Exam 4: The Accounting Cycle: Accruals and Deferrals

The accountant for the Grassroots Company failed to make an adjusting entry to record revenue earned but not yet billed to customers. The effect of this error is:

Before making month-end adjustments, net income of Cardinal Company was $116,000 for March. Adjusting entries are necessary for the following items: -Depreciation for the month of March: $2,300. -Interest income accrued to March 31, on deposits in banks: $800. -Supplies used in March: $100. -Fees earned in March that had been collected in advance: $2,600. After recording these adjustments, net income for March is:

Recently, Bon Appetite Café contracted and paid for a relatively expensive advertisement in Haute Cuisine magazine. Despite the fact that the ad will appear in Haute Cuisine three months after the end of Bon Appetite Café's current fiscal year, the Cafe's accountant recorded the disbursement to advertising expense. If no adjusting entry is made, how will this year's financial statements of Bon Appetite Café be affected?

Which of the following is considered an adjusting entry?

Dolphin Co. received $1,500 in fees during 2009, 1/3 of which was earned in 2010, the rest was earned when received. The company should report which of the following amounts as income in 2009?

Before any month-end adjustments are made, the net income of Lawrence Company is $550,000. However, the following adjustments are necessary: office supplies used, $35,000; services performed for clients but not yet recorded or collected, $12,300; interest accrued on note payable to bank, $14,100. After adjusting entries are made for the items listed above, Lawrence Company's net income would be:

Adjusting entries are prepared:

Omission of the adjusting entry needed to accrue an expense at the end of the period would cause liabilities to be understated.

The accrual of interest on a note payable will:

Accumulated depreciation is:

The entry to record rent expense will include:

Which of the following is considered a contra-asset account?

Companies that engage in fraud will often capitalize an asset rather than an expense account.

Purpose of adjusting entries The president of Crown Construction was informed that the first quarter financial statements would be available "as soon as the adjusting entries are made." Being a non-accountant, the president feels adjustments should not be necessary if the accounting department is operating in a competent manner. Does the need for adjusting entries at the end of the quarter imply that transactions are not being recorded properly? Explain.

The CPA firm auditing Mason Street Recording Studios found that total stockholders' equity was understated and liabilities were overstated. Which of the following errors could have been the cause?

Effects of errors on financial statements Indicate the immediate effect of the following errors on each of the accounting elements described in the column headings below, using the following code: O = Overstated; U = Understated; NE = No Effect.

Unearned revenue is a liability and should be reported on the income statement.

Adjusting entries help achieve the goals of accrual accounting by applying the following two accounting principles:

In which of the following situations would an adjusting entry be made at the end of January to record an accrued expense?

During the last month of its fiscal year, Echo Lake Resort accepted numerous deposits from customers. By the end of the month many, but not all, of these guests had completed their stays. The entry to record this event is an example of an adjusting entry: