Question 1

Southwestern City College sold season tickets for the 2014 football season for $300,000. A total of 8 games will be played during September, October and November. In September, three games were played. The adjusting journal entry at September 30
A) is not required. No adjusting entries will be made until the end of the season in November.
B) will include a debit to Cash and a credit to Ticket Revenue for $75,000.
C) will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $112,500.
D) will include a debit to Ticket Revenue and a credit to Unearned Ticket Revenue for $100,000.

Accepted Answer

The adjusting journal entry at September 30 will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $112,500, which is 3/8 of the total season ticket revenue. This is because the games in September account for 3/8 of the total number of games in the season, and therefore 3/8 of the season ticket revenue should be recognized as revenue at the end of September.

Question 2

Niagara Corporation purchased a one-year insurance policy in January 2013 for $36,000. The insurance policy is in effect from March 2013 through February 2014. If the company neglects to make the proper year-end adjustment for the expired insurance
A) Net income and assets will be understated by $30,000.
B) Net income and assets will be overstated by $30,000.
C) Net income and assets will be understated by $6,000.
D) Net income and assets will be overstated by $6,000.

Accepted Answer

The insurance expense for the year 2013 should be $30,000 (10 months from March to December). If no adjustment is made, expenses are understated, leading to overstated net income and assets by $30,000.

Question 3

Daly Investments purchased an 18-month insurance policy on May 31, 2014 for $6,300. The December 31, 2014 statement of financial position would report Prepaid Insurance of
A) $0 because Prepaid Insurance is reported on the Income Statement.
B) $2,450.
C) $3,850.
D) $6,300.

Accepted Answer

The insurance policy covers 18 months, costing $6,300. By December 31, 2014, 7 months have passed, so the expense for these months is (7/18) * $6,300 = $2,450. The remaining prepaid insurance is $6,300 - $2,450 = $3,850.

Question 4

Southwestern City College sold season tickets for the 2014 football season for $300,000. A total of 8 games will be played during September, October and November. In September, two games were played. In October, three games were played. The balance in Unearned Ticket Revenue at October 31 is
A) $0.
B) $75,000.
C) $112,500.
D) $187,500.

Accepted Answer

Unearned Ticket Revenue = $300,000Games played in September = 2Games played in October = 3Total games played = 5Unearned Ticket Revenue at October 31 = $300,000 x (5/8) = $187,500

Question 5

At March 1, Progressive Auto Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $750 and consumed supplies of $600. If no adjusting entry is made for supplies
A) equity will be overstated by $600.
B) expenses will be understated by $750.
C) assets will be understated by $350.
D) net income will be understated by $600.

Accepted Answer

If no adjusting entry is made, the consumed supplies of $600 will not be recorded as an expense, causing equity to be overstated by $600.

Question 6

Cara, Inc. purchased a building on January 1, 2014 for ₤ 800,000. The useful life of the building is 10 years. What impact will the appropriate adjusting entry at December 31, 2014 have on its statement of financial position at December 31, 2014?
A) Increased Equity ₤ 80,000.
B) Increased Liabilities ₤ 80,000.
C) Decreased Assets ₤ 80,000.
D) Since the adjusting entry has offsetting debits and credits, there is no impact on the statement of financial position.

Accepted Answer

The appropriate adjusting entry for depreciation expense would be a debit to Depreciation Expense and a credit to Accumulated Depreciation. This entry would decrease the value of the building, a long-term asset, by the amount of depreciation expense for the year (₤ 80,000), resulting in a decrease in assets on the statement of financial position.

Question 7

At March 1, 2014, Jupiter Corp. had supplies on hand of $500. During the month, Jupiter purchased supplies of $1,200 and used supplies of $1,000. The March 31 adjusting journal entry should include a
A) debit to the supplies account for $1,000.
B) credit to the supplies account for $500.
C) debit to the supplies account for $1,200.
D) credit to the supplies account for $1,000.

Accepted Answer

The adjusting entry should credit the supplies account for the amount used, which is $1,000, to reflect the decrease in supplies on hand.

Question 8

Y-B-2 Inc. pays its rent of $60,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true?
A) Failure to make the adjustment does not affect the February financial statements.
B) Expenses will be overstated by $5,000 and net income and equity will be understated by $5,000.
C) Assets will be overstated by $10,000 and net income and equity will be understated by $10,000.
D) Assets will be overstated by $5,000 and net income and equity will be overstated by $5,000.

Accepted Answer

The omitted adjusting entry would result in prepaid rent (an asset) being overstated by $5,000, and since expenses are understated, net income and equity would also be overstated by $5,000.

Question 9

Turner Company collected $13,000 in September of 2013 for 5 months of service which would take place from October of 2013 through February of 2014. The revenue reported from this transaction during 2013 would be
A) $0.
B) $7,800.
C) $13,000.
D) $5,200.

Accepted Answer

The revenue reported during 2013 would only be for the month of October through December, which is a total of 3 months. Therefore, the revenue recognized in 2013 would be (3/5) x $13,000 = $7,800.

Question 10

Hardwood Supplies Inc. purchased a 12-month insurance policy on March 1, 2014 for ₤ 1,500. At March 31, 2014, the adjusting journal entry to record expiration of this asset will include a
A) debit to Prepaid Insurance and a credit to Cash for ₤ 1,500.
B) debit to Prepaid Insurance and a credit to Insurance Expense for ₤ 150.
C) debit to Insurance Expense and a credit to Prepaid Insurance for ₤ 125
D) debit to Insurance Expense and a credit to Cash for ₤ 125.

Accepted Answer

The adjusting journal entry to record the expiration of the insurance policy will involve reducing the balance of the prepaid insurance account and recognizing the portion of the insurance expense that has been used up during the month. Since the policy was for 12 months, 1/12th of the policy cost will be expensed for the first month. Therefore, the entry will include a debit to Insurance Expense for 1/12th of ₤1,500 (which is ₤125) and a credit to Prepaid Insurance for the same amount.

Question 11

Cara, Inc. purchased supplies costing ₤3,500 on January 1, 2014 and recorded the transaction by increasing assets. At the end of the year ₤1,300 of the supplies are still on hand. How will the adjusting entry impact Cara, Inc.'s statement of financial position at December 31, 2014?
A) Decreased Assets ₤ 1,300.
B) Increased Equity ₤ 1,300.
C) Increased Liabilities ₤ 2,200.
D) Decreased Assets ₤ 2,200.

Accepted Answer

The adjusting entry will decrease the balance of the supplies asset account by ₤1,300 to reflect the amount still on hand at the end of the year. This will result in a decreased total assets amount on the statement of financial position. Therefore, the correct answer is D as it shows a decreased asset amount.

Question 12

Henry-K Company purchased a computer system for $3,600 on January 1, 2014. The company expects to use the computer system for 3 years. It has no residual value. Monthly depreciation expense on the asset is
A) $0.
B) $100.
C) $1,200.
D) $3,600.

Accepted Answer

The total cost of $3,600 is spread over 3 years (36 months), resulting in a monthly depreciation expense of $100 ($3,600 / 36 months).

Question 13

On January 1, 2013, Masters and Masters Company purchased equipment for € 45,000. The company is depreciating the equipment at the rate of € 1,050 per month. The book value of the equipment at December 31, 2013 is
A) € 0.
B) €12,600.
C) € 32,400.
D) € 45,000.

Accepted Answer

To find the book value at the end of December 31, 2013, we need to subtract the accumulated depreciation from the original cost.

Accumulated depreciation = (depreciation per month) x (number of months)

Number of months from January 1 to December 31 is 12.

Accumulated depreciation = €1,050 x 12 = €12,600

Book value = Cost - Accumulated depreciation

Book value = €45,000 - €12,600 = €32,400

Therefore, the answer is C.

Question 14

On January 1, 2013, P.T. Scope Company purchased a computer system for $4,860. The company expects to use the system for 3 years. The asset has no residual value. The book value of the system at December 31, 2014 is
A) $0.
B) $1,620.
C) $3,240.
D) $4,860.

Accepted Answer

The computer system is depreciated over 3 years. By December 31, 2014, two years of depreciation have occurred. The annual depreciation is $4,860 / 3 = $1,620. After two years, the accumulated depreciation is $1,620 * 2 = $3,240. Therefore, the book value is $4,860 - $3,240 = $1,620.

Question 15

Southwestern City College sold season tickets for the 2014 football season for $300,000. A total of 8 games will be played during September, October and November. Assuming all the games are played, the Unearned Ticket Revenue balance that will be reported on the December 31 statement of financial position will be
A) $0.
B) $112,500.
C) $187,500.
D) $300,000.

Accepted Answer

By December 31, all 8 games would have been played, so all the revenue would be earned, leaving an unearned ticket revenue balance of $0.

Question 16

James Corporation purchased a one-year insurance policy in January 2013 for € 36,000. The insurance policy is in effect from May 2013 through April 2014. If the company neglects to make the proper year-end adjustment for the expired insurance
A) Net income and assets will be understated by € 24,000.
B) Net income and assets will be overstated by € 24,000.
C) Net income and assets will be understated by € 12,000.
D) Net income and assets will be overstated by € 12,000.

Accepted Answer

The insurance expense for the year 2013 (May to December) is € 24,000. If not adjusted, expenses are understated, leading to overstated net income and assets by € 24,000.

Question 17

On July 1, Runner's Sports Store paid $12,000 to Acme Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Runner's Sports Store is
A) Debit Rent Expense, $12,000; Credit Prepaid Rent, $3,000.
B) Debit Prepaid Rent, $3,000; Credit Rent Expense, $3,000.
C) Debit Rent Expense, $3,000; Credit Prepaid Rent, $3,000.
D) Debit Rent Expense, $12,000; Credit Prepaid Rent, $12,000.

Accepted Answer

The adjusting entry to be made by Runner's Sports Store is to recognize the portion of the prepaid rent that has been used up during the month of July. Since the prepaid rent was for four months, one-fourth of the prepaid rent ($12,000/4 = $3,000) has been used up during July. Therefore, the entry should be a debit to Rent Expense for $3,000 and a credit to Prepaid Rent for $3,000. Choice letter C is the correct answer.

Question 18

On January 1, 2013, Grills and Grates Inc. purchased equipment for $60,000. The company is depreciating the equipment at the rate of $800 per month. At January 31, 2014, the balance in Accumulated Depreciation is
A) $800.
B) $9,600.
C) $10,400.
D) $49,600.

Accepted Answer

Depreciation for 2013 = $800 x 12 months = $9,600
Depreciation for January 2014 = $800
Total accumulated depreciation as of January 31, 2014 = $9,600 + $8,800 = $10,400. Therefore, the correct answer is choice C.

Question 19

Cara, Inc. purchased supplies costing ₤3,500 on January 1, 2014 and recorded the transaction by increasing assets. At the end of the year ₤1,300 of the supplies are still on hand. If Cara, Inc. does not make the appropriate adjusting entry, what is the impact on its statement of financial position at December 31, 2014?
A) Assets overstated by ₤ 2,200.
B) Equity understated by ₤ 2,200.
C) Equity overstated by ₤ 1,300.
D) Assets overstated by ₤ 1,300.

Accepted Answer

The supplies used during the year amount to ₤2,200 (₤3,500 - ₤1,300). If no adjusting entry is made, assets will be overstated by the cost of supplies used, which is ₤2,200.

Question 20

O.K.C. Company collected $14,000 in September of 2013 for 4 months of service which would take place from October of 2013 through January of 2014. The revenue reported from this transaction during 2013 would be
A) 0.
B) $10,500.
C) $14,000.
D) $3,350.

Accepted Answer

The revenue recognized during 2013 will only include the amount of service that was provided in 2013, which is one month (October). Therefore, the revenue recognized in 2013 will be 1/4 of the total amount collected, which is $14,000/4 = $3,500. However, since the revenue was collected in advance, it will be recorded as unearned revenue initially. As each month's service is provided, $3,500/4 = $875 will be recognized as revenue and $875 will be subtracted from unearned revenue. Therefore, the revenue reported during 2013 will be $875 x 3 = $2,625. However, since the question asks for the revenue "reported" (not recognized) during 2013, the answer will be $875 x 3 = $2,625.

Quiz 3: Adjusting the Accounts

Southwestern City College sold season tickets for the 2014 football season for $300,000. A total of 8 games will be played during September, October and November. In September, three games were played. The adjusting journal entry at September 30

Niagara Corporation purchased a one-year insurance policy in January 2013 for $36,000. The insurance policy is in effect from March 2013 through February 2014. If the company neglects to make the proper year-end adjustment for the expired insurance

Daly Investments purchased an 18-month insurance policy on May 31, 2014 for $6,300. The December 31, 2014 statement of financial position would report Prepaid Insurance of

Southwestern City College sold season tickets for the 2014 football season for $300,000. A total of 8 games will be played during September, October and November. In September, two games were played. In October, three games were played. The balance in Unearned Ticket Revenue at October 31 is

At March 1, Progressive Auto Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $750 and consumed supplies of $600. If no adjusting entry is made for supplies

Cara, Inc. purchased a building on January 1, 2014 for ₤ 800,000. The useful life of the building is 10 years. What impact will the appropriate adjusting entry at December 31, 2014 have on its statement of financial position at December 31, 2014?

At March 1, 2014, Jupiter Corp. had supplies on hand of $500. During the month, Jupiter purchased supplies of $1,200 and used supplies of $1,000. The March 31 adjusting journal entry should include a

Y-B-2 Inc. pays its rent of $60,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true?

Turner Company collected $13,000 in September of 2013 for 5 months of service which would take place from October of 2013 through February of 2014. The revenue reported from this transaction during 2013 would be

Hardwood Supplies Inc. purchased a 12-month insurance policy on March 1, 2014 for ₤ 1,500. At March 31, 2014, the adjusting journal entry to record expiration of this asset will include a

Cara, Inc. purchased supplies costing ₤3,500 on January 1, 2014 and recorded the transaction by increasing assets. At the end of the year ₤1,300 of the supplies are still on hand. How will the adjusting entry impact Cara, Inc.'s statement of financial position at December 31, 2014?

Henry-K Company purchased a computer system for $3,600 on January 1, 2014. The company expects to use the computer system for 3 years. It has no residual value. Monthly depreciation expense on the asset is

On January 1, 2013, Masters and Masters Company purchased equipment for € 45,000. The company is depreciating the equipment at the rate of € 1,050 per month. The book value of the equipment at December 31, 2013 is

On January 1, 2013, P.T. Scope Company purchased a computer system for $4,860. The company expects to use the system for 3 years. The asset has no residual value. The book value of the system at December 31, 2014 is

James Corporation purchased a one-year insurance policy in January 2013 for € 36,000. The insurance policy is in effect from May 2013 through April 2014. If the company neglects to make the proper year-end adjustment for the expired insurance

On July 1, Runner's Sports Store paid $12,000 to Acme Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Runner's Sports Store is

On January 1, 2013, Grills and Grates Inc. purchased equipment for $60,000. The company is depreciating the equipment at the rate of $800 per month. At January 31, 2014, the balance in Accumulated Depreciation is

O.K.C. Company collected $14,000 in September of 2013 for 4 months of service which would take place from October of 2013 through January of 2014. The revenue reported from this transaction during 2013 would be