoming job. Materials and supplies purchased in year 1 cost $33,000. In year 2 you determine that you would need to purchase an additional $29,000 in supplies. Instructions Determine the profit for year 1 and 2 under both accrual and cash accounting.

Amortization is a term which means the same as Depreciation. Which of the following standards discourages but does NOT restrict the use of the term "Amortization" on depreciable assets?

An adjusted trial balance is necessary to prepare financial statements.

In a service-type business, revenue is considered earned

On December 1, 2014, Pitless Corp, a privately owned corporation started operations. They signed a large contract to build a factory over a 2 year time period. Their client Mr. Falconi has paid them $150,000 in advance. Pitless will begin construction in 2 months time. In order to begin construction Pitless purchased the following items: 1. Crane for $160,000 on December 1, 2014. They expect this crane to be useful for 7 years. 2. Bulldozer for $36,000 to be used for 11 years. 3. On December 15, 2014, Pitless got an exceptional price on a plot of land. The land cost $275,000 and will be held for 10 years. At that point Pitless will expand operations and possibly change locations. 4. Pitless obtained two insurance policies. Policy A obtained December 1, 2014 in the amount of $12,500 for 24 months and Policy B obtained December 15, 2014 for $7,500 for 16 months. Pitless also paid $36,000 to rent a dump truck on December 1, 2014 to be used in construction for the next 2 years. Instructions a. Record all the transactions. b. Prepare the year end adjusting journal entries. c. Show how the Property, Plant, and Equipment will be reported on the balance sheet as of December 31, 2014.

Adjusting entries are

A company needs to divide the life of its business into accounting periods in order to provide useful and relevant information to the people who use its financial statements.

The Kookie Kutter Bakery purchased $6,500 worth of baking supplies on June 2 and recorded the purchase as an expense. On June 30, an inventory of the baking supplies indicated $3,000 of supplies is still on hand. The adjusting entry that should be made by the company on June 30 is

Johnny S is a barber who does his own accounting for his shop. When he buys supplies he routinely debits Supplies Expense. Johnny purchased $3,100 of supplies in January and his inventory at the end of January shows $600 of supplies remaining. What adjusting entry should Johnny make on January 31?