Deck 5: Adjusting Entries and the Work Sheet

Question 1

The original cost of an asset less the trade-in or salvage value of an asset equals the depreciable cost of that asset.

Answer 1

True

Question 2

The matching of assets and expenses of a business on a periodic basis is referred to as the matching concept.

Answer 2

False

Question 3

A fiscal year is always the same as the calendar year.

Answer 3

False

Question 4

A contra-asset is deducted from the related asset on the balance sheet.

Question 5

A 12-month fiscal year can end on any month of the calendar year.

Question 6

The matching principle offers the best measure of net income.

Question 7

The balance sheet reports earnings on a specific date.

Question 8

Under the modified cash basis of accounting,cash payments for assets with lives longer than one accounting period (buildings,equipment,insurance,etc.)are recorded as assets and adjustments are made each period.

Question 9

The book value of a plant asset is determined by subtracting the accumulated depreciation from the cost of the plant asset.

Question 10

A contra-asset appears on the income statement.

Question 11

Adjusting entries may affect the cash account.

Question 12

A manual work sheet is usually prepared in pencil.

Question 13

Depreciable cost is the amount of depreciation expense recorded for each accounting period.

Question 14

The cost of plant assets less the accumulated depreciation is called the salvage value of the asset.

Question 15

When an account balance is not affected by an adjusting entry,the amount shown in the Trial Balance columns is extended directly to the Adjusted Trial Balance columns.

Question 16

Under the modified cash basis of accounting,adjustments are made only for prepaid items and depreciation on plant and equipment.

Question 17

"Adjusting" is written in the Item column of the general ledger when posting adjusting entries.

Question 18

Accounting for revenue on a cash basis means that no entry of revenue is made in the account until the cash is received for the services performed.

Question 19

If the total credits exceed total debits in the Income Statement columns of the work sheet,the business has had net income.

Question 20

A contra-asset has a credit balance.

Question 21

The modified cash basis of accounting combines aspects of the cash method of accounting and the accrual method of accounting.

Question 22

The balance sheet reports assets,liabilities,and owner's equity for a specific period of time.

Question 23

A contra-account is used with a related account to bring about an increase in the net amount of the two account balances.

Question 24

The historical cost principle allows for assets to be recorded at actual cost.

Question 25

If the total of the Income Statement Credit column,before determining net income or net loss,exceeds the total of the Income Statement Debit column,the result is a net loss for the year.

Question 26

Plant assets provide benefits over a long period of time.

Question 27

The 10-column work sheet is used to facilitate the preparation of the income statement,the statement of owner's equity,and the balance sheet.

Question 28

It is not necessary to post adjusting entries.

Question 29

The net income or loss for the year can be found on the work sheet as the balance item at the bottom of either the Balance Sheet columns or the Income Statement columns.

Question 30

The owner's capital account in the last two columns of the work sheet is not up-to-date because it does not yet include net income and withdrawals of the current period.

Question 31

Depreciation matches the cost of an asset against the revenues it will produce.

Question 32

The Income Statement columns of a work sheet include all revenue and expense accounts.

Question 33

Depreciation expense is recorded for a specific period of time.

Question 34

The amount of depreciation taken each period will be the same using the straight-line method.

Question 35

If the debits in the Income Statement columns of the work sheet total $50,000 and the credits total $60,000 before net income or net loss has been determined,the business has a net income of $10,000.

Question 36

The formula to calculate straight-line depreciation is depreciable cost times the expected life of the asset.

Question 37

The only correct way to change the balance of a ledger account is to make a journal entry.

Question 38

The original cost of an asset added to its salvage value represents the depreciable cost of an asset.

Question 39

Recording adjustments on the work sheet has no effect on the ledger accounts.

Question 40

Adjusting entries does not always affect both the income statement and the balance sheet.

Question 41

While certain distinctive problems may arise in keeping the accounts of any specific enterprise,the principles of accounting on the cash basis are generally the same.

Question 42

The second pair of columns on a 10-column work sheet prepared at the end of the period would be the

A) Income Statement columns.
B) Trial Balance columns.
C) Adjustments columns.
D) Adjusted Trial Balance columns.

Question 43

When posting an adjusting entry to the general ledger,write

A) "adjusting" in the Posting Reference column.
B) "adjusting" in the Item column.
C) "ledger" in the general ledger.
D) "balance" in the work sheet.

Question 44

Net income is shown on the work sheet as a(n)

A) debit in the Balance Sheet columns.
B) credit in the Balance Sheet columns.
C) debit and a credit in the Balance Sheet columns.
D) adjustment to owner's equity.

Question 45

If a business records revenue when it is received and records the purchase of a building as an asset and makes adjustments to allocate the cost of the building over many accounting periods,the business accounting system is a(n)

A) accrual basis of accounting.
B) adjustment basis of accounting.
C) cash basis of accounting.
D) modified cash basis of accounting.

Question 46

An account used with a related account to bring about a decrease in the net amount of the two account balances is called a(n)

A) contra-account.
B) expense account.
C) adjusting account.
D) revenue account.

Question 47

If the book value of an asset is $12,500 and the accumulated depreciation is $3,500,the original cost of the asset is

A) $16,000.
B) $9,500.
C) $9,000.
D) $7,500.

Question 48

The cash basis of accounting and the accrual basis of accounting result in the same measures of net income.

Question 49

Matching the cost of an asset with the revenue it is expected to produce is called

A) adjusting.
B) expensing.
C) depreciation.
D) contra-valuing.

Question 50

Under the cash basis of accounting,a certain expense may be incurred in one period but not entered until the following period.

Question 51

The third pair of columns on a 10-column work sheet prepared at the end of the period would be the

A) Income Statement columns.
B) Adjustments columns.
C) Balance Sheet columns.
D) Adjusted Trial Balance columns.

Question 52

The balance sheet reports

A) liabilities.
B) revenue.
C) expenses.
D) net income.

Question 53

The business or professional person using the cash basis of accounting takes the view that there is no revenue until it is received in such a form that it can be spent.

Question 54

The fourth pair of columns on a 10-column work sheet prepared at the end of the period would be the

A) Income Statement columns.
B) Adjustments columns.
C) Balance Sheet columns.
D) Adjusted Trial Balance columns.

Question 55

The time an asset is expected to last is called its

A) depreciation.
B) fiscal period.
C) net loss value.
D) useful life.

Question 56

To record wages earned but not paid under the modified cash accounting method,

A) debit Wages Payable and credit Wages Expense.
B) debit Cash and credit Wages Expense.
C) debit Wages Expense and credit Wages Payable.
D) no entry is required.

Question 57

The cost of an asset that is subject to depreciation is called

A) salvage value.
B) depreciable cost.
C) revenue.
D) trade-in value.

Question 58

Accounting for expenses on the cash basis generally means that expenses are entered in the accounts even though they may have been charged and not paid for in cash.

Question 59

A computer workstation cost $35,000,has an expected life of 7 years,and an expected salvage value of $7,000.Depreciation expense using the straight-line method will be $5,000 per year.

Question 60

The cash basis of accounting is used by some small businesses and by most individuals for tax purposes.

Question 61

Supplies originally cost $600,but only $150 worth of supplies were used this period.The adjusting entry would be

A) debit Supplies Expense,$150; credit Supplies,$150.
B) debit Supplies Expense,$450; credit Supplies,$450.
C) debit Supplies,$150; credit Supplies Expense,$150.
D) debit Supplies,$450; credit Supplies Expense,$450.

Question 62

The Income Statement and Balance Sheet columns of a work sheet are produced below.Indicate with an "X" the specific Income Statement or Balance Sheet column(s)in which each amount transferred from the Adjusted Trial Balance columns should be placed,if at all.

Question 63

An asset cost $33,000.It has an expected useful life of 5 years and an expected salvage value of $3,000.Depreciation expense for the first year of the asset's life using the straight-line method is

A) $6,000.
B) $6,600.
C) $10,000.
D) $13,200.

Question 64

The matching principle in accounting requires the matching of

A) revenue earned with the expenses incurred to produce the revenue.
B) revenue earned with the assets used to produce the revenue.
C) revenue earned with the liabilities incurred to produce the revenue.
D) revenue earned with the assets used less the liabilities incurred.

Question 65

The fifth pair of columns on a 10-column work sheet prepared at the end of the period would be the

A) Income Statement columns.
B) Adjustments columns.
C) Balance Sheet columns.
D) Adjusted Trial Balance columns.

Question 66

The trial balance and information for year-end adjustments for Vilardi Company are as follows:
$\begin{array}{c}\text {Vilardi Company}\\\text {Trial Balance}\\\text {December 31, 20--}\\\\\begin{array}{lr} \underline{\text { Account Title }}& \underline{\text { Debit }}& \underline{ \text { Credit }}\\\text { Cash } & 15,700 \\\text { Accounts Receivable } & 9,400 \\\text { Supplies } & 6,000 \\\text { Prepaid Insurance } & 1,500 \\\text { Equipment } & 50,000\\\text { Accumulated Depreciation-Equipment } && 10,000 \\\text { Accounts Payable } && 5,400 \\\text { Wages Payable } & \\\text { Vilardi, Capital } & &29,460\\\text { Vilardi, Drawing } & 1,500 & \\\text { Service Fees } & & 63,000 \\\text { Wages Expense } & 15,100 & \\\text { Rent Expense } & 7,800 &\\\text { Supplies Expense}\\\text { Utilities Expense}&860\\\text { Insurance Expense}\\\text { Depreciation Expense-Equipment }&\underline{\quad\quad}&\underline{\quad\quad}\\&107,860&107,860\end{array}\end{array}$
a.
Supplies on hand at year-end amounted to $420.
b.
The equipment costing $50,000 has an expected life of five years and no salvage value.Vilardi uses straight-line depreciation.
c.
A premium of $1,500 for a one-year insurance policy was paid on November 1.
d.
Wages earned by employees but not paid by year-end amounted to $900.
Prepare the necessary year-end adjustments on a 10-column work sheet (identify each adjustment by letter),and complete the work sheet.

Question 67

Net income is shown on the work sheet as a

A) debit in the Balance Sheet column.
B) credit in the Income Statement column.
C) debit in the Income Statement column.
D) debit in the Adjustments column.

Question 68

Journalize the necessary year-end adjusting entries based on the following account balances before adjustments.
$\begin{array}{c}\text {Trial Balance (partial)}\\\text {December 31, 20--}\\\\\begin{array}{lr}\text { Cash } & 12,340 \\\text { Supplies } & 2,100 \\\text { Prepaid Insurance } & 1,800 \\\text { Equipment } & 34,000\\\text { Accumulated Depreciation-Equipment } & & 8,000 \\\text { Accounts Payable } & & 6,430 \\\text { Wages Expense } & 17,333& \\\text { Insur ance Expense } & 3,333 &\end{array}\end{array}$

a.
The inventory of supplies on hand at December 31,20--,was $230.
b.
The 4-month insurance premium of $1,800 was purchased on December 1,20--.
c.
The $34,000 of equipment was purchased on January 1,two years ago.It has a salvage value of $2,000.Straight-line depreciation was used to compute depreciation at the end of last year.
d.
Wages accrued at December 31,20--,were $3,700.

Question 69

What does the credit balance in the Accumulated Depreciation account represent?

A) the cost of additional equipment purchased this year
B) the amount of depreciation taken in past years
C) the cost of existing equipment sold during the year
D) the amount of depreciation taken in the current year

Question 70

When assets are recorded at original value,they are recorded under the

A) historical cost principle.
B) original principle.
C) current principle.
D) value principle.

Question 71

Jan Olsen is a lawyer specializing in estate law.A trial balance was taken on December 31,20--.Complete the year-end adjusting entries and extend the appropriate balances to the Adjusted Trial Balance columns of the work sheet.Journalize the four adjusting entries exactly as shown in the Adjustments column of the work sheet.Entries should be in proper journal form and dated December 31.
a.
Office supplies on hand at year-end amounted to $650.
b.
Expired insurance amounted to $900.
c.
Depreciation on the computer equipment,$1,150.
d.
Wages earned but not paid as of December 31,$1,230.
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Question 72

The depreciation system used by many businesses for tax purposes is the

A) Accelerated Cost Recovery System.
B) Modified Adjusted Cost Recovery System.
C) Modified Actual Cost Recovery System.
D) Modified Accelerated Cost Recovery System.

Question 73

If a business records revenues when earned,regardless of whether cash has been received,and records expenses when they are incurred,the accounting system is a(n)

A) accrual basis of accounting.
B) cash basis of accounting.
C) modified cash basis of accounting.
D) revenue basis of accounting.

Question 74

The adjusting entry for the depreciation of office equipment for the period includes

A) debiting Depreciation Expense-Office Equipment and crediting Office Equipment.
B) debiting Office Equipment and crediting Accumulated Depreciation-Office Equipment.
C) debiting Depreciation Expense-Office Equipment and crediting Accumulated Depreciation-Office Equipment.
D) debiting Office Equipment and crediting Depreciation Expense-Office Equipment.

Question 75

Compute the following:
a.
Lobo Company purchased equipment for $40,000 with a useful life of five years and no expected salvage value.Prepare the adjusting entry for the first year using the straight-line depreciation method and compute the book value at the end of the second year of the equipment's life.
b.
Zip Company pays its employees every Friday.On January 4,20--,the Company paid $2,200 for the 5 days beginning the previous December 31.Prepare the adjusting entry on December 31.

Question 76

To record the purchase of assets on account under the modified cash basis of accounting method,

A) debit the asset and credit Accounts Payable.
B) debit the asset and credit Cash.
C) debit Accounts Receivable and credit Accounts Payable.
D) debit Accounts Payable and credit the asset.

Question 77

The trial balance and information for year-end adjustments for Litton Company are as follows:
$\begin{array}{c}\text {Litton Company}\\\text {Trial Balance}\\\text {December 31, 20--}\\\\\begin{array}{lr} \underline{\text { Account Title }}& \underline{\text { Debit }}& \underline{ \text { Credit }}\\\text { Cash } & 19,780 \\\text { Accounts Receivable } & 5,500 \\\text { Supplies } & 1,500 \\\text { Prepaid Insurance } & 2,400 \\\text { Equipment } & 30,200\\\text {Accumulated Depreciation-Equipment}&&5,000\\\text {Accounts Payable}&&5,520\\\text {Wages Payable}\\\text {Litton, Capital}&&44,000\\\text {Litton, Drawing}&4,000\\\text { Service Fees }&&20,000\\ \text { Wages Expense } & 10,000 \\\text { Rent Expense } & 900 \\\text { Supplies Expense } & \\\text { Utilities Expense } & 240\\\text { Insurance Expense}\\\text { Depreciation Expense-Equipment}&\underline{\quad\quad}&\underline{\quad\quad}\\&74,520&74,520\end{array}\end{array}$
a.
Ending inventory of supplies is $800 at December 31,20--.
b.
Unexpired insurance as of year-end is $600.
c.
Depreciation of equipment is $5,000.
d.
Wages earned but not paid as of year-end are $1,700.
Prepare the necessary year-end adjustments on a 10-column work sheet (identify each adjustment by letter),and complete the work sheet.

Question 78

Owner's equity at the start of the period is $35,000; net income for the period is $30,000; the total investments by the owner is $15,000; and total withdrawals by the owner is $5,000.The owner's equity at the end of the period is

A) $80,000.
B) $75,000.
C) $85,000.
D) $40,000.

Question 79

The first pair of columns on a 10-column work sheet would be the

A) Income Statement columns.
B) Balance Sheet columns.
C) Adjusted Trial Balance columns.
D) Trial Balance columns.

Question 80

In completing the work sheet,what is the reason for adding the net income for the year to the Balance Sheet Credit column?

A) Owner's equity is not up-to-date.
B) Cash is not up-to-date.
C) Owner's withdrawal is not up-to-date.
D) Sales is not up-to-date.