Question 1

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):
A)Accrued expense.
B)Contra account.
C)Accrued revenue.
D)Intangible asset.
E)Adjunct account.

Accepted Answer

A contra account is a type of account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account. It is used to show a reduction in the value of an asset or an increase in the liability.

Question 2

Which of the following assets is not depreciated?
A)Store fixtures.
B)Computers.
C)Land.
D)Buildings.
E)Equipment.

Accepted Answer

Land is not depreciated because it has an indefinite useful life and its value is expected to appreciate over time.

Question 3

On May 1,Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 of the current year to April 30 of the following year.The Cash receipt was recorded as unearned fees and at year-end on December 31,$1,000 of the fees had been earned.Assuming adjustments are only made at year-end,the adjusting entry on December 31 would be:
A)A debit to Unearned Fees and a credit to Cash for $500.
B)A debit to Fees Earned and a credit to Unearned Fees for $500.
C)A debit to Unearned Fees and a credit to Fees Earned for $1,000.
D)A debit to Fees Earned and a credit to Cash for $1,000.
E)A debit to Fees Earned and a credit to Cash for $500.

Accepted Answer

At the time of receipt of $1,500, the entire amount was recorded as unearned fees. However, by December 31, $1,000 of the fees had been earned. Therefore, the adjusting entry on December 31 would be to debit Unearned Fees and credit Fees Earned for the amount earned during the year, which is $1,000. The remaining unearned fees balance of $500 will be carried forward to the next year.

Question 4

Which of the following does not require an adjusting entry at year-end?
A)Accrued interest on notes payable.
B)Supplies used during the period.
C)Cash invested by stockholders.
D)Accrued wages.
E)Expired portion of prepaid insurance.

Accepted Answer

Cash invested by stockholders does not require an adjusting entry at year-end as it is a financing activity and not an operating activity. The other options (A, B, D, E) all involve adjusting entries to properly reflect the expenses or revenues in the correct period.

Question 5

Accrued revenues:
A)At the end of one accounting period result in cash receipts in a future period.
B)At the end of one accounting period often result in cash payments in the next period.
C)Are also called unearned revenues.
D)Are listed on the balance sheet as liabilities.
E)Are recorded at the end of an accounting period because cash has already been received for revenues earned.

Accepted Answer

Accrued revenues are amounts earned but not yet received in cash or recorded at the end of the accounting period. They result in cash receipts in a future period, not in the period the revenue was earned.

Question 6

The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is:
A)Debit Unpaid Salaries and credit Salaries Payable.
B)Debit Salaries Payable and credit Salaries Expense.
C)Debit Salaries Expense and credit Cash.
D)Debit Salaries Expense and credit Salaries Payable.
E)Debit Cash and credit Salaries Expense.

Accepted Answer

The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is to debit Salaries Expense and credit Salaries Payable. This recognizes the expense in the period it was incurred (matching principle) and records the liability owed to employees for their work.

Question 7

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used,representing the expense of using the assets,is called:
A)Accumulated depreciation.
B)A contra account.
C)The expense recognition (matching)principle.
D)Depreciation expense.
E)An accrued account.

Accepted Answer

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used is known as depreciation expense. This is done in accordance with the matching principle, which requires that expenses be recognized in the same period as the related revenue. Accumulated depreciation is the cumulative total of depreciation expense recorded over the life of the asset, and is a contra account to the asset account. An accrued account is a liability account for expenses that have been incurred but not yet paid. Therefore, the best choice is D) Depreciation expense.

Question 8

On July 1,a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date.What will be the insurance expense on the annual income statement for the first year ended December 31?
A)$1,200.
B)$2,400.
C)$1,000.
D)$400.
E)$1,400.

Accepted Answer

The insurance coverage in the first year extends from July 1 to December 31, which is only half of the policy's one-year term. Therefore, the insurance expense for the first year will be half of the premium paid, which is $1,200 ($2,400/2).

Question 9

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees,the end-of-period adjusting entry to record the portion of those fees that has been earned is:
A)Debit Cash and credit Legal Fees Earned.
B)Debit Cash and credit Unearned Legal Fees.
C)Debit Unearned Legal Fees and credit Legal Fees Earned.
D)Debit Legal Fees Earned and credit Unearned Legal Fees.
E)Debit Unearned Legal Fees and credit Accounts Receivable.

Accepted Answer

The end-of-period adjusting entry to record the portion of those fees that has been earned is to debit the Unearned Legal Fees account (as this is a liability account which represents the unearned or yet-to-be-earned fees) and credit the Legal Fees Earned account (as this is an income or revenue account which represents the fees that have been earned or recognized during the accounting period). The other options do not correctly record the earned fees and may result in errors in the financial statements.

Question 10

Fragmental Co.leased a portion of its store to another company for eight months beginning on October 1,at a monthly rate of $800.Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue.Assuming adjusting entries are only made at year-end,the adjusting entry made by Fragmental Co.on December 31 would be:
A)A debit to Rent Revenue and a credit to Cash for $2,400.
B)A debit to Rent Revenue and a credit to Unearned Rent for $2,400.
C)A debit to Cash and a credit to Rent Revenue for $6,400.
D)A debit to Unearned Rent and a credit to Rent Revenue for $2,400.
E)A debit to Unearned Rent and a credit to Rent Revenue for $4,000.

Accepted Answer

The adjusting entry on December 31 would involve recognizing the revenue that has been earned for the portion of the lease agreement that has elapsed since October 1. Therefore, Fragmental Co. would debit Unearned Rent for $2,400 (8 months x $800/month x 3/12) and credit Rent Revenue for the same amount. The cash received on October 1 is not affected by this adjusting entry.

Question 11

On January 1,a company purchased a five-year insurance policy for $1,800 with coverage starting immediately.If the purchase was recorded in the Prepaid Insurance account,and the company records adjustments only at year-end,the adjusting entry at the end of the first year is:
A)Debit Prepaid Insurance,$1,800; credit Cash,$1,800.
B)Debit Prepaid Insurance,$1,440; credit Insurance Expense,$1,440.
C)Debit Prepaid Insurance,$360; credit Insurance Expense,$360.
D)Debit Insurance Expense,$360; credit Prepaid Insurance,$360.
E)Debit Insurance Expense,$360; credit Prepaid Insurance,$1,440.

Accepted Answer

The correct adjusting entry at the end of the first year is to recognize the insurance expense for that year. The total cost of the insurance policy is $1,800 for five years, so the annual expense is $1,800 / 5 = $360. The entry debits Insurance Expense and credits Prepaid Insurance to reflect the expense for one year of coverage.

Question 12

On May 1,a two-year insurance policy was purchased for $18,000 with coverage to begin immediately.What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?
A)$750.
B)$5,270.
C)$6,000.
D)$6,750.
E)$18,000.

Accepted Answer

The total cost of the insurance policy is $18,000 for two years. To find the annual expense, divide the total cost by 2 (years), which equals $9,000 per year. However, since the policy was purchased on May 1 and the first year ends on December 31, only 8 months of insurance expense should be accounted for in the first year. Therefore, the expense for the first year is 8/12 of the annual expense: $9,000 * (8/12) = $6,000.

Question 13

A company pays each of its two office employees each Friday at the rate of $100 per day for a five-day week that begins on Monday.If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday,the month-end adjusting entry to record the salaries earned but unpaid is:
A)Debit Unpaid Salaries $600 and credit Salaries Payable $600.
B)Debit Salaries Expense $400 and credit Salaries Payable $400.
C)Debit Salaries Expense $600 and credit Salaries Payable $600.
D)Debit Salaries Payable $400 and credit Salaries Expense $400.
E)Debit Salaries Expense $400 and credit Cash $400.

Accepted Answer

The correct entry to record the salaries earned but unpaid for two days (Monday and Tuesday) for two employees at $100 per day each is to debit Salaries Expense for $400 (2 employees * 2 days * $100/day) and credit Salaries Payable for $400. This reflects the expense incurred and the liability owed by the company for those two days.

Question 14

On July 1 of the current calendar year,Olive Co.paid $7,500 cash for management services to be performed over a two-year period beginning July 1.Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.The adjusting entry on December 31 of the current year for Olive would include:
A)A debit to an expense and a credit to a prepaid expense for $5,625.
B)A debit to a prepaid expense and a credit to Cash for $5,625.
C)A debit to an expense and a credit to a prepaid expense for $1,875.
D)A debit to a prepaid expense and a credit to an expense for $1,875.
E)A credit to a liability and a debit to a prepaid expense for $1,875.

Accepted Answer

The total payment of $7,500 covers a two-year period, which equals 24 months. The cost per month is $7,500 / 24 = $312.50. From July 1 to December 31 is 6 months, so the expense for the current year is 6 * $312.50 = $1,875. Therefore, the adjusting entry should recognize this amount as an expense, debiting an expense account and crediting a prepaid expense account for $1,875.

Question 15

Prior to recording adjusting entries,the Office Supplies account had a $359 debit balance.A physical count of the supplies showed $105 of unused supplies available.The required adjusting entry is:
A)Debit Office Supplies $105 and credit Office Supplies Expense $105.
B)Debit Office Supplies Expense $105 and credit Office Supplies $105.
C)Debit Office Supplies Expense $254 and credit Office Supplies $254.
D)Debit Office Supplies $254 and credit Office Supplies Expense $254.
E)Debit Office Supplies $105 and credit Supplies Expense $254.

Accepted Answer

The correct adjusting entry is to debit Office Supplies Expense for $254 and credit Office Supplies for $254. This adjusts the Office Supplies account to reflect the $105 of supplies still available, recognizing the $254 ($359 - $105) of supplies used as an expense.

Question 16

Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:
A)Intangible expenses.
B)Prepaid expenses.
C)Unearned expenses.
D)Net expenses.
E)Accrued expenses.

Accepted Answer

Incurred but unpaid expenses that are recorded during the adjusting process are known as accrued expenses. These expenses are recognized through a debit to an expense account and a credit to a liability account. Accrued expenses are different from prepaid expenses or unearned expenses, as prepaid expenses involve payments made in advance for future benefits, while unearned expenses involve amounts received in advance for services yet to be performed.

Question 17

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:
A)Is referred to as depreciation expense.
B)Is referred to as accumulated depreciation.
C)Is shown on the income statement of the final period.
D)Is only recorded when the asset is disposed of.
E)Is referred to as an accrued asset.

Accepted Answer

The total amount of depreciation recorded against an asset over the entire time the asset has been owned is referred to as accumulated depreciation. This is a contra-asset account that offsets the original cost of the asset on the balance sheet. It is not shown on the income statement and is recorded throughout the life of the asset, not just when it is disposed of. Accrued assets are assets that have been earned but not yet received.

Question 18

On April 1,a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date.What amount of the insurance expense will be reported on the annual income statement for the first year ended December 31?
A)$1,350.00.
B)$450.00.
C)$1,012.50.
D)$337.50.
E)$37.50.

Accepted Answer

The answer of On April 1,a company paid the $1,350...

Question 19

A company had no office supplies available at the beginning of the year.During the year,the company purchased $250 worth of office supplies.On December 31,$75 worth of office supplies remained.How much should the company report as office supplies expense for the year?
A)$75.
B)$125.
C)$175.
D)$250.
E)$325.

Accepted Answer

The office supplies expense for the year is the difference between the beginning inventory balance ($0) and the ending inventory balance ($75), plus the cost of purchases made during the year ($250). Therefore, the office supplies expense = ($75 - $0) + $250 = $175.

Question 20

Unearned revenue is reported in the financial statements as:
A)A revenue on the balance sheet.
B)A liability on the balance sheet.
C)An unearned revenue on the income statement.
D)An asset on the balance sheet.
E)A financing activity on the statement of cash flows.

Accepted Answer

Unearned revenue represents payments received from customers for goods or services that have not yet been delivered or performed. Therefore, it is considered a liability on the balance sheet until the goods or services are provided and revenue can be recognized.

Quiz 3: Adjusting Accounts for Financial Statements

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n) :

Which of the following assets is not depreciated?

Which of the following does not require an adjusting entry at year-end?

Accrued revenues:

The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is:

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used,representing the expense of using the assets,is called:

On July 1,a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date.What will be the insurance expense on the annual income statement for the first year ended December 31?

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees,the end-of-period adjusting entry to record the portion of those fees that has been earned is:

On January 1,a company purchased a five-year insurance policy for $1,800 with coverage starting immediately.If the purchase was recorded in the Prepaid Insurance account,and the company records adjustments only at year-end,the adjusting entry at the end of the first year is:

On May 1,a two-year insurance policy was purchased for $18,000 with coverage to begin immediately.What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?

Prior to recording adjusting entries,the Office Supplies account had a $359 debit balance.A physical count of the supplies showed $105 of unused supplies available.The required adjusting entry is:

Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

On April 1,a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date.What amount of the insurance expense will be reported on the annual income statement for the first year ended December 31?

A company had no office supplies available at the beginning of the year.During the year,the company purchased $250 worth of office supplies.On December 31,$75 worth of office supplies remained.How much should the company report as office supplies expense for the year?

Unearned revenue is reported in the financial statements as: