Question 1

On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this 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 Fees Earned and a credit to Cash for $1,000.
B) A debit to Unearned Fees and a credit to Cash 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 $500.
E) A debit to Fees Earned and a credit to Unearned Fees for $500.

Accepted Answer

Since on December 31, only $1,000 of the fees had been earned, $500 is still unearned. Therefore, the adjusting entry would be a debit to Unearned Fees and a credit to Fees Earned for $1,000. This reduces the liability account of unearned fees, and increases the revenue recognized in the current period.

Question 2

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

Accepted Answer

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

Question 3

The adjusting entry to record the salaries earned due to employees for services provided but unpaid at the end of the accounting period affects the accounts in which of the following ways?
A) Debit Salaries Expense and credit Salaries Payable.
B) Debit Salaries Payable and credit Salaries Expense.
C) Debit Cash and credit Salaries Expense.
D) Debit Accrued Salaries and credit Salaries Payable.
E) Debit Salaries Expense and credit Cash.

Accepted Answer

The adjusting entry to record the salaries earned by employees but unpaid at the end of the accounting period is typically made by debiting Salaries Expense (an income statement account) and crediting Salaries Payable (a liability account). This entry allows the company to recognize the expense in the current accounting period, even though payment of the salaries will not be made until a later date. Option A correctly shows this entry. Options B, C, D, and E are not the correct accounts to be debited and credited with this adjusting entry.

Question 4

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 Cash $400.
C) Debit Salaries Payable $400 and credit Salaries Expense $400.
D) Debit Salaries Expense $600 and credit Salaries Payable $600.
E) Debit Salaries Expense $400 and credit Salaries Payable $400.

Accepted Answer

The employees worked for two days (Monday and Tuesday) at $100 per day each, totaling $400. The adjusting entry should record the salaries expense incurred but not yet paid, hence debit Salaries Expense $400 and credit Salaries Payable $400.

Question 5

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) $2,400.
B) $1,200.
C) $400.
D) $1,400.
E) $1,000.

Accepted Answer

The insurance expense for the first year ended December 31 will be $1,200 because the policy covers 12 months, and by December 31, only 6 months have passed. Therefore, the expense is $2,400 * (6/12) = $1,200.

Question 6

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) An accrued account.
C) A contra account.
D) Depreciation expense.
E) The expense recognition (matching) principle.

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 expense represents the cost of using the assets and is recorded in the income statement. Choices A, B, C, and E are not correct as they do not describe the specific expense being referred to in the question.

Question 7

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 $254 and credit Office Supplies Expense $254.
B) Debit Office Supplies $105 and credit Supplies Expense $254.
C) Debit Office Supplies $105 and credit Office Supplies Expense $105.
D) Debit Office Supplies Expense $254 and credit Office Supplies $254.
E) Debit Office Supplies Expense $105 and credit Office Supplies $105.

Accepted Answer

The adjusting entry should reduce the Office Supplies account by the amount used, which is $359 - $105 = $254. Therefore, debit Office Supplies Expense $254 and credit Office Supplies $254.

Question 8

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) $175.
B) $ \$ 75 $.
C) $ \$ 325 $
D) $ \$ 125 $.
E) $ \$ 250 $

Accepted Answer

The office supplies expense is calculated as the amount of supplies used during the year. The company started with $0, purchased $250, and had $75 remaining at year-end. Therefore, the expense is $250 - $75 = $175.

Question 9

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) Net expenses.
B) Accrued expenses.
C) Prepaid expenses.
D) Intangible expenses.
E) Unearned expenses.

Accepted Answer

Incurred but unpaid expenses refer to expenses that have been accrued but not yet paid. During the adjusting process, they are recorded with a debit to an expense account and a credit to a liability account. This is known as an accrued expense, which represents an obligation to pay in the future. Therefore, the best choice is option B, accrued expenses. Options A, C, D, and E do not accurately describe this type of expense.

Question 10

A company pays its employees $4,000 each Friday, which amounts to $800 per day for the five-day workweek that begins on Monday. If the monthly accounting period ends on Thursday and the employees worked through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is:
A) $800.
B) $4,000.
C) $2,400.
D) $3,200.
E) $1,600.

Accepted Answer

The employees earn $800 per day. By the end of Thursday, they have worked 4 days (Monday to Thursday), so the salaries earned but unpaid are 4 days x $800/day = $3,200.

Question 11

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 Legal Fees Earned and credit Unearned Legal Fees.
B) Debit Unearned Legal Fees and credit Accounts Receivable.
C) Debit Cash and credit Legal Fees Earned.
D) Debit Cash and credit Unearned Legal Fees.
E) Debit Unearned Legal Fees and credit Legal Fees Earned.

Accepted Answer

The end-of-period adjusting entry to record the portion of the legal fees that has been earned is to debit the Unearned Legal Fees account and credit the Legal Fees Earned account. This is because the fees were previously recorded as unearned revenue and are now being recognized as earned revenue. Therefore, option E is the correct choice.

Question 12

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

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 is because the company has incurred an expense for the work provided by the employees but has not yet paid their salaries, so the amount owed must be recorded as a liability. The journal entry will increase the Salaries Expense account and increase the Salaries Payable account, reflecting the amount owed to employees for their work.

Question 13

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

Accepted Answer

Accumulated depreciation is the total amount of depreciation that has been recorded against an asset over its entire useful life. It is shown on the balance sheet as a contra-asset account and is deducted from the total cost of the asset to arrive at its carrying value. Depreciation expense, on the other hand, is the amount of depreciation that is recorded in each accounting period to allocate the cost of the asset over its useful life. Depreciation expense is shown on the income statement. Accrued asset and showing on the income statement of the final period are not relevant terms in this context. Depreciation is recorded regardless of whether or not the asset is disposed of.

Question 14

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 Unearned Rent and a credit to Rent Revenue for $4,000.
D) A debit to Unearned Rent and a credit to Rent Revenue for $2,400.
E) A debit to Cash and a credit to Rent Revenue for $6,400.

Accepted Answer

Since the company collected the entire amount of $6,400 at the beginning of the lease, it recorded it as unearned rent. However, the company must recognize the earned revenue for the portion of the lease that has already expired at the end of each accounting period.

As of December 31, two months of the eight-month lease have already expired (October and November). Therefore, the adjusting entry required is to debit the unearned rent account for the amount of rent that has been earned so far (which is $800 x 2 = $1,600), and credit the rent revenue account for the same amount.

Thus, the adjusting entry on December 31 would be a debit to Unearned Rent and a credit to Rent Revenue for $2,400 ($800 x 3 months). The correct answer is D.

Question 15

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, $360; credit Insurance Expense, $360.
B) Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
C) Debit Insurance Expense, $360; credit Prepaid Insurance, $360.
D) Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.
E) Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.

Accepted Answer

The insurance expense for one year is $360 ($1,800/5 years). The adjusting entry should debit Insurance Expense and credit Prepaid Insurance for $360 to recognize the expense for the year.

Question 16

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) Intangible asset.
B) Contra account.
C) Accrued revenue.
D) Accrued expense.
E) Adjunct account.

Accepted Answer

A contra account is linked with another account but has an opposite normal balance and it is subtracted from the balance of the related account to reflect a net balance. Examples of contra accounts can be an allowance for doubtful accounts, accumulated depreciation, or discounts. Intangible assets, accrued revenue, accrued expenses, and adjunct accounts are different concepts that do not include the characteristic of being contra accounts.

Question 17

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

Accepted Answer

Land is not depreciated because it is considered to have an indefinite useful life and is not expected to lose value over time.

Question 18

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

Accepted Answer

Cash invested by the owner is not an expense or a revenue account and therefore does not require an adjusting entry.

Question 19

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 year ended December 31?
A) $1,350.00.
B) $337.50.
C) $37.50.
D) $1,012.50.
E) $450.00.

Accepted Answer

The insurance expense for the year ended December 31 is $337.50, which is 9/36 of the $1,350 premium.

Question 20

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) $5,270.
B) $6,750.
C) $750.
D) $6,000.
E) $18,000.

Accepted Answer

The policy covers two years and was purchased on May 1, so it will be in effect for 20 months (May 1 to December 31 of the next year).

To find the amount of insurance expense for the first year, we need to divide the total cost by the number of months in the policy and then multiply by the number of months that fall within the first year.

($18,000 / 20 months) x 8 months = $7,200

However, the question asks for the amount that would appear on the income statement, which will only show the insurance expense for the current year. Since the policy was purchased on May 1, the first year of coverage will only include the months of May through December.

($18,000 / 20 months) x 8 months x 8/12 = $6,000

Therefore, the amount of insurance expense that would appear on the company's income statement for the first year ended December 31 is $6,000.

Quiz 3: Adjusting Accounts and Preparing Financial Statements

Unearned revenue is reported in the financial statements as:

The adjusting entry to record the salaries earned due to employees for services provided but unpaid at the end of the accounting period affects the accounts in which of the following ways?

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?

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:

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 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?

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

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:

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

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

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:

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?

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 year ended December 31?

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?